Michael Arrington's Math is Way Off on Silicon Valley Collusion

Last Updated Sep 24, 2010 3:33 PM EDT

Techcrunch kingpin Michael Arrington's accusations of collusion set off a stink bomb in Silicon Valley this week with an early morning blog post accusing unnamed angel investors of criminal collusion. Since then the situation has only escalated, with members of the group worried that others were "throwing us under a bus".

But a simple financial analysis refutes Arrington's grandious claims about this cabal's influence. Arrington writes that , "This group of investors, which together account for nearly 100% of early stage startup deals in Silicon Valley, have been meeting regularly to compare notes."

But when you stop to check the math, that claim doesn't hold up. Chris Yeh over at VentureBeat has some good numbers. The Small Business Administration estimates that there are about 500,000 angel investors in the United States, and that they invest about $20 billion per year.

So even at $100 million a year between these ten conspirators, their impact on the angel market is just .5 percent. Yeh examines a more generous estimate. "Even if we assume that Silicon Valley seed rounds only account for 10 percent of angel investing in the US, the pot controlled by the alleged conspirators only represents 5 percent of the local market."

My colleague Erik Sherman points out that this scandal isn't really about the money. It's about the ugly truth that these investors care about the money as much, or more, than they care about the entrepenuers they fund.

Super angel investor Ron Conway penned an email, then conveniently leaked it to Arrington's website Techcrunch, full of platitudes about his benevolent attitude towards venture capital:

I want to clarify once and for all my total disagreement with your values and motives for being investors. I have stated consistently for year that I invest because I love helping entrepreneurs and watching them learn and succeed. In my opinion your motives are driven by self serving factors around ego satisfaction and "making a buck."
So Conway doesn't care about making a buck. Hopefully the investors in his new fund were aware of that.

Image from Mark and Claire

  • Ben Popper

    Ben Popper writes at the intersection of culture and technology. His work has been published in the NY Times, Washington Post, Fast Company, Rolling Stone, The Atlantic and many others. He lives at www.benpopper.com.