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An Angel Investor Group Move That Makes Me Vomit

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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.

August 24th, 2009     Categories: Angel Investing    
  • 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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  • 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..
    :-&