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Too many angels, too few early-stage VC’s?

As we suggested last week, it seems easier than ever to lock down angel funding in D.C.

Our angel population appears to be on an upswing. More and more, old money and new is finding its way into startups, for as many reasons as there are startups. It’s unclear exactly what combination of market opportunity, economic optimism, bullheadedness and ego is driving the most recent flow of angel dollars. Whatever the case, new check-writers are showing up daily.

But how much is too much? Doubtless, bad startups are going to get funded along with the good, and some funders are going to lose money. But that’s true of any segment of the startup investment totem pole. The recent spike has, however, prompted some skepticism among the institutional VC crowd. When I spoke with Bobby Ocampo last week on his move from Grotech Ventures to Revolution Ventures (both early-stage venture shops), Ocampo predicted the angel momentum won’t last and that the number of active angels “is going to go down.”

“It’s just way too overpopulated now,” he said. “Folks are going to realize that there are companies that look good on paper and have a high valuation, [but] very few of them are going to be able to sustain that going forward. A lot of them are companies that don’t generate any revenue.”

That sentiment seems to echo John Backus’ recent treatise – although Ocampo didn’t go as far as using the B-word. In any event, there’s no way Grotech, Revolution, Fortify Ventures, New Atlantic Ventures, Novak Biddle Venture Partners and the rest of the region’s traditional venture delegation can fund all of the seed-stage entrepreneurs popping up in D.C., nor would they want to.

That doesn’t mean all those startups are going to flame out. But more will probably find themselves making due with just angel cash.

Washington Business Journal
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