Wednesday, November 7, 2007

DLA Piper Breakfast—State of Venture Capital & Angel Investing

Paul Hurdlow of DLA Piper held a breakfast forum this morning at the Four Seasons hotel. I sat on the panel with Rudy Garza of G51, Wes Cole of Gefinor Ventures, and Steve Fredrick of Grotech Capital based on the East Coast.

One of the topics of discussion is how do angels protect themselves from dilution that comes with subsequent rounds of investment. The short answer is to seek deals that don’t need so much capital and entrepreneurs that don’t have “IPO” as stars in their eyes. Back in the roaring ‘90s entrepreneurs would come with their “funding plan”. Seed stage money today, Series A in six months, Series B in another six months, etc. For angels that kind of thinking is a non-starter. I remember some of the companies in the ‘90s spent more time with the investors rather than their customers. I always thought there was something wrong with that picture.

Another topic was the general slow down in venture capital. John Hurley showed the latest stats from VentureOne which highlighted a slow down in funds invested. I highlighted the increase in angel investing and attributed a portion of this shift to the reduced cost of starting up businesses. What took $5M to start a business in 1997, now takes only $500K in 2007, in some cases. Of course, semiconductor and life science deals still need large amounts of capital to pay for basic research, software and consumer product companies are much cheaper to launch today due to outsourcing, offshoring, and better productivity tools (email, web, etc).

The Angel Capital Association released a survey run in the first half of this year. Over 50% of the angel groups saw Dealflow rise significantly. The average membership number grew 22% (from 42 to 51). Anecdotally, I’ve seen angel activity increase substantially from 2006 to 2007. I attended the ACA summit in 2006 in which there were150 attendees. The summit this year doubled to over 300 attendees. Across the board, Dealflow was up as well as membership.

The DLA Piper events are great fun. Paul paid me one of the greatest compliments. He said he reads my blog.

Best regards,
Hall T.

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