• TechCrunch, Monday, August 16, 2010 5:11 PM

Potentially putting the next great tech startup at risk, venture capitalists and angel investors are increasingly at each others' throats, reports TechCrunch's Michael Arrington. The culprits? "Declining returns, too much capital and the disruptive force of a new breed of angel investors." According to Arrington, "It used to be that angels worked with venture funds, doing the very early rounds and then handing things off when a company did well." However, "The last several years have seen the rise of the cheap startup. Internet startups can use open source software and new scripting languages to ship products fast and cheap.

Often there's no need to go past an angel round of funding until it's time to decide between selling and doing a big marketing push. Either way the VCs lose, because even if they get in at that late stage the valuations are much higher and returns plummet." Off the record, meanwhile, VCs complain to Arrington that an angel-led startup culture leads to small, short-sighted companies, which will never amount to anything as industry-shaking as Google or Facebook. They further argue that without the lure of the occasion mega IPO, the entire startup ecosystem will fail to attract sufficient attention, talent, or investment. Arrington, for his part, doesn't entirely disagrees with the VCs. "Think there is some merit to the idea that too many entrepreneurs are thinking small these days," he writes. "If big companies aren't being built because of this small thinking, we'll all suffer sooner or later."

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