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Filling the Angel Gap in NYC (if there is one)

So here are some meandering thoughts about the current state of the NY Angel market that I don't have the time or the intellectual capacity to synthesize into a coherent thesis/essay:

  • People, including myself, say that there is an angel funding gap in NYC.  The reason why is that they cannot readily identify very many firms or individuals who are known to do angel investing.
  • At the same time, I don't know of any really fantastic startup companies in NYC who are struggling to get angel money raised.  In fact, quite the opposite.  I know of several companies who are raising or have raised significant angel capital just through their own network or introductions.  Many of the investors have been people who do not usually do angel investing or at least don't have a shingle out to do so.   So, angel gap or no?
  • If there was an angel gap, how best to fill it?  Early stage firms could go earlier.  A USV incubator perhaps, a la what Charles River is doing? 
  • How about banding groups of angels together in a fund or group?
  • What about other types of incubators?  Corporate?  CBS Interactive incubator? 
  • Well, we know from the last go around that anyone who doesn't have a larger fund who isn't 100% in the main business of venture investing over the long term are the first ones to get wiped off the face of the earth in a bubble...  does that make them inherently bad structures or just more risky?
  • There's a lot of money in NYC that isn't connected to the entrepreneur community...  hedge fund and banking money.  Would it be wise for someone to package up $5-10 million of that to do seed stage financing at 50-250k a pop?  Who should do such a thing?  Isn't a small investor like this going to get crushed in latter rounds because they don't have the money to maintain ownership positions?  That brings us back to the USV incubator idea... and also brings us back to the "Why would USV be interested in entrepreneurs who aren't savvy enough to raise 100k on their own?"
  • Is "professional" angel investing, i.e. someone setting up a smaller fund to invest in people not necessarily known beforehand, adverse selection?  If an entrepreneur has never been successful before and isn't connected to enough powerful industry people with a compelling enough product to get backing from community insiders, what are the chances they'll be able to build a successful company?  Same thing with incubators.  If you can't find a space to build your business, how are you ever going to actually build a business?

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Charlie, this is a really important post and I wish the topic was touched upon more often by other influential NYC tech bloggers. I have been thinking about this for quite some time and here are my concerns --- In the days of the bubble, two guys could take their idea to a VC and if they threw in some buzz words, they would have a good chance of getting it funded. Today, you need people who are at least somewhat intimate with the industry and that are willing to take risks, to filter good ideas before they reach the VC's table. An incubation idea is a fantastic one, but that has the potential to increase deal volume greatly which creates another problem. Will these baby portfolio startups that are getting 250-500K a piece receive as much attention from the partners and the VC analysts as those that have raised a full round of VC capital? An incubation system will have to be in touch with enough venture partners / angel partners that will also have a big personal incentive to monitor these companies and make sure they succeed. It just might be too much of a burden for a VC firm to handle alone, but its definitely a great place to start getting knowledgeable heads together. How about something that bands together an incubation system and an angel fund?

"If an entrepreneur has never been successful before and isn't connected to enough powerful industry people with a compelling enough product to get backing from community insiders, what are the chances they'll be able to build a successful company? Same thing with incubators. If you can't find a space to build your business, how are you ever going to actually build a business?"

Honestly, I would think it's easier for the "unconnected" to get VC funding as opposed to angel funding, because angel would be more of a "personal" investment in that sense. I can approach USV or Charles River, where I might not have someone who can connect me to a Mark Cuban, etc.

Furthermore, I don't think being connected or not connected is dispositive in any way of building a successful. Having such connections will certainly make things easier, but at some point it's going to come down to whether you're building a great product and how passionate you are about it.

Perhaps it depends on how you define "successful".

I found this during my daily browsing of Red Herring and thought it might be relevant:

http://redherring.com/Article.aspx?a=22408&hed=The+New+VC+Way%3f

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