Robert Scoble makes some good points about Angel Gate in his post The secret hell of tech industry angel investors.
I mostly agree with what he says, except I think his underlying premise is wrong:
It’s good for entrepreneurs and good for users to have angel investors caught in hell. When they feel they have to spend more money to stay in the game, that’s good for all of the rest of us (press, users, entrepreneurs).
First, there really is a place for the classic angel – that is, the Ron Conway kind that is in it to help entrepreneurs succeed. I don’t think it helps anybody if these angels are “in hell.” The angels that Robert talks about are really VC in my book and frankly I don’t think they belong “in hell” either. Now some do, of course . . .
Second, more money thrown at entrepreneurs is not in and of itself a good thing. On some level it gets more people building companies, but does it really get more people innovating? Before the “dot bomb” hit, the same thing was happening in VC. Everyone and their brother formed a venture company and all sorts of things were funded that were patently ridiculous. That was a part of why the crash happened.