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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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An Angel Investor Group Move That Makes Me Vomit

Comments (309)

I’ve personally made around 75 angel investments during two periods of time – 1994 – 1997 and 2006 – 2007.  The first was the period of time after I had sold my first company but before I co-founded what become Mobius Venture Capital.  The second was between the end of the “investment period” (the time when we could make investments in new companies) for the Mobius Venture Capital 2000 fund and when my partners and I raised our first Foundry Group fund in the fall of 2007.  Per my agreements with my limited partners, I can’t make angel investments during the time period that I have an active fund in the market.  So – I’m “out of the angel investment business” (although I can make a follow on investment in any company that I’ve made an investment in.)

I give you this background so that my statement below has some credibility.  I think it is grotesque that an organized angel investor group would charge an entrepreneur to present to their members. This is in response to the article I read over the weekend in the New York Times titled Angel Investors Become Less Available where this practice is described.

While there are some good and useful angel groups, there are plenty of bad ones.  And many of the members of organized angel groups aren’t actually angel investors.  I’d like to suggest that to “qualify” as an angel investor, you have to have made at least one equity investment of at least $25,000 in the past 12 months.  If you haven’t done this, you can’t call yourself an angel investor.

Now, I realize that running an “organized angel investor group” costs something > $0, but the number shouldn’t be very much.  And – the cost of this should be born by the angel investors that are members of the group, not by the entrepreneurs.  Does anyone else out there think having the entrepreneurs underwrite this is absurd?  It’s just completely backwards in my opinion.

I have an incredibly high regard for a number of angel investors that I’ve gotten the chance to work with – both as an entrepreneur, angel investor, and VC.  The great ones know that their purpose is to help entrepreneurs get up and running with a secondary goal of a long term economic return.  But – the economic return can’t possibly be there unless you are an active angel investor (e.g. your chance of having economic success by making one angel investment over your angel investing lifetime is extremely low – more about this in another blog post.)

In the mean time, I’d like to encourage any angel group that charges entrepreneurs to present to them to reconsider their position.

  • http://askbusinesscoach.wordpress.com courtney benson

    As someone who has been with a few start-ups, I have never heard of such a request, having the entrepreneurs underwrite this is absurd.

  • http://widefoc.us Eric Elkins

    It sounds like a really scammy program to me, considering angel investors stand to gain from entrepreneurs in the long run. It sounds kind of like those "Who's Who" registers that charge you to be "featured."

    No thanks.

    • http://intensedebate.com/people/bfeld Brad Feld

      Great analogy.  I think I almost fell for that the very first time I got one of those when I was in my early 20’s.  Thankfully I asked someone older about it who proceeded to both (a) mock me and (b) explain the scam.

  • http://intensedebate.com/people/john_minnih5395 John Minnihan

    Funny, this topic came up in a recent exchange w/ a friend.

    My reply included "…don't pay *anyone* for the "privilege" to pitch them. If they have to charge for deal-flow, you don't want anything to do w/ them."

    Kinda speaks for itself.

  • http://www.gorankem.com Adam Wexler

    In this day-and-age, it would make little sense for angel groups to charge to present. For one, I know they wouldn't be able to grasp or appreciate the captial light nature of my startup.

    Somehow/someway I've managed to spend <$1,000 despite recruiting a stellar team of passionate & talented individuals around me.

    Considering my core team has been putting in their sweat equity, we've had three expenses (cloud hosting, contracted grahic design work and…business cards!) and I surely would not make presenting to an angel group a 4th :)

    -Adam

    • http://www.iflaker.com Gabriel

      I agree Adam. I also have a startup. I just moved to a dedicated server in preparation for the cloud (GoGrid.com). The startup is for building websites the web 2 way without even the need to sign-up first and the browser will always remember your changed when you get back to the site.

      My wish is to get it to monetize before I can even start entertaining investors. In fact if someone is persistent about investing they will have to give me a presentation as to how exactly they believe their money will make my company successful. I also believe so many startups fail because of these investors. They make you change strategy and focus because of their 2 cents that they put in. If you are interested – the startup is at http://www.iflaker.com

      We can share experiences as well. Follow me on twitter @gabrielnkuna. I will follow you back

      Gabriel
      Founder – iFlaker.com

  • http://intensedebate.com/people/bfeld Brad Feld

    Yup – such a good example of adverse selection.  Anyone that is willing to pay to pitch is either low quality or naive.  Anyone that charges to pitch is probably low quality.

    • http://intensedebate.com/people/john_minnih5395 John Minnihan

      Agreed. I raised $700K in a f&f round and had a term sheet for $4MM (pre 8, post 12) and never paid anyone a cent to pitch.

      You know the rest of that story, but the relevant point remains: don't pay to pitch.

  • http://intensedebate.com/people/bfeld Brad Feld

    Well done!  And – I agree – you should be able to make a remarkable amount of progress without spending much money, as you seem to be showing.

  • http://intensedebate.com/people/mikehartcxo mikehartcxo

    Couldn't have said it any better, Brad. Thanks.

  • Rocco

    Well said…. well said. Interesting side notes about how many start-ups are spending more time pitching than building the business… I know you need to do both, but if you don't sell, how is there a business???

  • http://twitter.com/stevenkane Steven Kane

    Bleccch!

    This is in the same lowlife vein as the scum who prey on young Hollywood wannabees, charging for auditions and screenplay readings.

    On principal I am opposed to capital punishment, but stuff like this makes me waver

  • http://www.twitter.com/justyn Justyn Howard

    I think the same can be said for the websites that charge a monthly fee to "feature" your startup in a listing to potential investors. Sure, the sites cost something to run, but when the only offers anyone is getting are from another company that wants you to pay in order to get in front of people, it's just another layer of insult. And I would be very surprised if investors you'd want to work with are involved in these sites?

  • http://intensedebate.com/people/bfeld Brad Feld

    Chuckling!  Glad to have you on my team then…

  • http://intensedebate.com/people/bfeld Brad Feld

    I completely agree.  As I mentioned in a previous comment, this is a good example of adverse selection.  The websites that do this tend to have crappy investors (or no real investors) on the other side.  Preying on the entrepreneur as a “market” is just a bad idea.

    • http://www.twitter.com/justyn Justyn Howard

      Exactly. And if I was on the VC side of the table, I'd wonder what other stupid things you were going to spend my money on.

      It reminds me a lot of MLM's that charge people to get involved. Never, ever pay to work for someone (or pitch an idea).

  • Allan T

    Brad, I agree wholeheartedly. Do you extend your judgement to DEMO?

    • http://intensedebate.com/people/bfeld Brad Feld

      I don’t know how far I go.  Theoretically Demo serves a different purpose, but I’m very aware of TechCrunch 50 vs. Demo debate.  I generally think that “the audience” should be the ones paying.  The argument that Demo is an edge case based on the audience exists, although I’m not sure I feel like getting in the middle of this one.

  • http://intensedebate.com/people/PhilSugar PhilSugar

    The best way I can put it is that it feels like "paying somebody to be your friend"

    When you pay to get the opportunity to talk to somebody it always feels like I'm paying to be your friend.

    I've never been able to get past most of the CEO networking groups because it just feels like this. I've organized one, but the only payment you have to make is playing credit card roulette for the tab. (second to last persons card picked from the hat by the server pays the tip, last pays the tab)

    Sometimes, I even get this feeling when going to conferences meant to talk about the industry….

    • http://intensedebate.com/people/bfeld Brad Feld

      There are some great affinity groups, like “Entrepreneurs Organization” (used to be “Young Entrepreneurs Organization”) that are much more than social clubs / paying for friends.  I wrote a post titled The Power of Peer Groups about this a while ago.  That said, the vast majority of things like this are a waste of time unless you want a social club.

  • http://intensedebate.com/people/bmann Boris

    Brad, we've seen a lot of this. Not quite so bad as to pay to present to an angel GROUP, but it seems to be the default way that various "pitch" forums operate. They charge something like $500, apparently in an effort to weed out less serious applicants. All I know is that better applicants simply don't pay, so the forums end up with lower quality startups, which is just bad for everyone.

    • http://intensedebate.com/people/bfeld Brad Feld

      The NYT article specifically mentioned some angel groups.  I’ve also seen this with angel groups that I’m aware of.  So – I think it’s broader than just the pitch forums.

  • http://intensedebate.com/people/richard_st59861 Richard Stump

    I would also agree with your definition of an angel, having at least 25K in the game in the last twelve months. As an entrepreneur I would ask this question of potential angels. In many groups, only a handful do any real investing and that makes the supposed efficiency of pitching to these groups lower than it would appear..

    • http://intensedebate.com/people/bfeld Brad Feld

      This is a super important point.  We had an angel group in Colorado where I’d estimate that less than 5% of the members had made an angel investment in the past 12 months.  That’s a complete waste of time for the entrepreneur and not really an angel group – just a social club for people that want to think they are angel investors.

  • http://glunote.com dale

    Hasn't Keiretsu Forum been doing this for ages? I believe (don't know for sure) that they charge around $6K to present. Can anyone verify this?

    • http://www.goomzee.com Mike Sparr

      Keiretsu charges $1000 i believe after you pass the initial screening which requires filling out a detailed application (hybrid of exec summary and detail plan) plus providing (1yr historical and 3yr pro-forma) financials. It also requires you incur the costs (if not local) to attend a 10-minute screening, then see if you're invited back for another meeting (at your expense).

      If invited to present during their first Thurs of month meeting, then they require the payment. Not sure how negotiable it is but if you knock their socks off with the intro, I assume everything's negotiable. Haven't personally pitched them but know some people in a couple chapters. They've essentially taken a Henry Ford approach to angel investing and put a "process" in place to make it more efficient.

      I know the ACA (Angel Capital Association) accredited funds will never charge entrepreneurs to present, so assume that Keiretsu is not a member of ACA.

  • http://intensedebate.com/people/bfeld Brad Feld

    From http://www.keiretsuforum.com/frontend/dispseccont… />
    Q: Does the Keiretsu Forum take commissions from Keiretsu investments?
    The Keiretsu Forum does not take warrants or commissions for capital raised through the Forum.

    Q: Is there a presentation fee to the Keiretsu Forum?
    There is no fee to present at the Deal Screening meeting. However, ifat the Deal Screening meeting your company is selected to present to the full Forum, there is an administrativepresentation fee in order to defer management and organization cost. Also, the presentation fee serves as filter system. Please contact the Chapter President for more information.

    • http://intensedebate.com/people/smurchie Steve Murchie

      Full disclosure: As Brad knows, I run the Keiretsu Forum in Colorado.

      When I first got acquainted with the Forum, it was as an entrepreneur looking for capital. I had become very frustrated trying to find angels one-off, and the idea of paying a nominal fee to get in front of a group of active, qualified investors was a relief. I applied to several groups including Keiretsu, most of which charged just to apply, and most of which I never heard back from. And while I never got promoted to the level where I got to pitch to the Forum members (and thus never paid a cent), I did get a lot of good insight, feedback and referrals along the way.

      (more)

    • patty ferreira

      We paid $1000 to the Keiretsu after the deal screening and on the day of the "real" pitch to the angel group.

      • http://intensedebate.com/people/bfeld bfeld

        How did it work out?  Was it worth it?

      • http://intensedebate.com/people/bfeld bfeld

        How did it work out?  Was it worth it?

  • Judith Iglehart

    Let me say up front that I am a business angel and work with business angel groups worldwide. I believe you will find that the days when economic development groups, governments, and foundations funded angel groups have passed. Most credible business angel groups with more than a handful of members, that want to present professional meetings (good location, refreshments, printed materials, sound system and AV, some staff, boot campus and follow-up with entrepreneurs, providing other resources to entrepreneurs) need to charge. Mr. Feld was an angel investor during the prime times for angel investors. Money was around, it was easy to find, and valuations were high. Thank you for raising this issue, but please remember that there lots of variables involved in a business angel group's decision to charge entrepreneurs.

    • http://intensedebate.com/people/bmann Boris

      Sorry, don't agree. If you're truly looking to make an investment, I'm sure that many service providers (e.g. lawyers) would pay for all of the items you just mentioned. And if you're not making any money INVESTING your money, you think you should take it from the entrepreneurs instead?

    • http://intensedebate.com/people/bfeld Brad Feld

      First of all, when I was making angel investments, it wasn’t “easy”.  1994 was a tough year, as was 1995.  The first half of 2006 was pretty rough also.  More importantly, I think the MEMBERS of the angel groups should be the ones paying for the event (they eat the food, they are getting the opportunity to invest in the companies); the entrepreneurs should not have to pay.

  • http://www.businessmoneytoday.com phanio

    I think it is more then trying to cover the operating costs of the group. I have heard that for many groups this is a way for entrepreneurs to self-select out. Most groups (VCs as well) receive hundreds of business plans that have no chance of investment or do not even come close to meeting their guidelines. Thus, if they are willing to pay fees – they receive a lot less of the "junk" plans.

    I agree – most investors must take the good with the bad and hitting the business owners for it seems a bit below board.

    • http://intensedebate.com/people/bfeld Brad Feld

      I think the group should be covering its own operating costs.  The angel group members should underwrite the events.  Re: the filtering process – this should be part of the role of the angel group in the first place!  Using a “fee” to self-select seems lazy and ineffective.

  • http://intensedebate.com/people/jrpowers jrpowers

    I have to agree that charging is absurd and I would never pay anything. However, I've found that the biggest cost in pitching to any investor is just pure time wasted! It seems to be far more productive to just build a damn company and wait for the investors to catch on later!

  • http://blog.calbucci.com Marcelo Calbucci

    I'll be the contrarian. I never ran or been member on one of these organizations, and as an entrepreneur I should think that free is good, but there is a filter that price creates that is important. In other words, if the event is free, you might receive 1,000s of sumissions by startups that are absolutely crappy and hide the 100 that are actually good. Create a huge burden for everyone involved. If you charge a fee to submit or present, 80% of the crappy ones (and some of the good ones too) go away benefiting everyone.

    • http://intensedebate.com/people/bfeld Brad Feld

      While nice in theory, I’m not sure it’s true in practice.  I don’t think the crappy ones get necessarily get filtered out because there is a small $ amount to pay.

  • http://intensedebate.com/people/smurchie smurchie

    Full disclosure: As Brad knows, I run the Keiretsu Forum in Colorado.

    When I first got acquainted with the Forum, it was as an entrepreneur looking for capital. I had become very frustrated trying to find angels one-off, and the idea of paying a nominal fee to get in front of a group of active, qualified investors was a relief. I applied to several groups including Keiretsu, most of which charged just to apply, and most of which I never heard back from. And while I never got promoted to the level where I got to pitch to the Forum members (and thus never paid a cent), I did get a lot of good insight, feedback and referrals along the way.

    (more)

  • http://intensedebate.com/people/smurchie Steve Murchie

    Fast forward a few years, after having become an active angel myself with Keiretsu in Seattle and now living in Denver… I decided to work with the group to launch a CO chapter. While our model does include fees for the final presentation, I have been very sensitive to the local environment, and have tried to keep fees in line with our activity. We started out free, raised to $500 after we made about $500K in cumulative investments, and raised again to $1000 after we hit 25 active members and about $2M in cumulative investments. I've stayed at that level since (though most US chapters are around $1500) due to the ecosystem here, even though we've surpassed $5M invested in 19 deals since kicking off in March 2007. We've had a fairly high funding rate (at least until late last year…), and we let entrepreneurs come back for free to give updates as they continue to work on their raise. In all, I still feel this is fair and cost-effective to the entrepreneur.

    (more)

    • http://intensedebate.com/people/bfeld Brad Feld

      Why charge the entrepreneurs the fees?  Why not charge membership fees to the angel investors to cover the costs?

      • http://intensedebate.com/people/smurchie Steve Murchie

        Members do pay substantial fees, but it's still not enough to cover costs. Presenter fees are an offset for the remaining expenses. I'd like to say that the combined fees cover the full costs of running the group, but they don't – it's a fantasy to think that anyone is getting rich running an angel group. And getting service providers to pick up the slack? No way, unless you turn it into a giant advertising opportunity, where entrepreneurs are pitching to a room full of lawyers/accountants/PR/marketing folks. I guess I feel more honest and upright if I can create a high-quality environment for the pitching entrepreneur. If I can't, I'll do something else. BTW, the incubator model, such as TechStars is evolving, bypasses a number of these issues but isn't nearly as scalable.

        • http://intensedebate.com/people/richard_st59861 Richard Stump

          This just doesn't make sense. If you are successful as angel investors then the costs of offsetting incurred costs should be minor compared to the returns generated. I know of many angel groups where the members pay $1000/year and they do not charge the entrepreneurs. You expect the companies you invest in to spend their money in a wise and efficient manner. Why is it so difficult for an angel group to do so?

        • http://www.goomzee.com Mike Sparr

          Perhaps build a Keiretsu Services, LLC and that organization invoices each chapter for services rendered instead of staffers in every chapter. Then serve only Quiznos for every event ;-). Hope all is well and fun Summer!

        • http://intensedebate.com/people/smurchie Steve Murchie

          Replying to both Richard and Mike – ____Without flogging the issue, we work really hard to keep expenses low (hey, the team fleet of Ferraris is almost a year old…). At the same time, we're open to suggestions ton how to improve the model – and it's true that centralizing some functions definitely reduces costs, but doesn't necessarily improve connectivity to local entrepreneurs.

        • http://www.intensedebate.com/people/smurchie Steve Murchie

          Replying to both Richard and Mike –

          Without flogging the issue, we work really hard to keep expenses low (hey, the team fleet of Ferraris is almost a year old…). At the same time, we're open to suggestions ton how to improve the model – and it's true that centralizing some functions definitely reduces costs, but doesn't necessarily improve connectivity to local entrepreneurs.

  • http://intensedebate.com/people/smurchie Steve Murchie

    A couple significant points of note: Keiretsu Forum tends to fund post-seed rounds, where the company is showing traction in the market – typically that means they are revenue-generating. As such, the time/treasure tradeoff is a lot more quantifiable. If a seed-stage or weaker opportunity makes it through, I let them know the odds and let them make the call. We also look at non-traditional deals like real-estate funds, where the whole fee discussion is superflous.

  • Knox Massey

    I've been an angel investor for 15 years, have run an angel group for 7 years and have invested > $500K in 10+ companies. I have never charged an entrepreneur to present nor has the group I belong to–nor will we ever do so! The vast majority of angel groups do not charge a fee. Obviously, the NYT article was meant to be sensational–and was successful….

    • http://intensedebate.com/people/bfeld Brad Feld

      Knox – I have great respect for your approach.  Unfortunately, I’m not sure the NYT article was “sensational”.  I know of plenty of cases of this.  At the Angel Capital Conference I was at, did y’all do a survey of the number of groups that charged entrepreneurs vs. those that didn’t charge entrepreneurs?

  • http://intensedebate.com/people/tfalls tfalls

    AGREED! Hope this doesn't catch on to other angel groups

  • http://intensedebate.com/people/calvinf Calvin Freitas

    Brad,

    Some of the angel investment groups you address in your criticism (and mentioned in the NYT article) have advertisements showing up in the Google text ads on this post.

    Cal

    • DaveJ

      Cal,

      Common problem. See http://www.businessinsider.com/googles-worst-ads-… for some of the most outrageous examples.

    • http://intensedebate.com/people/bfeld Brad Feld

      Outstanding!  The joy of Google AdSense and their matching algorithm.  Let me tell you the one about the time I wrote about pro-choice and got a bunch of pro-life ads.

  • DaveJ

    CTEK charges $500 to present and $250 to *screen*.

    http://www.ctek.biz/default.asp?p=56&s=68

    According to the website, "In 2005, CTEK became a part of the Advance Colorado Center, The ACC is a partnership between the Colorado Economic Development Commission (EDC), the State of Colorado Office of Economic Development and International Trade (OEDIT) and the University of Colorado at Denver and Health Science Center (UCDHSC)."

    • http://intensedebate.com/people/smurchie Steve Murchie

      CTEK no longer has an angel program; however, in addition to presentation and screening fees, they took a carried interest in funded companies, such as a VC would.

    • http://intensedebate.com/people/bfeld Brad Feld

      Yeah – CTEK ended up being really ineffective and hasn’t been active for a while.

  • tim

    dude, they all do it – ctek, keiretsu in colorado, and in michigan, great lakes angels, blue water angels, grand angels, you name it.

    they pretend to review your business plan and claim to be active, but in the end, i dont know of a single company that went through the process and got more than a cancelled check in return.

    they all suck.

  • http://docverse.com shan sinha

    Brad- I completely agree with your assessment as a vehicle for financing the early stages of tech start up companies. As disclosure, I am the founder / ceo of a tech startup company that has raised $1.5M from seed stage investors.

    During the process, I visited a Keiretsu Forum meeting where 4 people pitched their opportunities. People pay $5,000 (or more) to pitch to groups of Angels. For a tech startup like us, I think it makes zero sense.

    That said, I did see a few ideas that were not tech related in any means. One person was looking for a couple of million dollars for a shopping mall / development idea in western montana.. had an apparently strong track record at his current real estate firm.

    He had an established business and needed a small amount of capital. Now I don't know the first thing about his space.. but i wonder if there is a "target demographic" for these "angel groups" who charge for access.

    I'm hard pressed to call them angel groups.. but may be they are groups of people looking for a-typical types of investments that might have different characteristics than tech startups (have some cash flow, not quite in the market for VC like returns, but still carry some nonzero kind of risk).

    But what do i know.. i definitely don't have enough money yet to be in their shoes.. working on it pretty hard though :)

  • peter kim

    basically Swoopo.com. open the doors and charge a 'low fee' banking on desperation knowing the probability of funding doesn't justify the cost. Angel Sweepstakes anyone?

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  • http://theweddingvine.com Mark

    Brad, I entirely agree with you! A startup can be very capital intensive, and paying to "prospect" to possible investors is not a way I'm going to go! There are a few of these pay-to-list Angel websites in the UK that seem to charge very high fees (in my view) for the service they provide. I can post a video on Youtube for free, so why charge me $300 to put it on your angel's website, and I'm sure you don't perform due-diligence on every business plan you get in (and if so, how much due-diligence can you really do for $300!!).

    For me, I'm going to use my network and any other "free" avenues that I can find.

  • http://twitter.com/DamonOldcorn @DamonOldcorn

    London (UK) are you listening to this – stop preying on young/first time entrepreneurs……

  • Jon Lawson

    Well written, interesting post.

    1) Why exactly is it so offensive? Is it because one group (the angels) are less wealthy?

    2) Perhaps, by charging the entrepreneurs, you filter out the time wasters. You don't force anyone to pay, so the angels know that all entrepreneurs pitching are serious about the task in hand and not just chancers.

    3) Access to a pool of qualified, serious investors is valuable to the entrepreneur, and therefore worth paying for. Perhaps it is time that more entrepreneurs woke up to the value being presented by the broker of these introductions.

    4) For some individuals running these groups, they might quite sensibly take the view that their first goal is to attract first class investors, and so concentrate on lowering the barriers for those individuals.

    5) On balance, I propose that is is HARDER for an entrepreneur to connect with good angels than it is for angels to connect with good start ups. Therefore I am comfortable with charging the entrepreneur.

    Thanks Brad!

    • http://intensedebate.com/people/bfeld Brad Feld

      1. My view of an “angel investor” is that part of their job is to help entrepreneurs get their companies up and running.  The word “angel” is key – they are supposed to be the “angels” that help out the entrepreneur.  Theoretically, you need to be an accredited investor to be an angel, which means you have a net worth > $1m or made > $200k in the previous year.  So – you’ve got plenty of money to pay to participate in an angel group.

      2. I disagree.  It’d be interesting to see a statistical study, but I’m going to guess that there no real correlation between “paying to present to an angel group” and “quality”.  In fact, I bet there is plenty of adverse selection – the best companies don’t have to pay because they can find their own investors so the angel group will miss these.

      3. While I agree that it’s valuable for an entrepreneur to get in front of a pool of serious “angel” investors, in theory the angel investors should be super excited about having high quality entrepreneurs present to them.  Therefore their goal should be to get the highest quality entrepreneurs at very early stages to present.

      4. Maybe, but I think that angel investors will likely either (a) invest on their own or (b) self-organize.  If (b) then the angel groups are useful, but a small fee won’t / shouldn’t be a barrier to entry for them if the group is high quality.  The same “quality” argument holds – if it’s free, then you are likely to have a bunch of “angels” that are just hanging out, rather than ones that are serious about making investments.

      5. I instinctively disagree with your assertion.  Specifically, great entrepreneurs will always find financing.  Great angels will always find things to invest in.  As you go down the quality curve, I think the angels benefit more from access to higher quality entrepreneurs.

      Thanks for the extensive comments / questions / assertions.  It’s helpful to me to force me to flesh out my thinking.

  • Frank Ronchetti

    Brad, I think you went a little overboard with your post. I have referred a number of people to the Keiretsu Forum because it seems to me to be a credible organization run by people with integrity. In particular, the Denver chapter seems to have done a great job starting from scratch just a couple of years ago and getting a meaningful amount of funding to entrepreneurs. Paying $1,000 to get in front of a qualified group of angels could well be worth it, when you take into account the amount of time it takes to build a credible network and the large number of un-serious time wasters you encounter along the way.

    • http://intensedebate.com/people/bfeld Brad Feld

      I think Steve Murchie is doing a good job with the Keiretsu Forum in Denver.  However, as he knows, I think he should not be charging startup companies to pitch to angels.  When the companies are “post startup” (e.g. multi-million revenue companies), that’s a different issue and that seems to be the type of companies that Keiretsu Forum is suited for.  But – that’s not “angel investing” in my book.

      • http://intensedebate.com/people/smurchie Steve Murchie

        Thanks Brad. I think your comment gets to the crux of the issue: an "angel" is in the eye of the beholder. For an entrepreneur, an angel is anyone with money they are willing to part with (not necessarily a "good" or the "right" angel, mind you). For an investor, it means whatever they want it to mean, based on risk tolerance, capital available to deploy, personal deal-vetting experience, market sector preferences, etc. Angel groups are flocks of like-minded individuals with similar goals and objectives, and by their nature are often not the types to focus on a very early stage deals in a specific tech sector requiring deep market expertise – that's the realm of the individual angel.

  • http://intensedebate.com/people/bfeld Brad Feld

    Yes, except for most of the angel groups I’m familiar with position themselves as “early stage investors, especially in tech related companies.”

    • http://intensedebate.com/people/smurchie Steve Murchie

      Yes, and we could debate the definition of "early stage" all day, too…

      However, I'm personally very sympathetic to the issue of fees in the case of thinly-capitalized, seed-stage startups.

  • http://www.keiretsuforum.com Todd Dean

    Brad,

    Thank you for your article. I do agree with many of your comments. I would like to share my opinion. I started Keiretsu Forum Northwest almost 4 years ago because I was tired of seeing entrepreneurs NOT getting any funding from other angels or angel groups. I decided from the first day of starting Keiretsu Forum NW that I would only let serious active angel investors into our group. After almost 4 years and our investor/members having invested over 96 companies which I'm very proud of. But with that being said there are many companies that pay a presentation fee that recieve no funding. I wish our business model was based on success fees but we are not a broker dealer so SEC regs prevent us from doing this. I can say in the last year our members are still investing in one or two companies every month and I don't know of any group or VC that has been investing like this. I very much look forward to our markets becoming more liquid to see more investing but this I feel is the best in our current market.

    Todd Dean
    President
    Keiretsu Forum NW
    todd@keiretsuforum.com

    • http://intensedebate.com/people/bfeld Brad Feld

      Thanks for the explanation of what you are doing with Keiretsu Forum Northwest.  One thought that smoothes out this issue would be a refund of the fee to any company that doesn’t get funding.  That doesn’t violate the broker dealer laws while at the same time changing the dynamic of charging entrepreneurs to pitch.

      • http://intensedebate.com/people/smurchie Steve Murchie

        Actually, that is strictly interpreted by the SEC as a success fee, and as such slides the meter over to broker/dealer.

        Stay tuned, though – we're working on some ideas.

        • http://www.goomzee.com Mike Sparr

          Steve, Todd: you can include recovery of expenses in the term sheets you issue, or choose to participate in, which shouldn't violate SEC. Everyone assumes they have to be legal expenses but why not make that an incentive to keep legal fees down, and use remaining proceeds to reimburse the fund for operating costs?

          By doing this, you serve another purpose as well and show your fund is serious about investing given this serves as motivation to do deals so the fund will recover expenses only at closing; it also forces scrutiny of presenters to benefit your members because your ratio of pitches/offers must be in check for the numbers to make sense. These are nominal enough that I would suspect any funded company wouldn't be so fragile that investing $5-10K in operating capital would make or break the opportunity so the only negotiating point is whether the reimbursement is pre or post closing.

          In another thread to Steve, I also suggested you centralize a services organization for Keiretsu, i.e. – Keiretsu Services LLC, and bill chapters based on usage or member count, pro-rata. This seems even more scalable, plus you save on admin overhead with staffers for every chapter.

          • http://intensedebate.com/people/smurchie Steve Murchie

            Mike –

            Since we don't operate as a fund, rather as a facilitator bringing together investors and entrepreneurs, we (the Keiretsu Forum) don't control the term sheets in deals. We try to be a very low-impact participant in the angel<>entrepreneur relationship. This discussion has been very enlightening, though, and suggests some new ideas for operating principles.

          • http://www.goomzee.com Mike Sparr

            Steve, thanks for the reply. You're right; that makes sense (angel network vs. fund). I see your point regarding success fee: http://www.hg.org/articles/article_1603.html (last 3 paragraphs)

            I'd love to hear more if any ideas come to fruition. Agreed, a great topic of discussion.

  • http://intensedebate.com/people/bfeld Brad Feld

    Hmmm.  Ok.

  • http://www.gcase.org/ Robert W Price

    Hello Brad,
    Thank you for setting up a great discussion.
    Robert W. Price
    Executive Director
    Global Entrepreneurship Institute
    http://www.gcase.org/

    ***
    Below is information sourced from Angel Capital Association (ACA)

    The Angel Capital Association is a trade association that supports angel investment groups in North America. ACA was founded by angel investment groups located in the United States and Canada to help maximize the success of group based angel investors.

    ACA Guidelines on Charging Entrepreneurs Fees for Applications and Presentations
    In 2008, ACA recommends that angel groups charge entrepreneurs no more than nominal fees for applying for and/or making presentations for angel capital and that all fees are fully disclosed, ideally appearing on the group's Web site. The fees should be no more than a few hundred dollars for applications and no more than $500 for presentations.

    http://www.angelcapitalassociation.org/dir_resour

  • http://www.facebook.com/tommywu Tommy Wu

    Brad,

    While I agree with you in principal, I think that they only have the long term effect of hurting themselves. With such a requirement I imagine the best startups / management teams will not be funded in this manner, leaving only the desperate left to pitch these funds. It will hopefully show up in the returns, Karma providing.

  • http://www.intensedebate.com/people/PhilSugar PhilSugar

    Popular post. It boils down to this:

    The only ones that really pay are those that do not get funded. And that really feels like picking on the short bus kids. What you are really doing is making the person that doesn't have a lot of money, and was unsuccessful in raising money pay all of the expenses. And an important point is that they are paying the expenses for the 19 people out of 20 that supposedly are wealthy but haven't put up any money in the last year, and are using the meetings as a social club.

    If you get funded money will go towards the fee, so the angels in this round would really prefer there be no fee (why subsidize those that didn't invest)

    The only people that should be screened by their ability to pay money should be…de da dee…..those that are there because they supposedly have lots of money.

    • http://intensedebate.com/people/smurchie Steve Murchie

      Hi Phil –

      Interesting summary, but bad math.

      1) Yeah, it sucks if you don't get funded the first time you present and you paid a fee. That is why we provide free counseling before and after the fact, and offer free repeat updates as your story evolves. Not surprisingly, companies that don't get funded on first presentation… AREN'T READY. And also not surprisingly, they often attract more attention on the 2nd or 3rd attempt.

      2) The fees are so low in aggregate, that angels have never objected to fees paid – the numbers are insignificant. On the other hand, percent-of-raise fees paid to brokers for 'prepping the deals' are REALLY scrutinized.

      3) In any angel group, some will be more active than others. One's ability to invest (i.e., their wealth), should not be construed as their willingness to invest. Your argument assumes that all deals are investment-worthy, and any hesitation is an investor failure. WRONG. In my experience, increasing net worth often correlates to investor sophistication and caution, meaning the more you hear NO, the less likely you are to attract smart money.

      • http://intensedebate.com/people/PhilSugar PhilSugar

        It is a fact set in stone that if you charge people to present the only people that leave with less money in their pockets than before they presented are the ones that did not receive funding. People who got funding have more, Angels who didn't pay have the same.

        I would say that the point of an angel group to pre-screen deals would be to make sure that deals ARE READY (in caps as you put it) so nobody wastes their time and money. What else could pre-screening be for? Why bother having an organized group?

        Now then if we want to discuss what is a feasible way to get entrepreneurs advice/coaching/reviews I'll discuss that. It does take a lot of time. Time is money. If you did it for free you couldn't support your family. All your time would be taken. There has to be some way to pay for it. But that's not the discussion

  • http://www.meteorical.co.uk Brian Dorricott

    In my experience, in the UK it is common practive for Angel Networks to charge BOTH entrepreneur and the investor. The range is about $200-$300 for investors per year and anything from $1000 to $8000 to the entrepreneur. The charge to the enrepreneur is requested for several reasons: to make sure they are serious; and to pay for someone to help them prepare their pitch being the main two.

    I would suggest this is because some of our angels are less sure about what they are doing… but could there be another reason?

    • http://intensedebate.com/people/bfeld Brad Feld

      My instinct is that at these levels it is so that whoever “owns” the angel network organization makes money!

  • andrew

    agreed. It is sort of like a ponzi scheme. Have to pay to participate in possibly unlimited rewards!

    I realize there is a difference, but I can only think of those infomercials where they are targeting "inventors" for their ideas, but in the end, less that 1% of those that submit and pay a fee ever get anything in return.

    As a cofounder of a start-up, and as such likely biased, I do think this situation also speaks to the point that access to funding is inefficient and the market is too thin.

  • http://www.fundingpost.com Joe Rubin

    As I'm quoted in the NYT article, I feel I should comment to clarify. The costs mentioned for our event arent quite in context with "angel groups charging" quote I gave. When asked "why do some angel groups charge", that was the answer.

    As for costs, at the event we organized we charged $75 for 90% of the attendees to be there. The $350 charge was for a handful of companies to attend a separate class on presenting to investors. That fee also included the $75 fee to attend the event, and an 1/4 page advertisement in our magazine. One company paid the $2000 to give a 20 minute presentation. This fee includes several hours of our time in coaching the company, helping them organize their presentation materials, and of course, the opportunity to pitch to all of the different Angel Groups and Venture Funds in the room at one time. We bring in companies that are far enough along where the time and money makes sense for this.
    Joe Rubin
    FundingPost

  • JKL

    I just figure that any group that needs to charge an early stage startup who likely is poor as hell for "dinner" or to present to them must not be doing very well with their investment fund. I mean, if they can't even afford to gather together for couple of hours are they really running their business well? So, I just don't take them seriously and I don't waste my time sharing our ideas with them.

  • http://www.actseed.com Bill Attinger

    Brad, there are ways to avoid forcing seed stage companies to pay a pitch fee and better prepare these companies to be ready for a solid pitch, plus open up the investment reach to angel types that aren't part of a formal group. I'm not suggesting angel groups are disintermediated, but there are ways to open the playing field while giving the investors a more cost-effective and efficient way to pre-qualify their short list. That's what I'm working on now.

    • http://intensedebate.com/people/bfeld Brad Feld

      I completely agree with you – it’s great that you are working on this.

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  • lewis

    I think that a company that needs to PAY to be listened to should not be listened to in the first place.

    As simple as that.

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  • http://www.adrocket.com Scott Milener

    This whole thread is bizarre and you are wrong. *its free market*. if the angel group wants to charge, then the entrepreneur has the right to say 'no thanks' and drive up and down Sand Hill instead.

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  • Brian

    Ok…so I heard lots of metaphors here like "paying for a friend" or comparisons like "paying for a pitch is like those who prey on young Hollywood wannabees, charging for auditions and screenplay readings". Frankly, I find this BS, you don`'t pay for a friend since you expect that "friend" to give you back hundred thousands more(you want him to invest, don't you?) and secondly, think of all the Hollywood wannabees,think of how many that have made it are completely useless, not to mention if you have in mind how many more there have been before the selection process.
    To make a long story short and cut the useless metaphors and comparisons, I actually tried buying a database (it was the VCgate database http://www.vcgate.com ) and I will do it at anytime for the following reasons:
    1. The price was not that high so I would bother complaining
    2. They offered me great support and answered all my questions regarding their product (and i asked lots of them, they even told me how many potential investors they had on their list that would match my profile before i bought ir)
    3. The database was already organized, i didn't have to trouble doing research at home and waste my time
    And the list could go on, but the most important argument for me was that I would never trust to give my fund raising project (that I have worked so hard on) to anybody that can steal it or put their name on it without any further consequences. By paying a sum of money both you and the company submit to some ground rules that mention theft among other things (plus you can always prove the bank transfer so it becomes obvious that you had an arrangement with that company).
    These are only some of the benefits of paying for any services,and the list may go on.
    Like it was already mentioned, so far I didn't get any funds but I got some relevant reviews over my project and that was worth the trouble.

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  • http://www.SeedBucks.com Tom Psillas

    I think the venue you are pitching your company to should determine what the cost to present. As a prior angel, I have seen too much junk come through the door.
    For every good idea that gets funded, there are thousands of other ideas that are unfundable.
    We can't even get the banks to manage investor funds properly. How can we expect startup entrepreneurs to do much better?
    As an entrepreneur, you have to do your homework. You have to put it all on the line. I puke, when a startup entrepreneur comes to me with nothing to lose, or they say their wife will not sign to put their house on the line. So, I say, bye bye. Why should I work for free, listening to these jokers, when I could be working with entrepreneurs that know what it takes?

  • http://www.facebook.com/profile.php?id=1477913171 Tom Psillas

    Now, if you are not sure if you are fundable and pay $2K to present, then I think you need to get your head examined!
    This is free enterprise. If I want to charge $5K for someone to talk to me; that is my choice. Trump charges big bucks to use his name.
    There are a lot of investors out there. If your venture has merit, you will get callbacks from investors, when you send them your executive summary. If you do your homework and are viable, funding will not be a problem.

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    Couldn't have said it any better, Brad. Thanks.
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  • http://intensedebate.com/profiles/markmontgomery Mark Montgomery

    I agree with you on this and quite a few other issues Brad — we obviously have far too many fools and far too few entrepreneurs investing — particularly of the type that have built sustainable businesses. When we were operating our fund I received invitations constantly from those who charge fees– often substantial.

    Add it to the long list of self-defeating practices out there today– and we wonder why so few jobs are being created?

  • albert

    so how do I get a hold of an investor group where are thay at phone numbers are out of state . im in california and still not able to find one here.

    • http://intensedebate.com/people/bfeld Brad Feld

      What kind of “investor group” are you looking for?

  • justin

    So much free market hoopla – then this article comes along. Putting a price on presentations, usually results in filtering the crappy business plans from trying random pitches.

    Gents, come on. Just 'cos you dont do something, does not mean it is very bad.

  • http://hendrop06.student.ipb.ac.id ndrew

    yeah..
    that was horrible..
    :-&

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