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Sarah Lacy of Pando Daily published an interesting follow-up on Scout-Gate, the secret/stealthy angel-investment-by-proxy program run by large VCs such as Sequoia Capital and Andreesen Horowitz. I wrote the following comment, and thought I'd elaborate here:

The secret vs stealthy thing is a bit of a making-a-mountain-out-of-a-mole-hill situation. Entrepreneurs aren't lied to; they're more protected from signalling risks; VCs still get to deploy capital (ahem "spray and pray") and angels get to feel important. Everyone gets what they want. As to the would-be-Series A-crunchees- they know the rules and have only themselves to blame if they don't keep enough tank in the gas to get to the next milestone (e.g. $2-4m ARR run-rate for a SaaS company Series A).
Perhaps I'm naive, but it strikes me that no one's any worse off as a result of this development, and it's quite likely that almost everyone is better off. It used to be that entrepreneurs went from bootstrapping or taking small angel investments to much larger VCs rounds (and much later). Now there are more gradations in investment, and VCs seem to be happily ceding the lower-tier (and higher risk) territory to seed funds. This raises the tricky situation that an entrepreneur can feel like they've passed the high quality threshold of an institutional investment, but still not be set up for success to get to a VC round. And that's exactly why this conversation is now taking place. My view is that it's ultimately good for the ecosystem, and merely a symptom of increasing market efficiencies. 

What do you think? Please comment below.



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