

Angel Investors To Startups: Yes, We Charge - cwan
http://www.pehub.com/52616/angel-investors-to-startups-yes-we-charge/

======
netsp
Where exactly is the argument? What I read was this:

The charge: Angel groups charging entrepreneurs to pitch are ripping them off.
The incentives are all wrong. You are not getting your moneys worth. It is a
scam fuelled by founders desperate to pitch, not a business connecting capital
to opportunities. It is similar to modelling/acting agent-ing scams. You can
tell it is a scam by the level of secrecy.

The defence: (1) Two of the named companies defend their practices.
(2)entrepreneurs have “a sense of entitlement” (3)TechCrunch50 conference
makes a lot more money off startups than they do (4)who are chosen to move
forward get weeks of free coaching and mentorship on their pitches before
they’re asked to pay. Also, entrepreneurs don’t have to pay — they can drop
out if they want. (5)“We are not in this to make money,” a (unidentified)
spokesman said.

1,2 & 5 do not actually say anything. 3 is neither here not there. No one ever
said that startups are a no profit allowed world. That leave only 4, a
relatively vague claim that these groups add some sort of value to the
process.

------
malvosenior
Have any of these groups ever funded anything of note? Top Valley angels not
only don't charge but are insanely helpful for free even if they don't fund
you (if you're not a jackass that is).

~~~
zaidf
Moreover, they are usually very transparent about their investments.

------
marcusestes
“We are not in this to make money.” Well _that's_ a sentiment that doesn't
entirely inspire confidence.

~~~
zaidf
They could have been talking about their returns on past investments.

------
Harj
_They said some entrepreneurs have “a sense of entitlement” and believe that
whatever they do is worth a hearing._

this sounds like something an unenthused teacher would say about an
enthusiastic student

~~~
trapper
They are right. I've met ton's of "entrepreneurs" who knew nothing about
business or even technology, but think the world owes them something for their
magical idea. Regardless of how cool the idea really is, it must be very hard
to work with these people without first teaching them the basics.

Obviously this doesn't apply to anyone who follows a relatively "lean startup"
mentality [like those here], but there are orders of magnitude more people who
do it the old fashioned way.

~~~
netsp
What exactly are you saying? They should be ripped off to teach them a lesson?

~~~
anigbrowl
I know the sort of person he's talking about. If you don't explain up front
what you want from them, they'll assume you were put on earth to help them in
their glorious venture and complain endlessly about how you don't appreciate
their genius, are only interested in money, etc. This is the sort of
entrepreneur who budgets a fat salary for themselves from day 1. I've had
people like that bellyache about how they can't afford to pay me more than
peanuts despite the fact that they own 7 cars or a 40 ft yacht (actual
examples from real life).

Edit: I have no opinions about the angel firms or their charging methods. I
just got Trapper's point above.

~~~
netsp
When you say you got his point, did you mean you get how his point is related
to charging people to pitch? I am completely willing to grant that such people
exist and are unpleasant, but what relevance does that have here?

~~~
anigbrowl
No, the point about how some entrepreneurs have a sense of entitlement. I
think people reacted poorly to that here because they interpreted it as 'how
dare you ask angels for investment', which would be offensive considering how
many people struggle just to become ramen profitable, often for a long time
before cashing in, if ever. Then there are other people who want to be
compensated on the basis of projections rather than receipts. It's a blurry
line since we know some companies where the founders make $$$ long before
reaching positive cash flow.

As far as the 'pay to pitch angels' go, maybe they'd be better off describing
themselves as a capital sourcing service or enterprise microcredit bureau or
something, since people take 'angel' to mean someone willing to help when
you've got nothing. I empathise with the tedium of dealing with self-promoters
who think they're god's gift to business despite having money; on the other
hand surely the payoff of being an angel is having founding capital in the one
project out of 50 or 100 that hits the jackpot and eventually goes public.

------
Dilpil
This author seems to be trying to make the point "We are legit and we charge".
But he never gets around to the "We are legit" part.

------
nobody_nowhere
They can say whatever they want, but it still sounds like paying your salesguy
a salary instead of a commission. Coffee is for closers.

------
wglb
I am certainly curious what PG's and YC's take on this discussion is.

~~~
swombat
Well, 4 years ago pg said, in one of his articles:

"Some angel groups charge you money to pitch your idea to them. Needless to
say, you should never do this."

from <http://www.paulgraham.com/startupfunding.html>

So there you go.

------
ct4ul4u
For the most part, the only thing angel investors have is cash. They have
nothing you should pay them for. Fred Wilson's support for Jason Calcanis'
position is particularly telling, given that Union Square provides a great
deal more than cash (I've seen them in action). If you have to pay to get a
potential investor to listen to your plan, you either need a new plan or a new
investor.

Paying angel investors for access is only one step removed from wiring money
to Nigeria in a 419 scam.

------
veteran
I don't understand why publicly lynch some company? why not market let work
out its dynamics -- if it is not worthwhile people won't buy it. I am saying
this because I have attended Keiretsu forum meetings and these are very nice
people.. they maintain office/staff/provide food at events and put in lot of
efforts to promote startups..If you have not attended meeting then please do
so..They seem to be not making profits by charging startups but covering
operational costs (I don't know financial details but this is my guess). Now
question is who pays for the services - I feel it is not at all outrageous for
companies to pay here because the companies they select are generally already
revenue generating companies, many of the companies are not in related field
to a particular angel..as a matter of fact they advice you not to invest for
quite a few deals when you start so you learn ins and outs..If they start
charging more to angel members then the number of angels who engage in the
process might drop ..may be you will say those are not right kind of investors
who you want but be careful what you wish for. There are number of people in
the group who are rich enough to sponsor whole thing but again, that's another
model..sponsorship has its own strings attached. Coming back to my first point
- just having different operational model does not equate to scam and people
without getting facts falling for propaganda is no good

------
wdavis
One of the lessons I've learned in the few years I've been in business is
this: sometimes you do everybody a favor by charging them. While I'm not
necessarily in favor of this practice for angel investors, I'm not going to
condemn it either. If I was going to "pay-to-pitch" I would make sure 1) the
concept is marketable (investigate competitors, keep my ear to street, etc) 2)
that I had a damn good pitch. Unfortunately, some startups don't take the time
to due these things or even think about the investors time. The fact is they
do feel entitled. By charging a fee you eliminate the half-hearted and at
least ensure that the start-ups pitching understand the importance of the
situation. The companies named apparently provide a service that these
entrepreneurs can not provide for themselves. They bring in the money.
Therefore, they should get paid. Does anyone know if the angel investors get
any of this money? Look if it's a scam it should be stopped, but if it's bad
business it will stop itself.

~~~
anamax
> The companies named apparently provide a service that these entrepreneurs
> can not provide for themselves.

Do they? What have they funded? What success has followed their coaching?

> They bring in the money.

Do they? Again - what have they funded?

And even if they do, lots of folks have money. If they're admitting that
they're dumb money....

------
jasonmcalacanis
oh yeah.... here are some smoking guns (or “part two of angels that charge”)
<http://bit.ly/URKMR>

:-)

------
rokhayakebe
Frankly I do not see how charging entrepreneurs to pitch is different from
charging entrepreneurs for the TC50 demopit.

How?

~~~
zaidf
I thought about this too and what it boiled down to is _who_ is getting the
money?

If the fee is going to investors, I think it's bad.

If the fee is going to organizers for logistical expenses or heck even profit,
I think it's usually fine.

1\. In TechCrunch50's case, it _is_ going to organizers.

2\. I don't think TC50 makes most of its money from entrepreneurs looking for
funding. They make a lot of money from rich execs and VCs. Contrast the angel
groups and they make almost 100% of the money from entrepreneurs. This is a
_huge_ differentiator for me.

~~~
netsp
I don't think it matters who gets the money or who is charged. There is
nothing wrong with the service at face value. Startups want to pitch. Here is
a service to help them do this.

The problem with with the incentive structure it creates. If you are paying
investors directly, its like paying someone to listen to a sales pitch. You
will not get the same result as you normally do with your sales pitch. If you
are paying organizers, you have to think about how the incentives work too. It
may not take much to get investors into a room. Dinner, networking. You may be
simply paying them indirectly. A startup has no real way of knowing if they
got a bang for their buck.

If investors were paying, they would know. They won't be visiting very often
at a high price tag if the pitches aren't good and if the chances of closing a
deal aren't good.

~~~
zaidf
_If investors were paying, they would know. They won't be visiting very often
at a high price tag if the pitches aren't good and if the chances of closing a
deal aren't good._

That's my point. Most investors have to pay a couple grand to attend
TechCrunch50.

~~~
netsp
That is OK. Investors can't be conned very easily. They can tell if they got
value from the event. The existence of a chance of being funded is more
opaque.

