Collusion Confusion – Cabal of Angel Investors Strikes a Nerve

Uber-blogger Michael Arrington started a minor firestorm last night when wrote that a cabal of high powered “super angel” investors were meeting in secret to collude on prices and structures for upcoming deals. This was Arrington’s none too subtle way of letting his “friends” know that he didn’t appreciate being left out of the loop. Dozens of notable tech investors immediately took to their keyboards to draft a response, including NYC’s Fred Wilson.

Wilson, writing on his blog A VC, starts by drawing a line between angel investors and traditional VC firms, like his own Union Square Ventures. In the hypercompetitve world of venture capital, says Wilson, most firms are large enough that they don’t have to consider sharing deals. In the smaller, more informal world of angel investors, however, “That is less true. Deals are widely syndicated and it is common for everyone who is interested in a given deal to get into it. In that kind of market, collusion is entirely possible.”

The real question is whether back room banter between individual angel investors amounts to collusion. First Arrington writes that the assembled power players, “Together account for nearly 100% of early stage startup deals in Silicon Valley.” He then immediately contradicts himself by saying that the meeting was about the growing power of Y Combinator, a local venture firm specializing in early stage startups.

Fred Wilson summarizes this contradiction nicely. “The very fact that some of the most active and respected angels in Silicon Valley were meeting to discuss the changing dynamic of their business suggests to me that the opposite is happening. I suspect that the good old days when they could all get together and do a deal are gone.”

Early stage startups can now find seed capital from VC and angels in a number of cities around the country. Valuations on deals are rising. There’s no way to know what the unnamed sources in Arrington’s post were up to Monday night. But the diversity of funders available for tech startups these days makes it hard to see how this small group could hope to control the market.

Collusion Confusion – Cabal of Angel Investors Strikes a Nerve