Will Angels Keep Investing?

3 months ago, I started to work on a new project called TechAviv.  Simply put, TechAviv will be the Ycombinator for Israeli entrepreneurs.  Ycombinator, for those that don’t know is an early stage investment company that gives idea-stage companies $20-30k for approximately 10% of a company.

As a longtime entrepreneur, I have two new career objectives.  First, I want to diversify.  I’ve typcially been long one privately held startup at a time for the past 12 years.  I never liked that risk profile and wanted a portfolio approach.  Second, I want to coach not quarterback.  I’ve been a startup CEO in three different companies over 10 years and I wanted to do something different.  Over the years, I had been recruited by a variety of Israeli startups and was interested in working with all of them.  For whatever reason it never worked out.  TechAviv was born from my new career objectives, an interest in Israel, a study of Ycombinator, and my new partnership with Yaron Samid.

TechAviv, Ycombinator, SeedCamp and a variety of others concept stage investment vehicles can only work if there is a professional, sophisticated, pool of angels to invest in the concepts that are developed in these academies.  While the models differ among the seed plays, they all require new investors to keep their companies going.  None of them have the capital to lead even Angel investments, never mind Series A stage capital.

As we raise money for TechAviv, prospective investors have been appropriately focused on the health of the angel market.  And Angels are responding in different ways.  Ron Conway (perhaps the dean of professional angels) sent a now infamous letter to his portfolio that boosted the anxiety medicine subscriptions in the valley. Jeff Clavier, another pro, twitters that he spent a whole day last week singing sig pages.

A couple of days ago, I had coffee with Roger Ehrenberg.  He’s an investor in Covestor, StockTwits, BuddyMedia and others and he posted a long positive  missive on Angel investing last week.  More importantly, Roger shared that he has been thinking about how to professionalize seed stage investing because it may produce the best returns of any asset class on a risk-adjusted basis.

Chris Sacca was interviewed in TechConfidential this week about his exits and his perspective on investing.  Chris said that casual angels may exit, but professionals would stay in the market because their risk/return curves were fundamentally different from institutional venture capitalists.

So a few of the heavyweights have weighed in, but what of the so-called casual angel?  TechAviv was created with the belief that there are lawyers, bankers, and doctors all over this country and that want to back Israeli startups because they believe in creating Israeli shareholder wealth and they would like to find profit- producing ways of doing so instead of the usual philanthropic vehicles.  Will the ophthalmologist in Dallas pull back from the market?  Is the Hedge Fund Manager that lives in Brooklyn Heights never going to invest in small private deals again.  Will the lawyer at Wilson Sonsini pull back entirely from being in the middle of the deal flow?  Of course not.

Valuations will improve and costs will decrease in the current market environment.  By the middle of the next administration Sarbanes/Oxley will be revised and the IPO window will reopen in time for Vintage 2009 companies to access capital from institutional investors that now see paths to liquidity.

There’s a reason the most successful angels will keep investing in 2009/10.  It’s because they will make more money on this vintage than they did in 06/07.  Yalla.

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