Last week I was at a non-tech event where everyone at my table was talking about startups and angel investing. Every single person at the table had written a check, and that wasn’t even related to the purpose of the event. As another investor I know calls it, “the tourists are in town.” Tourists, as we all know, come in to a generally unfamiliar area, spend a small about time and money, and then move on. Tourists enjoy the newness and novelty, and then continue on with their normal way of life.
Most angel investors are tourists.
When the current boom times in the startup world end, many of the tourists will go home and we won’t see them again. This is normal. This happened before in the late 90s with the dot com bubble, and will happen again with the boom (much less dramatic this time around but still noticeable).
Entrepreneurs would do well to note that the amount of angel money currently flowing through the system is unusually high, and to plan accordingly.
What else? What are some more thoughts on tourist investors in town?
David Cummings on Startups 
Good observation. I really like the term Angel “tourist.” Nice. In the .com, the tourist money all came from the real estate industry. Looked to them like a quicker ROI until the markets tanked. Then they all ran back to what they know. Rightly so. There is rarely a follow on round from the tourists. Entrepreneur beware.
I think there are a few major differences between the .com bubble and the cloud bubble we are currently enjoying. Many of the .com ideas ranged from interesting to brilliant and from odd to patently absurd, but regardless, the infrastructure needed to support most of those ventures was absent. Further compounding the issue, many, if not most, of the .com ventures were B2C plays. The ubiquity of mobile engagement or e-commerce on a handheld device simply was not available to support much of the hype and overvaluation associated with the .com and eventual .bomb brands.
It is true that much of the success associated with SaaS has stemmed from ideas related to the .com bubble. After all, Salesforce.com was born out of the idea that enterprise software should function like Amazon but the big difference in my eyes between the .com and the SaaS opportunity is the target customer. SaaS is almost exclusively focused on B2B, where as .com was not. This brings me to my point…
The tourist investors of the .com era got burned for a number of reasons, but the one that sticks out in my mind is that most of them were looking to get rich off of an idea that was not possible when stood up against the existing infrastructure of the day. Most Tourists don’t care to look behind the scenes when on vacation. They don’t care how the magic happens, they are just there for the good time.
Now image showing up to a resort for vacation, but the resort manager has failed to hire house keeping staff, stock the bar, or train the front desk how to reliably and efficiently check in the guests. To make matters worse, the town where the resort is located has failed to build a navigable road from the airport to the resort, so you are forced to drag your bags 3 miles over rocky terrain in order to get there…This is what the .com bubble was like…
Now, imagine that same resort 20 years later, but now there is adequate infrastructure is in place. They have learned their lessons, built their roads, trained their staff and put systems in place to make the tourist experience much better and have built a massive convention facility aimed to attract large business groups. This is what I see the SaaS opportunity as being.
Will there be another bubble? Undoubtedly…There are already too many players clamoring for mind and marketshare, but I don’t see the coming downturn as something we are all going to look back on in 20 years and say “how the hell didn’t we see that coming?”…