Techflash posting.. for pay angel groups

In response to John Cook’s thoughtful post: http://www.techflash.com/seattle/2009/10/angels_to_charge_or_not_to_charge.html, here is my reply. John – thanks for raising this topic.  It is a timely posting.  Historically, VCs haven’t ever charged entrepreneurs because they are paid management fees from their limited partners.  And individual angels don’t charge because they are investing their own money and don’t need to.  This has become an issue as angel groups have sprung up, and hired managers to manage deal flow and help entrepreneurs.

 

So who are the managers?  Some angel groups (like the Alliance of Angels) are investor-led, volunteer organizations.  The leadership of the group writes checks to startups.  (I’m personally in over 25 deals.)  We work closely with entrepreneurs and appreciate that, in many cases, they have given up lucrative jobs, mortgaged their homes, and invested virtually everything in making their company successful.  These are the entrepreneurs/companies we want to back and don’t want them to take any cash out of the company and put it in the pockets of middlemen who will “introduce them to investors.”  At the AoA, our executive committee is comprised of our most active angels – the ones that are actively investing in new companies.  I, personally, am less likely to invest in a company that is represented by an advisor who takes a fee that is dependent on raising money.  Our business model is simple – we put ourselves on the same side of the table as the entrepreneur: invest in the success of their company, help them thrive, and win only when the company does well.  It is a long-term commitment.

Other groups are led by “advisors” who only coordinate and don’t generally write their own checks.  These are the groups that want their money up front.  A friend of mine, who was a founder of Tech Coast Angels in San Diego, told me that one nationally syndicated organization not only charged entrepreneurs $8000 for the privilege of presenting there, but then would ask for $25,000 to $50,000 in consulting fees to help them hone their business plan and presentation. 

 

I’m glad that you have raised issue.  The AoA is in its 12th year.  We pride ourselves on helping entrepreneurs succeed and have a track record to prove it.  Startups that make it through our screening process get to present to more than 50 qualified angels at one time, and approximately 30-50% wind up getting financing.  I urge all entrepreneurs NOT to pay egregious fees to get in front of any investor.  It’s not necessary.  Just reach out to the ones who won’t ask you to pay – they are typically more aligned with your interests anyway!

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