AngelList - just another symptom of a Bubbleconomy

Lots of hot air expended on AngelList (a sort of Startup Souk, or startup buyer meets seller marketplace) over the weekend, summarised nicely by Mark Suster over here . That the hot air about this is pumping up BubbleWorld is better shown in this post by Dave McClure:

3 major points i plan to cover in this post:

1) Angel List Fucking Rocks. Period. it's the single greatest innovation in our industry in the last 5 years (aside from LinkedIn, Facebook, Twitter, & Quora) and it's great for almost all participants. and while social proof can be abused / misused, so can gasoline... doesn't mean you shouldn't fill up your gas tank and go back to riding horses. if you want to effect change, either Engage Fully, or Compete. inaction/boycotts are rarely useful & should be largely be ignored.

2) on average, "Spray & Pray" investing -- aka a High-Volume, Diversified & Quantitative Investment Strategy -- is not just "ok", it's actually BETTER than "Focused" investing (at least w/o insider or hidden knowledge). in fact, it is incredibly hypocritical and patently FALSE for the VC industry -- which has NEGATIVE IRR over the past 10 years, and historically poor performance -- to criticize high-volume strategies as being somehow crazy. if anything, their inaction and lack of innovation in the face of poor performance is the Insanity, and most of them (& their LPs) should be ashamed for lack of stewardship.

3) in the future, "Value-Added" investing will come more & more from domain-specific knowledge (engineering, product, design, marketing, customers) and less & less from investors with large networks & rolodexes who make "introductions", as their value is disrupted & marginalized by social platforms like LinkedIn, Quora, and Angel List.

Those of you who recall the buildup to the DotCom bubble will recall that the ground was laid by multiple people undermining all aspects of the "careful, prudent investment strategy" approach, which is the last thing the bubble promoters want, as they make their money by getting in - and out - early. This is because in an asset bubble you have 3 things going on:

- Firstly, too much money chasing the few decent "hot" assets, pushing their values far above any rational number

- Secondly, as the market abhors a vacuum, there is a rush to produce/find new assets for this money to chase.

- Thirdly, a need to find new layers of Greater Fool money to get into the system to keep it inflating (and pay out the first layers in the pyramid)

The role of something like an AngelList is mainly to solve problems 2 and 3 - ie it is a way of exposing more assets to buyer view and make it easier to pave the way to get more "Greater Fool" money from outside the industry. No wonder it's a hot property, and if it wasn't AngelList it would be something else (actually it will - there are always multiple Phase 2 / Phase 3 "funding faciltators" founded during the Bubble Inflation period ) but it should be seen within the context of the mindset of Irrational Exuberance. This sort of business model (along with incubators etc) struggles to exist in non-frothy times. I will let Mark Suster have the last word on this sort of system:

My biggest fear is that people confuse the “social proof” of other prominent investors on AngelList for real insight. Indeed, in a bubble people generally chase what other people are chasing leading to group think. The most innovative ideas are the ones that other people aren’t doing yet. How’s that for irony?

Quid, as they say, Est Demonstratum.

Update - Dave McClure thinks I have misunderstood his strategy (see the comments below) so read his post (it's linked to above) - but I do suggest reading Mark Suster's (also linked above).