Every year the Zino Society‘s Zillionaire Investment Forum is a must-go event for entrepreneurs looking for funding opportunities and investors looking for new projects. The one-day forum is a chance for startups and young companies to pitch five minute presentations, rub shoulders with potential investors, demo products, sit in on panels with local venture capitalists and angels, and—for two lucky ones—win $50,000 awards from Zino, the networking group for angel investors.
As I looked through the agenda in an attempt to pick the panel session with the most value for Xconomy’s readers yesterday, I was faced with the same question that many startups grapple with: Do I go with VCs or angels?
Talk of shifting tides—the waxing of angels’ activity and the waning of VCs’—has been floating around the tech world for a few years now. A year and a half ago our now Boston editor Greg Huang raised the issue with one of the Northwest’s own prolific early-stage investors (and former VC), Geoff Entress. Entress attributed the changing investment climate to the two factors: the economic downtown and lower startup costs. As more and more startups need less seed capital to get going, angel investing has become an increasingly appealing option for entrepreneurs—and for independent investors. Just last month Silicon Valley angel investor Ron Conway encouraged angels to get out their checkbooks and start investing. “Angel investing is the most interesting thing you will ever do,” he says.
While I have no doubt in my mind that there is—and likely always will be—a place for venture capital financing in the Seattle tech community and elsewhere, I decided to check out the angel panel. The participants, all angel investors, included Gregg Bennett, Charles Finkelstein, Brad Harlow (managing partner of B. Harlow & Associates), Byron McCann (managing partner of Ascent Partners Group), Dan Rosen (president & CEO of Dan Rosen & Associates), and Peter Ueberroth (chairman of Contrarian Group).
The six angels were asked to comment on the successes and failures of their own investments, and to explain what attracts them to startups, CEOs, and entrepreneurs, what turns them off, and what ultimately gets them to sign that dotted line. The hour-long session was jam-packed with advice including and beyond the age-old adage “bet on the jockey, not the horse.” Here are some of the highlights:
—Dan Rosen talked about Seattle-based online video startup Delve Networks (acquired by Tempe, AZ-based Limelight Networks (NASDAQ: [[ticker:LLNW]]) in August), which he lists in his loss column. “It started its life with a good bunch of angels around it,” Rosen said, but then “they switched businesses and went silent on us.” Six months later, Rosen said, the company began a series of unannounced transactions, including a $1.2 million carve-out for the management team, and eventually sold the company without shareholder approval. Rosen got nothing in the deal. “I can blame the CEO—he was a first time CEO and his actions were unethical,” Rosen said. “But the board on this was also to blame,” he added. “Be very careful to make sure your companies communicate with you, and that you hold the board responsible.” For the Delve CEO’s response to Rosen’s comments, see this TechFlash post.
—Byron McCann, in contrast, was relatively sanguine about his tale of loss with a startup that competed with Netflix during the dotcom bubble. When the bubble burst, McCann said, “the capital
