There’s been a predictable furor over the brewing feud between super angels and VCs, especially with folks like Mike Arrington fueling the fire by quoting a VC as saying, “An entire generation of entrepreneurs are building dipshit companies and hoping that they sell to Google for $25 million.”

While I’m sympathetic to both sides (I have been fortunate to be involved in many VC financings, and I count both VCs and super angels as personal friends), and while I have stated that I think angel investing is going through a bubble, the fact remains that the super angel phenomenon is not just a fad, but rather a reflection of important structural factors.

The core issue is that the startup environment has changed. It used to be that the model was for companies to take VC, grow, and IPO after 4 quarters of profitable growth.

Then the dot com boom came and ruined it for everyone.

Today, IPOs are practically non-existent, which means that we all have to deal with the reality of smaller exits.

To a VC, many startups are “dipshit companies” because they can never get to a scale that will generate “VC returns”–defined as a 10X return on a $5 million investment that buys you 1/3 of the company. For that to work, you have to sell for at least $150 million ($5 million X 10 X 3) and probably more.

But for a founder with a majority stake, a $25 million exit is life changing. Hell, a $10 million exit is life changing.

Layer in the fact that VCs go for a home-run strategy that results in no money to the founder in a super-majority of cases, and it’s no wonder that entrepreneurs are flocking to super angels like Dave.

One super angel I know put it to me this way: “I invested because I knew that in the worst-case scenario, Google would still buy the company for a few million just to get the founders as employees, which would allow me to make my money back.”

Finally, the other reason why entrepreneurs are flocking to super angels is simple: They provide VC-style help without most of the BS. This distinguishes them from traditional angels, who provide very little help, and even more BS than the VCs.

In the old days, no one wanted to deal with angel investors. They were a pain in the ass, didn’t get new business models, and were likely to cause more hassle than VCs. They were funding of last resort.

Today, super angels are the funding of first resort. They make decisions fast (in Dave McClure’s case, after one meeting), they have great connections, and they don’t tell you how to run your company. What’s not to like?

Okay, so maybe a guy like Dave is pretty busy–a typical VC partner might have 10 active investments, Dave does that many per month–but if you follow him, you know that A) He never sleeps, and B) He’s always there for his entrepreneurs.

Side note: Ironically enough, I ended up proposing what amounts to a Super Angel fund back in 2005: http://chrisyeh.blogspot.com/2005/10/confederacy-of-startups.html

Yet another case of my seeing the future and saying, “But enough about that billion-dollar idea, what’s for dinner?”