Of course, founders should care about AngelGate. The premise of the whole drama was that there may be a collusion between individuals who are involved in early

Of course, founders should care about AngelGate. The premise of the whole drama was that there may be a collusion between individuals who are involved in early stage financing of startups. A startup founder is by definition in a weak position commercially when facing prospective investors. An engineer puts a significant chink on his life in his venture, he does not have a portfolio of alternatives. This fact is very well known to the party on the opposite side of the table, to the investor that is. For a rational investor, a startup investment is a high financial risk. It is not a well-researched public stock, it is an option. But it's OK, since it is a game he is in. He knows that most of his portfolio will be worthless, but a few (maybe one) stars in the portfolio will potentially make him wealthy(ier). So, when two parties are facing each other at the negotiating table, the investor looks at the founder as a sort of a 'disposable' asset. After the deal is struck and the venture goes under, the investor is financially damaged, but he is alive and will have another termsheet discussion sometimes this week. The founder is left picking up the pieces of his life. That's why the balance of power at the negotiating table is very important. The founder has a single recourse -- there should be competition between suppliers of money. Now, the AngelGate has shown us that such competition may be a myth. There may appear a cartel between technically-savvy suppliers of money. The market is small anyway, and when the bulk of the suppliers can fit at a restaurant table... The article is quite dangerous in its goal. So what, instead of addressing the issue -- how to prevent collusion of early-stage investors -- the hackers can go back to work and focus on putting more hours in their startups? Really? Let me suggest a few points that should come out of this scandal before all is forgotten and quiet. - reputation of the individuals involved in AngelGate should suffer. This will give a chance to potential new entrants on the scene (new investors). Game theory tells us that 'tit for tat' strategy is the most viable in the long term. The cost of future collusion will be higher, and the founders will benefit from that. - there should be a discussion about how to prevent cartels in the startup field. Maybe a self-regulating body should appear eventually in this market. - any experts in the field of private equity (lawyers etc.) should seize the opportunity to provide impartial advice to the founder community (via blogs etc.). Angels have lost credibility, the void should be filled. We speak about standard sample term-sheets, financing terms etc. - a credit should be given to Michael Arrington who has performed a function normally done by a regulator in the marketplace. Founders should probably supply him with more information from now on.