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On June 17, 1972 Frank Wills stumbled upon the unlocked doors of the Democratic National Committee’s Office. Five men were charged with attempted burglary and interception of telephone and other communications. Consequently, Richard Nixon resigned from office two years later as these acts of burglary were linked to his office and a slush fund used by the 1972 committee to re-elect the president. On September 20th, 2010 Michael Arrington walked into Bin 38, unannounced, to find a meeting of Super Angels silently resolving complaints in the growing power of smaller startup investment incubators. The events that followed redefined the goals and attitudes of venture capitalists towards the future young entrepreneurs of Silicon Valley.
There are a limited number of facts on the events that took place on September 20th surrounding the gatherings that have been dubbed “Angelgate”. As such I will discuss probabilities of these occurrences and outcomes, rather than certainties.
This story broke with Michael Arrington’s account of his experiences on September 20th. Emerging onto the scene as part of the early Web 2.0 upsurge Arrington is a well known technology enthusiast with a sometimes controversial and exposing column on TechCrunch.com. As the founder and co-editor of TechCrunch, Arrington has been hailed as one of the most influential figures on the internet, specifically in regards to start-up communities and developing entrepreneurs.
Following Michael Arrington’s awkward encounter with this large group of early stage startup investors, he was supplied with information from certain sources in attendance of the meeting. The sources included details about these specific groups of investors meeting regularly to compare notes. Arrington makes it clear that these meetings were initially above suspicion, although recently they had moved into colluding conventions about solving problems amongst fellow VC’s. The continuing schedule included:
- Objections about Y Combinator’s increasing strength, and how to impede competitiveness in Y Combinator contracts.
- Objections about rising contract valuations and how they can act as a cluster to reduce these appraisals.
- How the cluster can act together to keep traditional venture capitalists out of deals entirely.
- How the cluster can act together to keep out new angel investors seizing the market and driving up valuations.
- How the cluster can agree on like terms to not accept convertible notes in contracts (customarily serve as a benefit to young entrepreneurs and startups. More info on convertible notes here: http://www.angelblog.net/Convertible_Note.html ).
Arrington was reluctant to release the names of the Bin 38 attendees, although most of the participants were revealed in leaked emails that followed. The member list is irrelevant in specifics, but ultimately important in knowing the affair consisted of nearly 100% of all big name Silicon Valley startup incubators.
So why is this of consequence?
As a young entrepreneur, I feel indirectly affected by the actions of these VC’s. There are laws to prevent these behaviours, including competitors acting together to force other smaller competitors out of the market, or discuss ways to keep prices under control. Any company or entrepreneur with intentions of seeking product sponsorship or funding can not ignore the activities taking place by these colluding venture capitalists. These actions greatly affect the progress of growing entrepreneurs and startup companies in Silicon Valley.
Only days after the proceedings at Bin 38 Dave McClure, an active investor in early stage Silicon Valley startups, came out in opposition to Arrington’s allegations of collusion. Shortly thereafter it was discovered that Ron Conway, one of the most prominent investors in Silicon Valley, and founder of SV Angel sent a confidential email to other angels in the Bin 38 meeting. This email was leaked and revealed to be in opposition of Dave McClure’s stance that nothing illegal or immoral was transpiring. The email was not written lightly, but rather it directly accused certain VC’s of having poor values and unlawful tactics. To dig the hole even deeper McClure accidentally sent a tweet saying “Ron is throwing us under a bus. and it’s chickenshit that he writes that after David Lee comes to both meetings.” ergo conceding to these accusations of collusion.
Up until this point, Bin 38 had only been documented and proven from the words of Michael Arrington. Silicon Valley was now bearing witness to these leaked emails and unintentional tweets, solidifying the intentions of the involved “Angelgate” venture capitalists. Details of the Bin 38 event will continue to emerge in the coming weeks and months, as will the premeditations of these VC’s. Although seemingly important, the information provided thus far gives all and sundry a better understanding of what really goes on behind closed doors at a vast majority of startup incubators and investment firms in Silicon Valley. Are growing entrepreneurs getting the best company/product valuation? Or is this being manipulated and skewed by the colluding yet seemingly competitive venture totalitarianists. Oh I mean capitalists.
