It seems clear this week’s meme is going to be “AngelGate”, after Michael Arrington crashed a private meeting of West coast “super” angels, accusing them of collusion and price fixing.

Ignore Arrington’s penchant for drama for a minute, but assume there’s some truth to his allegations.   While it’s fun to get worked up, it’s far more interesting to explore why angels might want to coordinate in those ways.

The root problem (I think) is the excess of seed capital.   There are a TON of angels, venture funds now doing seed-stage rounds, Y-Combinator competitors, Betahouse clones, and new, dedicated seed-stage funds.  And with capital efficiency, many founders have the additional option of self-funding.

Seed investors are swimming in an increasingly crowded and competitive pool. It’s going to be really tough to generate meaningful returns:  seed investors are just on the wrong side of the supply/demand curve.  Given this, I’m not surprised if there’s some collusion among players (formal or informal).