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Further exploring the previous post, I remained intrigued by a comment by Erick Schonfeld on The.Next.Net blog:

At this rate, counting Web 2.0 deals will soon become meaningless because all Web startups will be Web 2.0 companies.  You could argue that is already the case.  The number of Web 2.0 startups out there is much greater than these numbers may suggest, because many of them are self-financed or take on only angel money.

I decided to investigate the following two questions using LinkSViewer maps: (1) What role did the top Angel Investors play in Silicon Valley Web 2.0 companies in 2006?; (2) How do they compare to the top VC Investors? 

I first examined the top 15 SV Angel investors - these were individuals with two or more Internet companies funded in 2006.  The resultant 15 individuals (alphabetically): Mark Andreessen, Ron Conway, Frank Caufield, Jeff Clavier, Auren Hoffman, Reid Hoffman, Mitch Kapor, Josh Kopelman, Mike Maples, Pierre Omidyar, Gil Penchina, Kenwal Rekhi, David Rose, Michael Tanne, and Peter Thiel.  Click on image for Full-Size (navigable) LinkSViewer Map.

 

Note how all 15 Angel investors are connected to one another (i.e., reachable in graph-theoretic terms).  It helps that 7 of these individuals invested in Wikia (clearly a hub in the network).  Conway, Reid Hoffman, Andreessen, Tanne, Kopelman, & Penchina all play key gatekeeping roles in the network.  26 Internet companies are on the map and a fair amount of them are considered Web 2.0 companies: RapLeaf, Wikia, Kaboodle, Dogster, edgeio, Riya, Feedster, Krugle, Digg, REVa, Friendster, Xoom, Socializr, Six Apart, Technorati, Engage, and Wikia.  If my estimates are correct (and I am no expert here), then 17/26 are Web 2.0 companies, which supports Erick Schonfeld’s hypothesis that Web startups (in this case, and more specifically, Internet sector startups) are becoming Web 2.0. 

I next mapped the top 13 VC investor SV Web 2.0 deals in 2006 as noted by the Venture One and Ernst & Young report (in order of most deals): Benchmark, Sequoia, DFJ, Omidyar, Accel, General Catalyst, Mayfield, KPCB, Bessemer, Mobius, Greylock, & Redpoint (note that BV Capital and IDG China did not have any SV Internet investments in the LinkSV database for 2006).

  

Here we see a more disconnected network with fairly few VC co-investments (or inter-company clustering).  Benchmark, Omidyar, and Accel form central hubs in the network.  But Mayfield, Mobius, and Storm are isolates and Redpoint, General Catalyst, and KPCB (surprise?) are pendants in the network.  Examining the companies in the network, there are 63 (if my count is right) Internet companies funded in 2006 - thus VCs are certainly alive and well on the Internet.  But only 11 companies are co-invested by the top investors (Yodlee, Clearwell, Prosper Marketplace, Metacafe, Glam Media, Metaweb, Marquee, Wikia, Digg, Yelp, and Friendster). 

The disconnected nature of the network leaves me somewhat scratching my head, but perhaps it can be explained by the fact that most of these companies do not require much start-up capital and therefore discourages multiple VC co-investors ($1M as a drop in the bucket).  For example, take Sequoia as the lone investor in YouTube.  But this seems odd based on the history of co-investing relations of VC firms.  Maybe as these companies mature in round funding, they will have more co-investment ties - but with the flip and turn of Web acquisitions, this may not ever happen.   

Of course, I have one more begging question, what happens when I overlap the two maps onto each other?  For this I took the previous VC Investment Map and included the Angel investor ties. 

 

What is interesting about this map is that 9 of the 15 angel investors appear in the VC Investment Map.  These angels connect Kleiner, Mobius, Sequoia, Bessemer, and Greylock on the map.  My sneaky suspicion is that angel investors are important to the Web 2.0 world not only for their capital, but because of their linking role - one traditionally held by VCs.  We can also see how new VC firms such as Omidyar Ventures (and duly noting the role of Pierre Omidyar as an individual investor on the maps) form bridges between Angel and VC investors based on their co-investment structures - they seem as an anomaly in the network.  But clearly their recent success could be attributed to their co-investments with key angels.  

Again curious, I decided to overlay the VCs onto the Angel Investor Map:

Here, only 4 of the top VCs appear on the map: Omidyar, KPCB, Greylock, & Benchmark.  Only Omidyar and KPCB have more than two links.  Other VCs appear on the map - most centrally Felicis, The Founder’s Fund, Foundation Capital, and Intel Capital.  This could be because many of these firms are more geared toward Angel financing, but this is not always the case.  It may also be because of the limited amount of capital needed or that the bigger VC firms may want to “go it alone” when it comes to Web startups.  Certainly the multitude of Web 2.0 companies may mean that there is simply not enough time to review all of the companies at one time or that there could be conflicts of interest with existing prortfolio companies.  Of course, I am speculating here as a non-insider (so take this with a grain of salt).  In any case, it seems that Web 2.0 is changing the landscape (or is the landscape changing Web 2.0?).  I am interested in comments here. 

This entry was posted on Thursday, March 22nd, 2007 at 11:08 pm and is filed under Investor Analysis, In the news, Web 2.0. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.