VCs To Angels: Get the Value Right

Why so much hostility between venture capitalists and angels? A new survey indicates that it comes down to one word: money.

PE Week was given an exclusive first look at the survey, which was conducted by George Washington University’s Council on Entrepreneurial Tech Transfer and Commercialization.

In the survey, more than 300 venture capitalists and angels overwhelmingly agree that angels are beneficial to the venture capital industry. In fact, a higher percentage of VCs than angels (94% to 72%) said that angel investors are beneficial.

“We love good angels,” said one unidentified VC.

Obviously, the two groups play key roles in the venture industry. Angels rarely are able to support a company all the way to its exit, and so they rely on backing from venture firms to do so. On the other, hand, VCs seldom provide all the seed capital and time to startup entrepreneurs for those companies to get to a place where they are venture worthy. Venture investors in the survey cite their own migration towards later stage deals as a compelling reason to value angel investors.

“Without angels, there would be a bigger class division and only companies started by individuals with their own money … would likely be able to start companies that require any kind of startup capital,” said one unidentified respondent.

While the survey notes the “general foundation of goodwill and respect” between angels and VCs, 100% of VCs and 94% of angel investors agreed that the two sides could do a better job working together.

The chief problem that persists between the two groups is deal pricing. “Valuation has always been a major sticking point, but it stuck out like a sore thumb [in the survey],” says Tony Stanco, who chairs the George Washington University council that conducted the survey. “It’s really the deal breaker.”

In the survey, 78% of VCs cited “unrealistic company valuation” as a reason that a company with angel involvement would be unattractive. Half of the angels surveyed agreed with them. It was the most popular response from both groups.

Angel involvement in a company makes the company “unattractive” some of the time, according to 52% of the VCs surveyed. A small number of VCs (6%) said angel involvement makes companies “mostly” unattractive investments.

“In general, I think the VC industry looks at the angel industry with disdain,” one unidentified angel said in the survey.

James Geshwiler, a managing director with the CommonAngels group and chairman of the Angel Capital Association, admits that it hasn’t always been easy for VCs to deal with angels on the pricing issue. “Angels fought tooth and nail for their positions and made VCs’ life hard, but it’s not like VCs were not exactly nice about it,” he says.

He adds that the situation is changing as more angel investors organize in professional groups and become more sensitive to valuations.

Some blame the ill will between VCs and angels on bad experiences that VCs had with novice angels during the tech bubble. “The venture community got a large dose of angel involvement during the dot-com days,” says Carol Sands, founder and managing member of Angels Forum. “During the dot-com days there were a lot of very inexperienced angel investors who did a lot of incredibly stupid things and caused a huge amount of damage to potentially successful companies. I can clearly understand how the venture community got very sensitive to working with the angel community.”

For their part, VCs need to communicate better with their angel colleagues, and not just on pricing issues, Stanco says. “VCs need to communicate to angels and know what they need,” he says. “Send them signals from upstream. If it’s a conveyor belt from angels to VCs, VCs should pass on signals to the angels so all these things line up. It’s not just pricing. It’s what areas are important, what areas are profitable, what areas should people invest in.”

But both angels and VCs say that strides are being made to develop a closer working relationship. Most are confident this will be successful. “Two years ago I was seeing the don’t bother us’ attitude, but now I see a desire for better relations on both sides,” Geshwiler says.

The entire VC/angle survey is available at