Ways to Make Money in the Valley

Most of the icons of tech hacked phone lines, cracked game codes, and engaged in other border-line illicit behavior growing up. It’s that same belief that you aren’t bound by the normal rules and conventions of the world that enable people to become entrepreneurs to begin with. Without it we wouldn’t have Intel, Apple, PayPal, Facebook, or myriad other tech giants that have changed the world.

But this is also a place that’s held together by tenuous relationships of trust between those with millions of dollars and those with million-dollar ideas. Angel investing is the purest form of that. It’s one person who has made it and believes in you, putting his hard earned money behind your dream. As an entrepreneur and an advocate for entrepreneurs, I worry about anything that violates that trust, well meaning as the intentions may — or may not — be.

— PandoDaily’s Sarah Lacy explains how the Silicon Valley works as part of a larger and more complicated (to me) report on a new and possibly tricky trend in start-up funding.

Basically: There are venture capitalists and there are angel investors. VCs work at huge firms with partners and investors, and when they invest in a company, they’re all in, providing resources, guidance, oversight, and lots and lots of money. Angels are individuals who are investing smaller amounts of their own own money. A startup might have many angel investors at first, and then when they’re ready to launch, get VC funding. Lacy reports that there are some folks — “deal scouts” — who are posing as angels, but the money they’re investing is actually coming from VCs.

At least I think that is what she’s saying. (I don’t completely understand what happened in The Social Network, so, you know.) But it’s really important that we all learn this stuff so when it’s time to get investors for our sick startups, we know what’s up.

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