Boston calling Dave McClure or your clones

Recently there was an invitation only workshop at Boston University addressing the question, “Is Boston’s Venture Ecosystem Losing More Ground to Silicon Valley?dave mcclure photo

At some point we might be privy to some of the discussions and conclusions reached during that confab, but for now, I would like to add an issue to the discussion.

Where are the active angel investors like Master of 500 Hats in the HUB? Silicon Valley is rife with successful entrepreneurs that have now turned to investing and advising the next generation of startups. Individuals such as Ron Conway, Reid Hoffman and the PayPal mafia, Paul Bucheit and several other xGooglers and the list goes on.

Maybe it is just a perception and there is a lot of activity in this area, just not publicly acknowledged. It might be attributed to adherence to that old Yankee adage that “your name should appear in the paper only three times: when you are born, when you marry, and when you die.” as mentioned on the eCoastAngels web site. Or, the reason may be the dearth of successful Web and SaaS companies in the area. But it seems that even in relative terms, the Boston area lacks this kind of angel/advisor/entrepreneur. Is our attitude here to keep our success to ourselves rather than pollinate our neighbors? Lets see if there are more of these individuals than we know about.

So, I am hoping to bring visibility to the angel/advisory activity here in theHub. Following are a few examples of the individuals we need more of. The list is only a start and not exhaustive, please send me your examples of these individual and I will add them to this post.

Who do we have here in Boston filling this much needed space in the investment ecosystem? Well, certainly the premier contributor would have to be Paul Graham of YCombinator. They have the seminal investor/advisor model, which is proving successful. Too bad most of their companies have to move to SV to find investors. A case could be made that based on YC’s track record, if someone started an angel fund, say Dart Angels, by throwing 5 darts into a Demo Day dartboard, and investing in those five companies, they could be successful. That is a shame that the YC companies can find no traction here in Boston.

One example of local individual angel/advisor here in Boston is Andrew Payne After successful stints founding Open Market and Revinio, he is actively investing in and creating new consumer Internet projects.

Dharmesh Shah is a driving force on the local startup scene, both as a founder and angel investor.

Now the call is out. Hey there VistaPrint, Bladelogic, Tripadvisor, Akamai, Upromise, Lycos, Open Market, Storage Networks, EMC, MQube …..etc. whats up?

Readers have nominated the following individuals for the list of Advisor/Angels

Don Dodge local Microsoft Exec and Angel/Advisor of local startups


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8 Responses to “Boston calling Dave McClure or your clones”

  1. thanks for the link Tom.

    maybe the weather’s warmer out here in spring / fall / winter? 😉

    regardless, i’ve certainly been impressed with what Paul Graham is doing (on both coasts), and i’m sure there are other great examples of entrepreneurs giving back to the local community.

    one reason there may be more activity out west is that there’s been more & larger recent internet startup successes in silicon valley than in boston over the past ten years with giants like Google, PayPal, Yahoo, eBay, etc… which in turn help provide the capital to fuel the next generation of entrepreneur angel funding.

    still i think the overall market for angel investing is stronger everywhere than it was 5-10 years ago, not just in the valley… never been a better time to be an entrepreneur 🙂

    regards,

    – dave mcclure

  2. I could not agree with you more.

    I really like the idea of “Dart Angels”. But, have been thinking about a slightly different brand and slightly more refined strategy.

    Here’s the idea:

    SpeedRound: The fastest follow-on round possible for selected YCombinator companies. I’ll put in 2X of whatever YCombinator invested, at precisely the same terms (so a 100% markup in valuation as a result of building a proto-type). This doesn’t solve the funding problem permanently, but it would be quick and easy.

    We could actually sign the deal at Demo Day itself (I’d bring my checkbook).

    Thoughts?

  3. Thanks Dharmesh, what could be more refined than throwing darts? 🙂

    Your SpeedRound investment seems to be a great deal for the investor, but I don’t know about the young company.
    I’m not a financial person, but knowing what I know about the YC deals, your proposal would be to invest another $30K for 6-10% of the company. So at the end of the 3 month prototype period, after taking your investment, the company would have given up 12-20% of their company for $45K. I don’t think that would be attractive. The value of YC is not the money, that is almost nothing in the scheme of things. So 2x nothing is not that significant. The value is the direction from YC, the incredible network connections and the alumni support network. It is unlikely that an individual can provide half of this value so again, 2x the investment is not enough.
    Time is on the companies side not the investors. As you correctly point out with the name SpeedRound, the faster you can close the funding the better, because other investors will be close behind. I just think you will need to write a much bigger check.

  4. Fair enough.

    I totally agree that it is extremely hard (if not impossible) to create the value-add that YC does in the early stages. That’s why they’re so popular. If I were working on my first startup, they’d be high on my list.

    I could write a bigger check (and have in the past), but I’m still not going to be able to compete with what a VC would do. Nor do I want to. My thinking behind the SpeedRound idea was that the “value” would be in the raw efficiency of the deal because raising larger rounds is just a pain in the butt and some entrepreneurs may rather just get back to working on the product.

    But, I could be totally wrong. If entrepreneurs can go on to raise a larger round — or better yet, not even need/want the money, I’d be a strong supporter of that.

    The good news is that competition is beneficial to the entrepreneur. They need more options. There’s no real downside to choices.

  5. This is in IMHO *the* biggest impediment to a stronger startup culture. There is no ecosystem of consumer angels in Boston, at all.

    No single angel can do it by themselves. And there are precious few folks out there investing and they never talk. We do not need formal organizations such as angel groups, they only slow things down. What we need is loose associations of committed angel investors.

    The problem with a lot of the companies you mention that you think would generate successful investors is that they went on to become VCs, such as Upromise-Busgang-IDG, Mqube-Glass-Bain. That largely removes them from the angel market (although you are seeing that crack on the west coast, as VCs invest personal money in earlier stage startups).

  6. Yes, or they invest in themselves and start DigitalAdvisor, CarGurus.com etc… also, the size of the exits at Paypal and Google, might leave a little more extra cash to invest in early stage startups.

  7. I have essentially no experience with West Coast VCs so I can’t compare, but I do think there is a cultural bias here in eastern Massachusetts that I think impedes the local innovation economy and possibly stymies the ultimate success of venture investing locally: an anti-founder and anti-common shareholders bias.

    When we acknowledge the local VC community bias towards “professional managers” its true we are talking about seasoned repeat entrepreneurs as “professional managers” but we are also talking about the formula where VCs move aside startup founders and bring in hired “professional management” as soon as possible after achieving visibility into the basic concept or product.

    I’d argue this is unfortunate for three reasons

    1. it removes most or all ultimate rewards from founders, which leads young founders to look for funding elsewhere where they will not be moved aside and see their ownership diluted to nothing or put behind massive liquidation preferences that have the same effect

    2. the truly massive successful tech companies almost always maintain serious founder presence. maybe not as ceo. maybe. but usually as inspirational or conceptual leader. and maybe thats why they stay the course and become “billion dollar companies” – because founders/management don’t need to exit before that in order to preserve their “upside” (rather than again get diluted or because they were already diluted).

    just a few examples:

    google
    microsoft
    apple
    yahoo
    EA
    amazon
    oracle
    salesforce.com
    analog devices
    news corp
    doubleclick
    AOL
    netscape
    etc………..

    3. it massively discourages angel investment. unlike VCs, angel investors are not longterm financial backers of a startup. we can provide capital and counsel at very early stage but we don’t m,anage huge funds or pools of capital and we don’t do “follow on” investing or set aside additional money to invest later (as do VCs.) the result is that if the VCs who come in later have a cultural bias against founders and commons shareholders, then angels end up squashed down, diluted or fences off by liquidation preferences into no meaningful returns.

    ask around – there are plenty of angels locally who are “once burned twice shy”, having seen their angel investment dollars crammed down or term sheet-ed into oblivion and having little or no stomach for more

    (btw, we need to also qualify angels from “super angels” like ron conway or elon musk or peter thiel who essentially DO act like VCs, with massive pools of capital and capacity for follow-on investing etc.)

    my impression – indirectly, and from a distance – is that west coast VCs are a lot more liberal with tersma dn valuations and the like – that is, by definition they are a lot less biased against founders and common-share holders.

    btw, my credentials: I was cofounder and ceo of three new england startups, InterLab (aka Elkay; acquired by CIT Group in 1994 ) Gamesville (acquired by Lycos Network in 1999) and GameLogic (still privately held; Waltham, MA)and I am an active local angel investor and independent director (MyEZSale (now defunct); Pangea Media (private; Watertown, MA); Leader Bank N.A. (private; Arlington, MA), Conduit Labs (private Cambridge, MA); Acres-Fiore Gaming (private; Las Vegas, NV).

    I also have invested in several local VC funds over the years.

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