

David Rose: Why NY Angels Charges Entrepreneurs - Cmccann7
http://www.metamorphblog.com/2010/02/david-rose-why-ny-angels-charges-entrepreneurs.html
Matt Mireles just wrote up a post quoting David Rose the "The Father of Angel Investing in NY" on why he charges entrepreneurs. Wondering what everyone here thinks about his response?
======
davidsrose
Folks, I realize that Jason and Matt have set me up to take the fall here as
some kind of epitome of evil, and I certainly understand that people don't
think it makes sense for us to charge any application fees. I've explained our
reasoning for why we charge the $150 fee (not the $15,000 fees that were the
subject of Jason's original jihad), and I completely agree that (a) it is
imperfect, and (b) the subject is a valid one for rational discussion. But
before everyone gets out their pitchforks and torches, I'd appreciate it if we
could all work from the same set of facts, which are as follows:

1) New York Angels is not a scam. We have invested over $40 million into 60
startup ventures over the past six years, all from our own personal pockets
and not from other people's money.

2) New York Angels is not a venture fund. Unlike VCs, who receive 2% of their
entire fund every year to pay their salaries and cover their expenses, none of
us get paid a penny, and we pay for our own expenses.

3) New York Angels is not a money-making entity. Think about it for a minute.
We each pay $3,500 out of our own pockets each year to fund our operations,
and not one of us gets one penny from anything any entrepreneur pays. How on
earth can this be a "money making operation", Jason??

4) New York Angels is not a bunch of Wall Street people. It is made up mostly
of leading tech entrepreneurs in New York. Our current and former members
include the entrepreneur/founders of companies such as About.com,
Register.com, Mimeo, PC Forum, Gartner Group, Gilder Lehrman Group, LinkShare,
MovieFone, Afternic, 24/7 Media, Technology Solutions, IGN.com, Unwired
Technologies, Half.com, Core Software, Research Board, IdeaLab NY, TACODA,
MNP, and TargetSpot.

5) New York Angels is not a bunch of tire kickers. Every one of our members
commits to investing at least $50,000 each year into companies that present to
the group. Unlike many other 'groups' that are full of, and funded by, service
providers, 100% of the people you present to are accredited investors who are
committed to writing checks.

6) New York Angels is not private club for only well-connected, insider
entrepreneurs. Unlike many angel groups, VCs and individual angels, we accept
(and read) applications from anyone who applies to us. We don't (yet) require
that you know someone, or have connections.

7) New York Angels is not lazy. Every month our angel members meet personally
with 10-15 companies looking for funding, of whom 3-5 are asked to come back a
second time to present their pitch to the whole group. Before their
presentation they are provided extensive personal coaching, and after their
presentation they typically have at least one two hour in-depth session with
interested investors.

8) New York Angels is not clueless. We've had exits to companies such as CBS
and Kodak with returns of up to 12x, and co-invest regularly with half a dozen
top-ranked venture funds. We recently ran an analysis of our current
portfolio, and while it wasn't as impressive as that of FRC or KPCB, it came
in as being roughly in the second quartile from the top relative to the
returns of most US venture funds over the past five years.

So, here I am, ready to discuss the question of application fees calmly, but
it's really hard to do that when quite a few of the anonymous posters seem to
want to blindly hurl personal attacks that simply aren't true.

David S. Rose Chairman, New York Angels Personal investor in over 75 startups

~~~
rms
META: Thanks for posting. Thanks for immediately warning us that this could
degenerate into personal attacks. To anyone posting, please think if what you
are saying has a personal attack in it. If it has a personal attack, don't
make it.

\--

I certainly understand that you are not some kind of epitome of evil. And I
respect that with $150 and a realistic business plan that you would take my
application for funding seriously.

However, there are lots of people with unrealistic dreams about businesses.
They have no idea what kinds of businesses actually get funded. They don't
have referrals. These people are tough to filter; I'm sure money doesn't
filter all of them.

It seems a little unfair to the peasants when you take $150 from some
sincerely earnest entrepreneur with realistic dreams of success. While being a
not-for-profit does make your motivations sincere from a legal standpoint and
you do provide a valuable service to people, mostly for free, you're nearly
the very definition of for-profit enterprise from a utilitarian standpoint.
Most people don't understand your valuable service and they just see you
keeping money.

Are you willing to consider alternatives to application fees? You could charge
$25 like Jason suggested. You refund the money for people that get rejected.
Or as pg proposed, you could donate the money to the charity of your choice.

Maybe you could take that $150,000 and let public high schools have a pitch
competition. That will probably get you a positive return over time.

Another alternative: keep the existing application available, possibly with a
fee reduction. However, you read all applications sent via Twitter for free.
If you want, I will reject Twitter applications for you for only $75 an hour.

Another alternative: do it like other successful angel groups that don't
charge for reading applications. Reject people that apply without reading the
application criteria. It's not hard to reject people. Maybe you could get
people on Mechanical Turk to do those rejections for you.

------
jasonmcalacanis
We get over 100 folks applying to each event in the Open Angel Forum.

As an angel investor I sort through this AS PART OF MY JOB. I don't need $150
to filter out the bad ones--I can tell in two minutes if something is really
bad.

TechCrunch50 doesn't charge either and we get 1,000 folks to apply for that.
Again, IT IS OUR JOB to sort through these. We don't need to charge the
startups.

This is a really lame excuse in my mind. If you're not willing to sort through
applications--which take minutes to process--why be an angel investor or run
an angel group?

Open Angel Forum is now in four cities and we are coming to New York City in
April. We should be in 15-20 cities two years from now and I think we can do
enough by having the lawyers, accountants and headhunters pay to
attended/sponsor to cover any costs.

David is a nice guy, but he's lazy I think.

~~~
htsh
Can we at least agree that the $150 is very reasonable relative to what the
worst offenders of this practice charge?

If you get 100 applications and can only take 5 in an OAF event, there are
still 95 other candidates of which some might find $150 to be a nominal cost
to avoid this sort of scrum. Its admirable that folks are protecting startups
from obvious scams but its dangerous to get overprotective when the end result
is that you remove a reasonable option from the table. For $150 you get a sit-
down with smart people and will at the very least get practice pitching under
pressure and good feedback.

And at $150, we're talking picking up the tab for a nice steak dinner, which
is something you've advised numerous times.

If these dudes have invested in companies they met through this type of forum,
all the better. And there's a certain amount of due diligence an entrepreneur
should be expected to do -- no need for the rest of us to protect people from
their own stupidity.

~~~
jasonmcalacanis
Because it is so low there really is no reason to charge it.

I wonder how many they get a year and what this equals in terms of revenue.
I'm guessing they get 1,000+ a year. So, it's $150,000 out of the gate I'm
guessing.

Feels icky and I'm sure $25 would have the same effect. It's clear this is for
making money from my perspective.

That being said, I don't think they are bad people and they certainly are not
the Keiretsu Forum charging $1,500-$6,000 to pitch... or that Mike Segal guy
asking for 5% of your business and $10k+!!!

The fact that they have to explain themselves shows how much the tide has
turned.

I'm an entrepreneur first and an angel investor second... so, I've built the
Open Angel Forum from a startups perspective. These folks are angel investors
and they don't always see the other side of the coin.

~~~
MediaSquirrel
Dude, it's really great to have heavyweights like you out there advocating for
this stuff. When I wrote my original post, I got slammed by a lot of people
and didn't get a lot of vocal support.

[http://www.metamorphblog.com/2010/02/is-ny-angels-a-
paytopla...](http://www.metamorphblog.com/2010/02/is-ny-angels-a-paytoplay-
scheme.html)

Honestly, I think entrepreneurs are scared to speak up and offend rich people
with power and money. If you're the only one who sticks his head out, it gets
cut off. And so nothing changes.

Now, I'm a bit more like you in that I've got something of a chip on my
shoulder and I don't give a fuck, but regardless, thank you for having my and
all our backs on this.

-Matt Mireles

~~~
aswanson
Thanks to you for calling bullshit on these guys in the first place. This
predatory stuff turns my stomach. And it is good to see Calacanis et al
cosign. This is just bad for the industry in general.

------
pg
If the money is really just to test applicants' seriousness, they should
donate it to charity.

~~~
MediaSquirrel
he claims that they are a charity, says NY Angels is a non-profit:
[http://www.metamorphblog.com/2010/02/is-ny-angels-a-
paytopla...](http://www.metamorphblog.com/2010/02/is-ny-angels-a-paytoplay-
scheme.html#comment-6a010536ffd655970b01310f41423a970c)

~~~
bravura
No, he doesn't claim they are a charity.

He claims they are a not-for-profit, which is different than a non-profit.

~~~
dantheman
What is the difference between a not-for-profit and a non-profit. I tried to
determine if there was a difference in the past and came away with them having
the same meaning.

~~~
davidsrose
New York Angels is a not-for-profit membership organization, which means that
the organization itself, unlike a startup company, is not designed to produce
a profit. Since it has no shareholders, there is no one to whom any profit
(excess of revenue over expenses) would be distributed. Instead, the large
bulk of our operating expenses are covered by annual dues of $3500 to $7000
from our investor members.

In terms of nomenclature, "not-for-profit" and "non-profit" are colloquially
used to mean the same thing (although technically the former signifies
intention, and the latter what actually happens :-). However, you can be a
legal not-for-profit organization (such as New York Angels) but NOT also be a
public charity (which is what people typically think of when they say "not for
profit"; that would mean that you register with the IRS under section 501(c)3
and can take in tax deductible contributions.)

------
matthewer
As a New Yorker, I can honestly say I don't think I have ever heard anyone
actually pitch NYA. David Rose frequently gives how to get funding talks, and
they all sound the same.

NYA's portfolio of companies is simply un-compelling:
<http://newyorkangels.com/portfolio/default.html>

How can an organization like this compete against innovative forms of funding
like Betaworks and Founder's Collective?

~~~
rms
One recorded talk of his is available here:

David S. Rose on pitching to VCs

[http://www.ted.com/index.php/talks/david_s_rose_on_pitching_...](http://www.ted.com/index.php/talks/david_s_rose_on_pitching_to_vcs.html)

------
MediaSquirrel
I've been getting a lot of shit for calling them out on this. Curious what
others think of this.

~~~
rms
It's because they are legitimately better than most angel groups that charge.
$150 is an incredibly reasonable fee in the scheme of angel groups.

------
aswanson
Classic scam, seen it before in charging starving musicians $150 a piece for
"auditions" with so-called A & R's associated with record labels. One of the
lowest forms of bloodsucking on the planet.

~~~
MediaSquirrel
Remember, this is $150 doesn't actually give you the chance to pitch. No you
pay $150 for the CHANCE to pitch.

~~~
bravura
I think you meant to say:

Remember, this is $150 doesn't actually give you the chance to pitch. No you
pay $150 for the CHANCE to have the chance to pitch.

------
hristov
I think that a smaller fee like $150 would not really be a problem. This may
be viewed as an administrative fee to have a paid person review each
application.

When the fees go up to $1000 and over, then it becomes problematic, because
then the application fees are obviously a source of profit. And if the angels
or the entrepreneur forum or whatever make money from the application process
they have little incentive to actually make investments.

~~~
Cmccann7
Totally agree that a smaller fee isn't such a bad thing and could be
reasonable.

But then I think that an entrepreneur is paying $150 or less for the
opportunity to meet investors who might or might not ever invest in the
company (actually they are prob more likely to not invest in terms of odds).
So its paying for something that has a negative value, just a chance that they
might be interested.

Also on the other side the investors should be cashed out entrepreneurs who
have enough money to sustain themselves and are looking at companies to invest
in and profit off of. Only seems fair that the investors should be footing
that bill (even if its just administrative) and others like Chris Dixon agrees
<http://twitter.com/cdixon/status/9727260471>

Hard to justify when the fee is such a small amount but it still feels wrong
to charge entrepreneurs anything for an opportunity to pitch an investor
group.

~~~
ojbyrne
I don't see how a chance of a positive outcome has a negative value.

~~~
evgen
They must really love you in Vegas...

~~~
ojbyrne
You're right. I should have said "a chance of a positive outcome for
(basically) free."

~~~
gridspy
$150 might be one week's food.

~~~
ojbyrne
Or an hour's labor. After taxes.

~~~
gridspy
1) Not for a poor entrepreneurial student fresh out of college with a great
idea but no track record.

2) Even for a professional, you can't get chunks of work exactly 1 hour long.
There are huge set-up and tear-down overheads to any job, plus little issues
like finding the job and getting paid.

If you want to attract the next two MBA students, go ahead.

If you want to attract the next two poor, clever hackers disinterested in a
normal job - perhaps you have chosen the wrong approach.

------
rmorrison
Seems to me that it's against their best interest to limit the pool of of
available business plans, which is what the $150 application fee does.

If I were an angel investor, I would ideally want to receive every business
plan ever created in hopes that I at least have the option to invest in the
next GOOG or APPL. Then it'd be up to me to quickly sort out the junky ones.

~~~
aaronblohowiak
they are part-timers and created this policy to weed out the tire-kickers.

~~~
SapphireSun
What is a tire kicker? I keep seeing that phrase and I don't know what it
means.

~~~
aaronbrethorst
Google is your friend. <http://www.google.com/search?q=tire+kicker>

------
petewarden
How about $175 just to get in the door for an afternoon of schmoozing with
VCs?

[http://petewarden.typepad.com/searchbrowser/2010/02/vcs-
ill-...](http://petewarden.typepad.com/searchbrowser/2010/02/vcs-ill-be-
avoiding.html)

------
kevinholesh
Wonder what Mr. Calacanis thinks of these logical reasons...

[http://calacanis.com/2009/10/09/why-startups-shouldnt-
have-t...](http://calacanis.com/2009/10/09/why-startups-shouldnt-have-to-pay-
to-pitch-angel-investors/)

------
Cmccann7
Surprisingly Jason has kept quiet on this specific case even after a couple
entreprenuers have pointed this out. hmm....

