I posted this on my blog and to my batch mates but I wonder what HNers think:
I think this investment brings up an interesting point. Angels often portray themselves as being more entrepreneur-friendly with deal terms and often they are.
But VCs care about being the first institutional money and getting more than 20% (usually higher). Aside from that they care about getting people to that point. As a result a VC could care less about the terms of a seed convertible note so long as it converts (which everyone cares about). Many VCs will want the follow-on option but that is not always the case as with Pulse/Alphonso Labs.
Angels cannot really compete with those terms as they will not usually be setting terms at the next level and make a lot of their money off caps and discount rates.
This requires VC's to spend partner time managing many more portfolio companies which dramatically changes their business model. It also means that they have to get better at judging "younger companies" than they would normally invest in, otherwise why not offer a "real A round" and be done with it?
It doesn't mean that they cannot change their model but I would like to read about a few more deals like this before I would take this as a harbinger of a new VC model.
The Right Side Capital folks announced several months ago that they would pursue a model like this (see http://www.rightsidecapital.com/ ) but they have yet to announce their first investment.
Sequoia has made tens of deals as have other firms such as Accel, CRV and more. They don't publicize these deals because they don't think it is in the best interest of the companies or themselves but they happen as Dave McClure and Roloef Botha alluded to on stage at TC Disrupt.
I think this investment brings up an interesting point. Angels often portray themselves as being more entrepreneur-friendly with deal terms and often they are.
But VCs care about being the first institutional money and getting more than 20% (usually higher). Aside from that they care about getting people to that point. As a result a VC could care less about the terms of a seed convertible note so long as it converts (which everyone cares about). Many VCs will want the follow-on option but that is not always the case as with Pulse/Alphonso Labs.
Angels cannot really compete with those terms as they will not usually be setting terms at the next level and make a lot of their money off caps and discount rates.
Just something to think about.