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Angel investing is kind of a fad right now. Everyone's doing it. My gut instinct is that it's at least a mini bubble. In 3-5 years a lot of angels are going to

by mrshoe 16y ago

Angel investing is kind of a fad right now. Everyone's doing it. My gut instinct is that it's at least a mini bubble. In 3-5 years a lot of angels are going to be unhappy about negative returns, the stock market is going to be looking stronger, and they'll shift their money back to stocks and bonds. Surely this huge influx of angel investors has contributed to the much higher valuations early stage startups have been exacting in recent months. When many of these new angel investors wind up losing money and angel investing is no longer the cool thing to do, those sky high valuations will probably return to normalcy. These are just my personal predictions, and I could be completely wrong. During his talk, pg said he'd wondered if we might be seeing a bubble and decided that we're not. Who knows? Either way, I think that we, as entrepreneurs, should take advantage of the current situation.

philwelch 16y ago
The question is who these angels are, really. More startups means hopefully more successful startups and hence more ex-founder angels. But there seems to be a weird trend of celebrities doing angel investing, and that will probably fade out of fashion.
rythie 16y ago
It depends how much of their wealth they are investing. It could be that many of them want be part of the startup scene without working on a startup of their own. Wasn't that the orignal idea of angels? So a return is a bonus.
mloc 16y ago
Everyone who made a few hundred thousand $ and their sisters, turned into angel investors in the valley in the recent years. The reason in my opinion is the prestige that derives from being a startup investor. I know at least 5-6 people who do this with one semi-successful startup as their experience. Naturally, this means more supply which results to higher valuations and more startups being funded. So, the bar gets lower and I expect that the returns are not going to be great for most.
- runT1ME 16y ago
  I think a question to ask though, is will these type of pastime angels continue to invest even if the returns aren't spectacular? Are they doing it for fun and some cash, or are they doing it because they think it's the best way to make money?
  - jonathanjaeger 16y ago
    I think it's a combination of both. Many angels are rich already, but they want to contribute to the ecosystem. They can dabble in many different startups, so it never gets boring and they don't have to sink all their time in with one idea. If they come out making a solid buck (either on par with the stock market or better), then that's all gravy. If they make less than they would have in the stock market, then it comes down to whether they did it for the fun ride. When/if there is a bubble burst, we'll see who gets separated out as the "real" angels. On a side note, here's a good follow-up by Chris Dixon on Graham's post http://post.ly/15hcU http://post.ly/15hcU.
  - mloc 16y ago
    I don't think this noise creates a big problem, I just think it's not going to last for long. Also, IMO "traditional" angel investors will continue investing because they probably enjoy doing it.
bkudria 16y ago
I asked PG to clarify his thoughts on why this isn't a bubble - he was referring to the SV landscape in general. His definition of a bubble, IIRC: when people overpay with the expectation that others will overpay even more. He doesn't think that's happening here. (PG, feel free to correct me if I misinterpreted your answer)
- rms 16y ago
  Yeah... in my opinion there is clearly more money floating around startup investment than is strictly rational but it's a long way from a systemic bubble.
pg 16y ago
At YC at least it's not mainly new angels who are driving up valuations. The investors in the last YC batch were pretty much the usual suspects. And this was especially true of the earliest investors in each startup. New angels usually aren't confident enough to move fast; they tend to straggle in at the end of the round.
netcan 16y ago
Are you sure stocks & bonds are a substitute for angel investing? It's an interesting question. Maybe it is to some extent, a hobby, a substitute for golf or travel.
iamelgringo 16y ago
Angel investing is kind of a fad right now. Everyone's doing it. My gut instinct is that it's at least a mini bubble I disagree. I believe it's a long term trend that isn't going to change any time soon. Around 3-4% of the population in the SF Bay area are millionaires. The majority of those have probably created their wealth in Tech, so I think it's completely reasonable that the number of angel investors in the area could increase to the thousands. Right now, the Angel List only has around 450 angels listed, but that number seems to be growing quickly. Not only that, but when Facebook, Yelp, Twitter, LinkedIN decide to start IPO'ing, there's going to be a huge motivation for investors to try and find the next Facebook/Yelp/Google/etc... I'm sure the funding pipeline will slow down in a couple of years, but I also think that we're seeing a fundamental change in how Silicon Valley works.

by mrshoe 16y ago

philwelch 16y ago

The question is who these angels are, really. More startups means hopefully more successful startups and hence more ex-founder angels. But there seems to be a weird trend of celebrities doing angel investing, and that will probably fade out of fashion.

rythie 16y ago

It depends how much of their wealth they are investing. It could be that many of them want be part of the startup scene without working on a startup of their own. Wasn't that the orignal idea of angels? So a return is a bonus.

mloc 16y ago

Everyone who made a few hundred thousand $ and their sisters, turned into angel investors in the valley in the recent years. The reason in my opinion is the prestige that derives from being a startup investor. I know at least 5-6 people who do this with one semi-successful startup as their experience. Naturally, this means more supply which results to higher valuations and more startups being funded. So, the bar gets lower and I expect that the returns are not going to be great for most.

runT1ME 16y ago
I think a question to ask though, is will these type of pastime angels continue to invest even if the returns aren't spectacular? Are they doing it for fun and some cash, or are they doing it because they think it's the best way to make money?
- jonathanjaeger 16y ago
  I think it's a combination of both. Many angels are rich already, but they want to contribute to the ecosystem. They can dabble in many different startups, so it never gets boring and they don't have to sink all their time in with one idea. If they come out making a solid buck (either on par with the stock market or better), then that's all gravy. If they make less than they would have in the stock market, then it comes down to whether they did it for the fun ride. When/if there is a bubble burst, we'll see who gets separated out as the "real" angels. On a side note, here's a good follow-up by Chris Dixon on Graham's post http://post.ly/15hcU http://post.ly/15hcU.
- mloc 16y ago
  I don't think this noise creates a big problem, I just think it's not going to last for long. Also, IMO "traditional" angel investors will continue investing because they probably enjoy doing it.

bkudria 16y ago

I asked PG to clarify his thoughts on why this isn't a bubble - he was referring to the SV landscape in general. His definition of a bubble, IIRC: when people overpay with the expectation that others will overpay even more. He doesn't think that's happening here. (PG, feel free to correct me if I misinterpreted your answer)

rms 16y ago
Yeah... in my opinion there is clearly more money floating around startup investment than is strictly rational but it's a long way from a systemic bubble.

pg 16y ago

At YC at least it's not mainly new angels who are driving up valuations. The investors in the last YC batch were pretty much the usual suspects. And this was especially true of the earliest investors in each startup. New angels usually aren't confident enough to move fast; they tend to straggle in at the end of the round.

netcan 16y ago

Are you sure stocks & bonds are a substitute for angel investing? It's an interesting question. Maybe it is to some extent, a hobby, a substitute for golf or travel.

iamelgringo 16y ago

Angel investing is kind of a fad right now. Everyone's doing it. My gut instinct is that it's at least a mini bubble I disagree. I believe it's a long term trend that isn't going to change any time soon. Around 3-4% of the population in the SF Bay area are millionaires. The majority of those have probably created their wealth in Tech, so I think it's completely reasonable that the number of angel investors in the area could increase to the thousands. Right now, the Angel List only has around 450 angels listed, but that number seems to be growing quickly. Not only that, but when Facebook, Yelp, Twitter, LinkedIN decide to start IPO'ing, there's going to be a huge motivation for investors to try and find the next Facebook/Yelp/Google/etc... I'm sure the funding pipeline will slow down in a couple of years, but I also think that we're seeing a fundamental change in how Silicon Valley works.