Disclose your angel investments
The community has given us a lot. We should be transparent about it.
The modern data industry is full of awkward alliances. Boundaries between categories are still being defined; startups are looking for open spaces in the stack to wedge themselves between big companies; big companies are trying to figure which parts of the stack they can annex next. The result is a lot of uneasy partnerships among companies with partially overlapping edges, and aggressively overlapping roadmaps.
But there’s another, less visible network of elite entanglements that crisscross the industry: shared investors.
Most companies raise the majority of their capital from institutional investors. These investors, especially those with a particular focus on data products, can create loose fraternities among their portfolio companies. Though this undoubtedly creates bias and subtle distortions in the market—a fund may favor one company over another because of a prior investment—venture firms weren’t built to allocate capital in perfectly efficient ways. More importantly, all of this is, for the most part, above board. Corporate investors typically disclose their investments, and board relationships are often made public.
But institutional investors aren’t the only entities on most companies’ cap tables. It’s also common for startups to take small amounts of money from various operators and influencers in their industry. In most cases, these investors aren’t brought on board as part of classic angel or “friends and family” rounds that are meant to get a company off the ground before proper venture capitalists are willing to invest. Instead, they’re optional add-ons that are more about building relationships than raising money.
It’s a mutually beneficial arrangement for both parties. As a founder, you want people who are well-connected to be in your corner. You want the support of people who have large audiences that will trust their endorsement. You want advice from seasoned operators. And you want to share the potential rewards of your success with those who helped you in your career. Starting a company—especially for the first time—is an unsettling thing, and it’s easy to question if it's a good idea to try. Few things are as reassuring as a handful of experts putting their own money on the line to back you.
Angel investors also stand to benefit from the deal. For the PR-minded investor, it provides an opportunity to paint yourself as paying your good fortune forward, and fueling the engine of American innovation. It keeps you connected to the market, engaged with interesting problems, and introduces you to the most revered of Silicon Valley characters, the Founder. For the cynic, angel investing is a way for the rich to get richer.1 It lets you stroke your ego, act like you know more than you do, flip through fundraising decks, and ask founders who’ve spent two years researching a problem and building a product if they thought of something that occurred to you three slides into their pitch. Quietly, it’s also a personal hedge—if the next wave of entrepreneurs passes you by, you can ride their coattails to continued wealth and relevance.
However you cut it, though, it’s definitely normal. Ever since people started building semiconductors in Palo Alto garages, the revolving door between founders and angel investors has been part of the lifeblood in Silicon Valley. People start companies; people make money; people invest that money in the next generation of companies.
It’s the startup circle of life—but it’s not all hakuna matata. Angel networks are often built on circular upvoting and implicit kickbacks—you scratch my back, I scratch yours—that creates an old boys’ club of insiders, with privileges for some and not others. Often, the people who need money and votes of confidence the most can’t get them, while those in need of neither are oversubscribed. Moreover, because people typically don’t invest in competitive companies, this dynamic can simultaneously open doors for those who are well-connected, and actively shut doors for those who aren’t. By recruiting the right angels, founders can garner the support of industry influencers and pacesetters.2 Those in the clique get made by the family, and in Silicon Valley, you don’t speak against the family.
These same dynamics underlie much of the data ecosystem. Some firms invest aggressively in the space and actively circle the wagons around their portfolio companies. Though this corporate posture is probably inevitable—VCs have LPs and fiduciary responsibilities, too—the same pattern exists among angels and influencers. Without more transparency into who’s financially aligned with whom, this risks something that should be bigger than any individual’s portfolio: the health of the community.
The vendor code of conduct
The analytics community is a vibrant place, full of lots of real people, looking for a good careers and a supportive network. To this point, those in the community, from its creators to its newest members, have done a remarkable job in providing that, while avoiding the toxic undercurrents that infect a lot of adjacent groups.3 This extraordinary streak is powered by the underlying decency of the community’s members, and by the assertive norm-setting of the community’s guardians. Chief among these norms: Vendors should clearly identify themselves, and not solicit members to buy their wares.
I’ve never met anyone who doesn’t emphatically support this rule. Ulterior motives undermine meaningful discussion. Just as members of Congress won’t write fair legislation if they’re worried about how a law affects their stock portfolios, data professionals can’t have fair conversations if they’re subversively shilling for a particular product (or, more commonly, subtly undercutting a competitive product). Having talked with plenty of people about data warehouses, about ETL, and about BI, my relationship with Mode always makes talking about BI far harder. I have a blatant bias, and I’m corrupted by it, every time. I can’t change that, nor can any other founder or employee with a stake in their company. All we can do is disclose it.
The same applies to investors, other shareholders, and anyone else with a vested interest in a company's success. They may not be on the payroll, or own as much equity as a founder, but they still have a commercial incentive to promote one company over another. Their views on that company—my views on the companies I’ve invested in—are not neutral. Our testimonials aren’t unbiased; our hype is not organic. We’re invisible thumbs on scale, gently tiling honest conversations in our financial favor.
These distortions are complicated and messy. Data companies are built by data people, sold to data people, and partner with data people. As soon as these same groups start to invest in one another, it becomes impossible to untangle partnerships from friendships, customers from investors, and spectators from shareholders. In Silicon Valley, where momentum and market perception can be worth more than real revenue, this stuff matters.
And in a community that already has an exclusive streak, this stuff really matters. As the data ecosystem grows, kind words and thoughtful guidelines alone won’t keep it healthy or make it inclusive. Community leaders also have to be honest about what we get out of that community, which products we favor and why, and which outcomes and exits we stand to benefit from. People turn to this community for advice on everything from small decisions to career-defining ones; the least we can do is reward that confidence with an equal measure of transparency.
Unfortunately, this doesn’t always happen. I know people who write about companies while burying their affiliation with that company or one of its competitors. I know of customer quotes on websites that come from people who were investors before they were customers. I know companies that have built speaker lineups with undisclosed names from their cap tables.
To be clear, none of this is illegal (usually). Nor do I begrudge anyone for being an angel investor, or any company for taking angel investments. I have no issue with people who become experts in their industry getting rewarded for that expertise. And as a founder, customer, ecosystem partner, person with a small audience on the internet, and, over the last year, periodic investor, I contribute to this dynamic as much as anyone.
Speaking from experience, it can be genuinely hard to know what to do. Is it wrong to invest in a company because of personal relationships? What happens if two companies I’m associated with become competitive? “How can I be helpful” to companies I’ve invested in if Mode partners with a rival? How do you draw lines between what you hear privately and what you say publicly? How do I keep friendships and financial allegiances from infecting this blog?
Honestly, I don’t know. I’m still figuring this out. But, I think one rule is obvious, for me and any other angel investor who participates in “the discourse:” Disclose your investments. Just as there are journalistic standards for reporters, there are ethical ways to invest. If you are a shareholder in a company and are discussing something related to what that company does, be upfront about your relationship.
Base Case Capital
I’ll add future investments to the list.4 If you’ve also made investments in the space, I hope that you do the same.
Beer and money
My dad, who spent his entire career in family law, recently told me that Anna Karenina got it wrong. Nearly every failed marriage fails for one of two reasons: Beer, or money.
Thus far, the data community has been an uncommonly happy union. While the people in the community deserve most of the credit for that, we can’t ignore the other major factor that underpins its success: Money. In the last eighteen months—if not the previous decade—there’s been no shortage of cash to go around. It’s easy to be friends when everyone’s making money, and we can all ride high-flying corporate brands to personal success.
Though the community probably won’t turn on itself over cases of Bud Light, bull markets and 1,500x revenue multiples don’t last forever. Sooner or later, the money will begin to dry up. Sooner or later, the stakes of who wins and who loses will get very real, and congenial coopetition will turn into cutthroat competition. Sooner or later, Frank Slootman comes for all of us.
Nothing would tear the community apart faster than fissures at the top. And nothing drives people apart faster than conflicts of interest and suspicions about backroom alliances. Given the unavoidable things that imperil the culture of the community—competition, philosophical disagreements, and inevitable bad blood between people in a group of thousands—we shouldn’t add unspoken investments to the list. Those of us who’ve been sustained by this community at least own it that.
Unless, of course, you lose all your money. But if you do, who knows, you might get played by William H. Macy in a Hulu miniseries.
I remember watching this play out in real time in 2013. When we founded Mode, we needed a place to host our blog. The two options at the time were Medium, founded by Twitter founder Ev Williams, and Svbtle, founded by minor internet celebrity Dustin Curtis. The two products were effectively identical. I chose to use Svbtle because it looked a little better, and because it had a like button, called “kudos,” with a cool animation. Silicon Valley’s elite chose Medium (though, more accurately, chose Ev). Premier tech writers and influencers quickly coalesced around it. Within a couple years, Svbtle was effectively dead. Though their fates could’ve diverged for a number of reasons, I struggle to believe that Ev Williams’ connections didn’t play as big of a role as anything.
To be fair, I don’t use Reddit. Last time I did, I bought three shares of Gamestop stock and started a blog. It’s probably best for all of us that I don’t go back.
And, one day, to perpetually under-construction benn.website.