The rising number of angel investors has created an atmosphere conducive to raising startup funds for all business types, but some analysts warn that shying away from the big venture capital firms has entrepreneurs thinking small.
The days of finding a large venture capital investor to scale up a new business are numbered as many entrepreneurs are simply looking to establish a successful business model and then sell out to a larger company, reports TechCrunch.
Author Michael Arrington writes that venture capitalists are increasingly viewing small angel investors as competition; there are less “big” companies to invest in and profits are shrinking at many traditional VC firms. While this competition is conducive to entrepreneurs who are looking for startup funds, it could hinder the development of large businesses.
One VC investor says “he believes that angel investors are pushing entrepreneurs to think small, and avoid the home run swings,” Arrington writes. “And ‘You don’t get a home run unless you swing hard,’ he says. ‘When you play it safe you nearly always lose.'”
Other analysts say the collapse of Lehman Brothers caused firms to become conservative, which led to the rise of angel investors who made up for the resulting shortage of VC funds.