This is a guest post by Oliver Holle who founded his first web startup, SYSIS, in 1992, taking smart, interactive games to the exploding online market. Later, Oliver focused SYSIS’ on mobile content, which resulted in a 3-way merger that created a leading European mobile services player which was successfully acquired 2006 by VeriSign Inc. After working a few years in Silicon Valley, Oliver started his new company, The Merger in 2008 that works with Central European startups in the internet and mobile space.
Guys like Dave McClure or Mike Maples are the current rockstars in the US tech blogosphere. Coined as “Super Angels”, there is quite a lot of hype around this new form of seed investing and there is good reason for that. There are quite a few things that these guys are doing right:
- They are Internet entrepreneurs themselves and rightly call themselves “insiders” with a better deal flow and better acumen for the right idea than others.
- They don’t lose time. Investments are done in a matter of weeks with simple, entrepreneur-friendly term sheets and not much hassle.
- They protect their capital. They invest modest amounts and look for quick exits, even if the returns are “just” 5 x the capital they put in. With the higher hit rate and the shorter time to exit, they promise much better returns than a typical VC model.
- They look for lean startups that don’t need millions of dollars and years of execution before customers can get their hands on the product.
Still, from an entrepreneur’s perspective, you might ask yourself what the fuss is all about. I recently spoke to one of the more prominent super angels in the Valley and it was quite obvious that the material value they bring to startups is limited: 150k USD, a little bit of coaching and a few phone calls during the first three months. After that, the startup is on its own.
Is that what causes old style VCs to sleep less during the last months? Well, the material value is only a small part of the story.
It’s a game of signaling
By far the biggest value these guys bring to a young, unknown startup is signaling power. Super Angels are industry insiders with a perceived stellar track record in picking the winners in the startup game. Having one of them on board makes a lot of things easier.
The most obvious ones are money, talent and marketing.
First, the follow-on financing is a whole lot easier. Large VC firms are lining up to put their money behind these lucky selected few that can boast with the “Super Angel” label.
Maybe even more important is the celebrity effect that helps to get talent onboard. Silicon Valley has a big pool of experienced, talented professionals that understand the web economy and are happy to join a startup, especially when the founder already has this sort of star power involved.
Finally, the US market is huge, homogeneous and celebrity driven – a perfect environment for startups in the B2C space that use the celebrity status of their angel investors to get opinion leaders involved, build up hype and eventually mass following. The most recent example: About.me, a startup that got acquired just 5 days after its public launch.
Europe is different – our signals are lost in translation
So we all have seen the launch of Super Angel initiatives across Europe: ISAI in France, TAG in UK, HackFwrd in Germany to name just a few. Without having an opinion about any specific one, I firmly believe that people underestimate the fundamental differences in the European startup scene that can make or break such initiatives.
The most obvious and fundamental difference is that signals simply do not work that well in Europe.
With our fragmented markets, dozens of languages and multiple cultural reference points, it is quite a challenge to become a tech celebrity outside of your home market. More importantly, even if you are a well-known figure in our space, the leverage that comes with it is limited:
- The robust “old boys network” that builds a very strong risk financing platform for Super Angels in the Valley is reduced to personal relationships with a few venture firms, making follow-on investments more difficult to raise.
- The human resource side is simply not there: even if you are a celebrity startup, in many European cities it still does not imply that you get the talent and experience on board to really execute your idea quickly and smoothly. There simply are not enough internet entrepreneurs and experienced startup professionals around – especially if you cannot afford to pay competitive salaries.
- Also, marketing and PR remains local. Each country has its share of Internet stars and the press follows them closely. This is nice for a given market, but even good press coverage in Germany or the UK simply does not “move the needle” if you want to launch a B2C startup. In Silicon Valley you can create a lot of buzz easier and address a sizeable home market.
Finally and especially in this context, Europe is not Europe. Berlin, London and Paris may already start to exhibit signs of “Silicon Valley buzz” that is the trade of Super Angels. Fringe markets, like my hometown Vienna, may still have the deal flow and talent to make something happen, but they cannot rely on such mechanisms alone.
Super Angels that get their hands dirty
I doubt that 200,000 EUR and a little bit of coaching by a celebrity investor will make the difference for a startup in Munich, Barcelona, Prague or Vienna.
Entrepreneurs there face a lot more friction so they simply need more support. Most of all, they need support that money can’t buy (quickly).
European startups in the critical phase after initial launch need to break out of their respective home markets, need to establish relationships with international partners in their ecosystem or, increasingly, need to emigrate with their business to the UK or the US. To quickly and cheaply assemble a team that can execute these tasks well may be worth a lot more than just the cheque.
This is where I believe the Super Angels concept has to be reconfigured to fit in Europe. It needs the experience and credibility of experienced Internet entrepreneurs with all their signaling power, but they – or teams that work with them – need to get their hands dirty and get operationally involved. They need to help startups in the critical ramp-up phase to find their spot on the global tech radar.
After all, it means working harder for your money than the guys in Silicon Valley have to.
That may be unfair to European founders and seed investors, but one thing is certain: companies that do emerge from this environment are sure as hell competitive enough to go on and win bigger battles.