Seed Capital From Angel Investors: Mike Maples, Founder And Managing Partner, Floodgate (Part 2)

By guest authors Irina Patterson and Candice Arnold

Irina: What are the key drivers of superangel investing?

Mike: There is a combination of things. I think that part of it is low cost, but there’s a subtlety to it as well, which is this notion of hyper-agile behaviors in a company.

So, if you’re able to leverage open source software and these variablized costs around Web services and search engine marketing, you’re able to experiment at a much greater rate. And, if you can experiment at a much greater rate, you can fail quickly on the ideas that don’t work and then double down on the winning ideas faster.

I’d like to say that a lean startup is not just a cheap startup. A lean startup is lean in every sense of the word. A lean startup is all muscle and no fat. I think that the implications of some of these new ways to go to market turn out to be both pretty broad and broadly important in terms of what it means to start a company and what agility and experimentation mean.

Irina: How do you think the superangel landscape is shaping up?

Mike: Right now, unfortunately, it’s probably a little bit too hot. Probably what will happen is too many superangel firms will get funded and too many venture firms will experiment with superangel funding as sort of a sideline strategy of their firms. So, in the next twelve to eighteen months, I think there will be a whole lot of noise.

In the long run, I think there will be two or three superangel firms that are long-term franchises and that build brands and reputations and followings. Our hope is that we can be one of those.

But fundamentally, I tend to believe in focus and specialization and I think that there will always be a role in the funding ecosystem for superangels who specialize in just that and that are viewed in the market as pure plays.

Irina: So, what is the sweet spot for VCs, and what is the sweet spot for angels and superangels?

Mike: We’ve done a lot of analysis on this. It turns out that if you take the top firms, what we’re finding out is that very often, they are making fewer larger investments.

What’s happening, in our view, is that the very best firms are in a position to wait for a company to reach a point of inflection. At that time, they can make a huge bet, even if it’s at a much higher valuation. So we’re actually seeing the gap increasing between angels and venture capitalists.

When I first started superangel investing, a typical VC series A was $5 million. Now with what we’re seeing, it’s going to be more like to $7 million and sometimes even $10 million. I anticipate this will continue, and there will continue to be a flight to quality for startups and the quality firms will invest in the quality startups in increasingly higher amounts.

I think that the gap will remain. People will run some short-term experiments in that gap – some by venture firms some by angels and superangels – but in the steady state, I think that gap will continue to be there.

This segment is part 2 in the series : Seed Capital From Angel Investors: Mike Maples, Founder And Managing Partner, Floodgate
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