I haven't caught the two shows previous to this one yet, but you sound different in this show Frank. I don't think it is the improved sound quality. You sound wiser and firmer in your convictions; perhaps these panels that you have been moderating with question and answer sessions have been good for you.

Right off the bat we hear some contradictions with what Mic says and what TCA members have said and what is on the TCA website. Mic talked about his angel group having a product that people enjoy and that having good companies is one of the keys.

In contrast we've heard TCA members say that just funding companies would attract the high quality deals and in turn the high quality deals will attract quality angels to join. There was this emphasis that TCA should fund a certain number of deals per year. The TCA website focuses on the number of deals and the amount of money put in. What we don't see is the names of the successful companies and the returns that the TCA members have been enjoying.

Regarding Kieretsu Forum, Mic only mentions one Kieretsu event that he attended. A complaint often heard from entrepreneurs is that Kieretsu claims to give them access to hundreds or thousands of angels, but when they pitch only few angels show up and maybe none that are interested in the space the venture is in, and no feedback is given.

I haven't heard Calacanis' rants against Kieretsu, but I have heard him promote Tech Stars which charges the entrepreneur 6% for a three month boot camp run by angel mentors and access to their networks of fellow angels. Frank you claimed Kieretsu charges 2%. So the argument must be more than just charging entrepreneurs, the problem must be what the entrepreneurs are getting for their money.

Calacanis did give Tech Stars a plug on his show, therefore saying the argument is just about charging or not charging oversimplifies it. Would it be ironic to see Calacanis as a mentor at Tech Stars some day getting his 6%, or would he still be on his moral high ground?

Mic says the fees are worth it if you can get 5 or 10 guys in the room that can pull the trigger. He talked about the expense of bad meetings where the guy didn't have any money, or doesn't know anything about the space, etc; which is exactly the complaint entrepreneurs have with Kieretsu Forum. There is no pre-qualification or matching of the entrepreneur to specific angels.

Your discussion touched on the difficulty for an entrepreneur to get a deal lead and quickly jumped to the conclusion that if an entrepreneur is not able to do it, the problem is with the entrepreneur. But when we read articles that tell us that venture capital has been laying eggs for ten years, that firms will be shutting down for the next five years, that the funds are getting smaller, and angels on this show have admitted to ten years of poor or no returns, we see the truth that the entrepreneur can lead a horse to water but can't make him drink.

Angels are going to do what they want, they always have. We have even seen them require the business model to be changed to something that went on to fail.

Angels do have their arrogance, often looking down on entrepreneurs, refusing to believe that they can learn something from the entrepreneur. The amount of money lost in the last decade shows us that the problem of finding a deal lead is much more a problem with angels than it is with entrepreneurs. Numbers don't lie.

Many VCs and Angels say they want entrepreneurs to bring them the next big thing, but when an entrepreneur does it, they hear, "no no no" it has to be software, or an internet company, or cloud computing, or what ever area they are convinced is hot or going to be big. What's the point of asking for it if they already know what it is? They should just ask for it by name. Since they already know what's hot, why don't they just start the company themselves instead of losing money for the last ten years? Instead of asking entrepreneurs to pitch them, they could have just put out employment ads and kept 100% of the company.

I have never once heard a VC or Angel give an entrepreneur credit for indentifying a hot area. That's why it is hard to find a deal lead. Nobody wants to learn.

I can't tell you how frustrating it has been for over ten years to be sitting on the biggest advancement in the user interface since the invention of the graphical user interface (point and click), and to be constantly told by Angels and VCs that they want the big opportunity, that they know a big opportunity when they see it, and that if you just pitch it like this or pitch it like that you will get funded.

So I followed their advice and their instructions for years and years, only to see them invest in garbage over and over again. Constantly seeing one failed company after another, all the while hearing them tell me how smart they are.

So naturally hearing this interview that says if I can't find a deal lead I am the wrong guy is bound to rub me the wrong way.

Once again. Good show. :-) Frank, the name of the super angel, whose name escaped you momentarily is Dr. Cornelius Boersch.

Frank,

Can we be honest with ourselves and admit when we are being conned? Here is how the question relates to three of your recent interviews. You know if someone with my limited experience is thinking this, so are a lot of people who are more important to angel investing and to TCA.

Luck of the Lemmings (if we are going to be honest)

If we are going to be honest with ourselves, we are going to have to admit that when someone says angel investing is just luck, they are talking about the luck of a handful of people that we could mention by name and not the industry as a whole.

We've had three recent shows from Frank that have all mentioned the same problem. Mic Williams talked about Angels following the crowd, the herd mentality, Vern Yates said the same thing calling Angels lemmings, and Mike Hammons says there are about one third too many people in clean energy.

Hammons is managing a successful fund and creating another. He did not attribute his success to luck and shared with us how he selects his investments. University technology transfer offices are financially successful. They do not patent everything university researchers come up with. They too have a successful selection process.

Angels don't just follow the herd when it comes to where to put their money, they also follow the herd when it comes to how to select an opportunity. Here are examples of each.

John Doerr claims that green energy is going to be the biggest venture capital success ever, bigger than the internet and biotech combined. He holds to that story in spite of admitting that his green energy investments have already cost his limited partners 10 times more and are already taking four times longer, with no exit in sight.

Green energy will never deliver on the enormous promises of John Doerr because it is all incremental improvements of existing technology. The math just doesn't add up. Green energy is also focused on the last step in the process of creating energy, which is the most inexpensive part. Therefore the gains have to be small as the more expensive parts of the process are left unchanged.

We want ways to make electricity without pollution. The actual generating of the electricity is the cheap and easy part. The raw materials and processing of them are expensive and green energy can't do anything about that. The energy still needs to be distributed and stored, another expensive part of the equation that green energy doesn't address.

But John Doerr is one of the investors in Google he must know what he's talking about. Listen to his passion as he is almost in tears talking about saving the environment for his daughter, and passion is said to be one of the keys to success, he must be right. And so a lot of people relied on the luck of John Doerr, not their own luck or their own careful analysis, and followed Doerr into green energy and some have already gotten out.

Look closely at the facts of John Doerr's successful investment in Google. Nobody in the early days of internet search predicted that it would become as big it did. Google was one of the late comers to internet search. Which means Doerr didn't see internet search coming or what it would become. That's two predictions that Doerr did not make.

Doerr has a background in sales at Intel prior to becoming a venture capitalist. The analysis of what Intel needed to do to achieve and maintain its position as the world's largest chip manufacturer was decided long before Doerr joined Intel. Doerr only had to follow the lead of others, just as Google followed the original pioneers into search.

Sales is a useful background to have when venture investing in things that have never been done before, never been used before, never been bought before, never been sold before. But when competing in long established industries, a salesman can be easily replaced, but there is no substitute for experience and analysis.

And so without any credible analysis to point to, and without doing their own analysis, the lemmings (to use Vern Yate's term) relied on the luck of John Doerr. Not their own luck and not some fictitious luck of venture investing, but the luck of someone we can actually name.

We see the same thing happen in the selection process. Venture capitalist Guy Kawasaki gives talks and sells a number of books on how to identify or become a successful venture. His talks can be full of criticism and name calling. If you use such and such font size you're a bozo. If you use more than 'x' number of words, you're a bozo. If you use more than 'x' number of slides, you're a bozo. And his list of disqualifiers goes on and on, without ever analyzing the business. What if your stock broker or real estate broker did that? Kawasaki's advice on how to succeed is the same advice commonly found almost anywhere and not specific to any particular situation.

While claiming to know so much about success, we see a contradiction in Mr. Kawaski when he was asked in an interview what the next big thing is. Kawaski answered "how should I know" and then went on to identify a number of things that he did not see coming. Like Doerr, prior to becoming a venture capitalist, Kawasaki's background is also in sales and not analysis.

But hey Guy Kawasaki is "cool". He's handsome, he speaks well, and he's from Hawaii and that's a cool place to be from. To use Vern Yate's term once again, the lemmings follow his advice on how to identify a winner and the results haven't been fruitful.

In the press release section of the website of Kawasaki's venture firm, the latest entry is from 2007; three years ago. The "in the news" section shows the most recent investment to be back in 2007. It's not like people are lining up to become his limited partner and trust him with their money. His latest venture was to invest in himself as CEO of Alltop.

Saying that venture investing is luck is the ultimate legal defense against being sued. It has the affect of releasing the money manager or partner of his liabilities to the limited partners whose money he is managing. Those managing university technology transfer offices would soon be out of a job if they chose luck over careful analysis.

What we see happening in venture investing is exactly the same thing as when Alan Greenspan argued against regulating subprime mortgages and credit default swaps. He insisted that fraud should not be regulated and that the market will take care of it and will eventually hold those people to account.

The lure of easy money is strong. All you have to do to be successful in angel investing is be a lemming. It's a great feel good story. So nobody calls a spade a spade, or admits the emperor has no clothes. That would disrupt the fantasy. When reality disrupts the fantasy; like victims of a con-artist everyone is too embarrassed to admit they fell for it and excuses are made to prolong the fantasy.

But those with the good track records are not fantasizing. They stick to their careful analysis making sure the odds are in their favor.

I find it interesting that Mr. Artero takes the time to rant in three long comments railing against the stupidity of investors. Clearly, if we cannot recognize the value of his invention, we must be stupid.

I am a new investor, myself (full disclosure: a member of Mic Williams's BHA and another group), and I will certainly agree that we miss some opportunities because we don't "get" them. Happens often, I'm sure. On the other hand we certainly do learn from our entrepreneurs (indeed, that's half the fun of the presentations!), and we invest in a good number of enterprises.

I joined BHA in part because of Mic's attitude toward the investment process, and am proud to be his colleague.

PS to Mr. Artero: Back in the mid-80's I saw a wonderful one-handed text entry device called the "batman". A chording keyboard. Totally cool, but impracticable. There are times an inventor cannot see the limitations of his or her own product.