Paying To Pitch
Jason Calacanis has taken on a new cause, outing angel groups that charge entrepreneurs to pitch. I agree with Jason that any angel group that charges an entrepreneur to pitch should be avoided. It suggests to me that the group is more about making money on pitch fees than investing.
I've also seen "startup fundraising agents" out there that charge entrepreneurs upfront cash to make intros to potential investors. They should also be avoided. A basic rule of thumb for fundraising agents is that they must work on a success fee basis or you should not use them. Otherwise, they have no incentive to see you actually get funded.
Both the agent groups and startup agents that want to charge upfront cash make the argument that it is a quality filter. But that is nonsense. Some of the best startups I've ever seen were totally broke and living and working in a friend's apartment. And some of the worst were well off and working in fancy offices. The ability of a startup to pay has absolutely nothing with the quality of the team and the idea.
Like any other sector, the startup sector has its share of scams and scam artists. I think it is great that Jason is outing them.
Clearly you need to read my blog more. I talked about this two weeks ago: http://www.thisisgoingtobeb…
well at least Bijan and Jerry read it
The Angel groups in the UK are getting to wise to the coming backlash and have now began to re-lable their Pitch Fees, as Pitch Training Fees. (doing the ‘training’ is obviously made mandatory).On the pro-side at least new entrepreneurs can use the pitching fees as a quick litmus test to see whether the angel group is bona-fide and worth the effort of pitching. – If they have any kind of upfront fees – dont even bother.
Add to the list: Startup Coaches http://csertoglu.typepad.co…
Funny enough, I once received a business plan in my inbox from someone involved with Keiretsu Forum — after talking with this individual about building a very similar application. Another reason to steer clear of these types of organizations.
Self-billed as ‘#1 European Internet event’, LeWeb, is charging the startups 1500 Euros to enter their startup competition and there is no explicit prize / promise of investment. This is no different that angels charging for their time… Surely by charging the startups they will be excluding the very ones that they should want to encourage- i.e. those that are good enough not to need to pay to pitch. For evidence of this, just look though the past winners- cant see any BIG names. This is really shortsighted because surely many of the attendees will be there to see the ‘20 best applicants’ and the eventual winner. This seems a great shame because otherwise the conference looks fab, the speakers list (below) is a veritable ‘who’s who’ of the digital good and the great. I hope the organisers will right this wrong… and if they don’t, perhaps the speakers and attendees will boycott or maybe Jason C will organise a competing event?Speakers list:Christopher J. Alden SixApart Ltd.Eric Archambeau Wellington PartnersMichael Arrington TechCrunchAJ AsverOsama BedierGina Bianchini NingRichard Binhammer DellViolet BlueLars Buttler TrionJeff Clavier SoftTech VCJennifer Corriero TakingITGlobalThomas CramptonJack Dorsey TwitterTimothy Ferriss AuthorAndrew Fisher ShazamLaura FittonSteve Gillmor TechCrunchITLouis GrayBaroness Susan Greenfield CBENick Halstead TweetMemeJohn Ham UstreamBrent Hoberman MydecoTony Hsieh Zappos.comChad Hurley YouTube, Inc.Joi Ito Creative CommonsJustin KanAndrew KeenDan’l Lewin Microsoft Marissa Mayer GoogleBen MetcalfeJack MoffittDave Morin FacebookKimbal MuskOuriel OhayonJeremiah OwyangSean Percival Tsavo MediaChris PirilloShervin Pishevar SGNSteve Rubel Edelman DigitalChristopher SaccaRobert ScobleYossi Vardi Investor & EntrepreneurMartin Varsavsky FONFounder & CEOGary Vaynerchuk
i’ll talk to Loic about this and get to the bottom of this. LeWeb is a greatevent and I attended last year and will be there this year.
this is inaccurate. LeWeb does not charge to “enter” the startup competition, we received hundreds of applications and they are all entered for free. The LeWeb ticket at normal price is 1,500 euros and we ask the companies selected to buy two passes at HALF price.They get the entire event at half price as a participant and can demo their startups at no cost.LeWeb costs more than a million euros to produce, barely breaks even and setting up a stage, a/v, wifi(! when it works ok) and a room for 2,000 people in Paris is a big deal, we believe we give a very fair deal. The startups benefit from the entire event and setup as a normal participant at half price, they get on stage for free.I really don’t see what’s wrong with that, there is value in just participating at the event which we let them go to at a discount.Some people won’t understand that and will always want everything for free, that’s fine, we could simply not put an event like this together with them.Thousands of entrepreneurs come back every year and consider they get enough value for their money… Most US events cost twice as much to participate, do your research.
This is going into interesting territory: the industry event. The events fulfill a purpose. I have never thought of them as paying-to-pitch, but it’s certain that a startup that can budget for more events to attend would have a higher likelihood to have their pitch heard by investors they meet at the event.Unlike LeWeb, European Tech Tour’s selected companies are not required to pay to attend. However, if a company is not selected, then the only way they could attend would be to buy regular tickets.I have to think a bit more about this… 🙂
I don’t think you’re comparing events that can be compared in terms of costs…
I am not questioning the greatness of the event or your commitment to it.Having said that… no matter how you slice/dice, the fact remains that the cost for any startup that wants to enter your startup competition is 1,500 euros.If the event costs 1m to put on, the 30k you get from the startups is relatively insignificant. they are providing you with the content for your conference… it seems like you are nickle and diming to charge these startups.why not charge everyone else an extra 3%? you will not have scared off any of the cash-poor startups and will as a result end up with much better content…out of curiousity… what do you charge the not so cash-poor speakers who are also providing the content that your conference is benefiting from?
Sorry to clarify, it does not cost you 1,500 euro to enter the event… it will cost you 1,500 to take up your spot if you are selected in the final 20.
we are not charging any speaker and on the contrary some of them who don’t have the means we fly them from around the world and take care of hotels etc. Unfortunately we can’t do it for all. But as I said, your comment gave me an idea, we will make it free if startups just want to pitch and are not interested in the two day conference.I am sorry but you are talking here about an event that takes a full year for @geraldine to put together and we finance it in person. For example we have put out of pocket 200 000 euros in advance to pay for the huge room in Paris, we are also entrepreneurs and we take a big risk with this. So while I agree in principle, I am tired of people that want everything for free. An event like LeWeb can simply not happen for free, I wish it could. We’re doing a lot already, like very low tickets for students, which is a first this year. We’re losing money on every single of them.
i dont understand the rationale behind not charging speakers for tickets and indeed paying (expenses) for some… whilst at the same time you will charge your chosen startups for tickets. both groups are providing you with content. one is getting paid to provide (in kind) and the other is having to pay to provide. it just seems like a real double standard.
Too bad you don’t understand, I tried my best to explain.
I back Loic up on this.There is a difference between paying a fee to pitch a group of investors and paying to launch at a stage managed event like LeWeb, TechCrunch or DEMO. Those events have huge costs to consider.In launching our first product, Hubdub, we spent $20,000 on DEMO. On both a PR and even a CPA basis it was well spent money. I’m glad we did it. Le Web at EUR 1.5k is a steal.The issue isn’t these events. It is so-called angel groups and consultants preying on desparate entrepreneurs.
thank you Nigel, appreciate some support here!
most conferences have to pay the speaker to come, for crying out loud. to be honest, I’ve never heard of a conference that didn’t pay every speaker’s travel expenses.the “Mr. Anon” name doesn’t help the credibility of that complaint.
I maybe wrong but I don’t think Mr Anon’s issue is around paying speakers…I believe the salient point is that the speakers and selected startups together form the content for the event.If you are paying speakers (entrance / travel expenses)- which it is undisputed you need to do to get them- then shouldn’t you do the same for the 20 startups?Keep in mind these are not arbitrary start-ups that want to pitch but they are the 20 that have been selected from the hundreds of applicants by Loic and his team before the event.This argument’s underlying assumption is that by not charging start-ups you would get better content (the same way that by not charging speakers gets you better speakers). i.e. you would not put off the start-ups that couldn’t afford or wouldn’t pay to pitch.It also assumes that there is parity among the content i.e. that the visitors are there for the start-ups as well as for the speakers (and community). I have not yet attended le web and so cannot comment on this. Although perhaps the two are linked… i.e. if top start-ups applied then people would come for them. This also assumes that top-startups aren’t already applying.I am not in a position to determine whether these assumptions are valid. It sounds like Loic has plenty of startups willing to pay (mine included) due to the added value (exposure) that comes with presenting at le web. The proof will clearly be in the pudding.Either way this is a hypothetical- it is clearly too late for this year and it sounds like Loic has come up with an excellent solution for next year. I think it is a credit to him that he showed this flexibility and pragmatism- and demonstrates the success of the medium he is supporting… Vive le web!
Yes, the answer is to A) Increase the conference fee by 50-100 euros for all but the startups chosen to present (and I guess the speakers that you’re comping) and/or B) Find a “we covered the costs for the presenting startups” sponsor, if that’s what it takes to put on the event. It’s too late to increase the fee for this year but maybe someone like Union Square would be willing to be the White Knight sponsor for the presenting startups 🙂 That’s a cherry sponsorship!I like Loic very much and have heard very good things about the event, but the argument that begins “The startups benefit from the entire event and …..” is the same justification that all the events that charge startups to present use.This seems like a problem that can be fixed tout de suite.
Jeff, I would love your help to find a sponsor that cover all the startup participation costs and would be happy to talk to anyone you have in mind, indeed it is a great solution, we have not found anyone for that.
Loic, I don’t have any ideas for you for this year’s event given the late date – I think Fred probably has as good a suggestion list for this year as anyone state-side. I really do think it’s a great opportunity for some smart sponsor(s), especially given the growing attention/momentum the subject is getting. Best of luck!
Let me jump in here and defend Loic. He and his wife have funded LeWeb every year and are taking huge personal financial risk largely to bring silicon valley style networking to europe. I think we should be celebrating what they are doing not critiquing it. That said, this thread has given Loic an idea about how to give startups a better deal and that’s a good thing too
Fred, hope neither you nor Loic interpreted my comment as critique. Agree that what he’s doing is important (and often under-appreciated) work.Was simply offering a thoughtful suggestion re the sponsorship, etc. Sounded like Loic found it an interesting/worthwhile idea. Full steam ahead 🙂
having said that you just gave me one idea. We will offer the startups to pitch for free if the like, access LeWeb just for their presentation, or also buy a half price tickets for two full days.
definitely a step in the right direction but consider that many participating startups would already be making a sizeable investment just by coming to paris…i think at the very least the finalists should get their 1,500 eur back if they take up the half-price tickets.should they be treated any differently from the regular speakers?
You’re being unfair to Loic. He came up with a pretty amicable solution in offering free passes to startups that are only pitching — nobody is forcing any startup to come to Paris and you can’t expect a conference to compensate a vacation (LeWeb is very much a startup itself – albeit very successful to date).AlwaysON and DEMO, etc. charge startups and founders to pitch at their events — they even call you many times and nag you with emails. I think that you should be more concerned with them. Loic/LeWeb is helping startups and provides a tremendous platform of visibility.
Ah thanks for that outside perspective Aniq. I’m surprised a startup is forming around connecting investors with founders. Would have expected investors to host this typeof “trade show” or conference.Cost and value are such personally relevant measures it’s a wonder we can agree on the price of anything. $10 to me is different than $10 to Fred, which is different than $10 to Bill Gates, yet regardless it still buys a movie ticket (almost).
This debate on start-ups at Leweb is an interesting one and attacking the promoter is always easy. Although in my opinion LeWeb could even be split into two separate events: 1) the fund raising contest (Europe’s got talent), that a small percentage of visitors join, mainly the smaller VCs who did not do their job around the presenting firms; and 2) the event itself which I enjoy, with various speakers, where most networking take place.
it is not a fund raising contest. It is a startup competition which we hadfor years and which provides exposure to the startups to a very broadpublic, not pitching angels or VCs. There is a very large press coverage forexample, many startups last year and the winners for sure got even featuredon our “french CNN” LCI TV channel. LeWeb is much broader than pitching vcsand angels.
quite a debate going on here and sounds reached a good compromise solution. if you are thinking about doing it for this year you might want to consider opening up the application for another few days to accommodate those start-ups that might not have applied due to the cost. i shouldn’t be saying that since my start-up completed the application before the deadline! i do believe the whole conference will benefit from a higher caliber of applicants. hope to see you in paris!
we received hundreds of applications, sorry for the startups who could not make the deadline, we have given plenty of advance notice…. we also need to organize everything
That’s a great idea loic. A win/win for everyone
“Some people won’t understand that and will always want everything for free…”The limits of Freeconomics/Freemium in action. There’s something to be said for time-honored business practice of charging money for a product or a service.
That all makes sense, but it leads me to believe solid startups are better served by building a great core business, and doing it transparently so that investors can find them. There are plenty of avenues to connect with potential investors, why pay to be in a lower signal to noise auditorium full if other presenters and funders who may not even listen to your pitch (burst processing of listening to pitches has to cost venture partners valuable attention span).Charging a reasonable fee to cover costs of any event is more than fair though. I’m sorta torn on this issue. Do we need the conferences to get good pitches? If we do then it’s part of the solution (it may push presenters psychologically to produce something more appealing to investors).
Also surprised FundingPost didn’t make the list. They’ve been at it since the early 2000’s. I’ll admit to getting suckered into paying for one of their conferences, but I wasn’t old enough to drink yet. 🙂
We’ve been screaming about (and fighting this problem) this for years. My thoughts – FWIW:http://bit.ly/k48wCheers.Scott
Thank scott. I’ll check it out
Fred, all good points. I wonder if some of the same criteria should also apply to VCs? The GP takes a management fee from the LPs… and the 2 & 20 standard for fund management is conceptually not so very different from the fee & commission standard in other fields. One could in fact argue that the GP is actually an agent also, on a certain level, just like an angel group organizer or a placement agent. The difference being mainly one of control, although this too is a matter of degree and can vary.
The difference being that the VC is not charging the penniless entrepreneurs.I understand the irritation over the huge fees VCs earn.Fund sizes should be small so the VCs can only get rich on carry, not fees
Agreed on all counts. It’s a matter of degree, I guess, and affordability. Still, I don’t know if the question of initial fees for angel organizers and agents is one of getting rich as much as paying for working capital, which is similar to even small VCs. I don’t know that any such groups – angel groups, agents, small VCs – could keeping doing what they do purely pro bono. If it’s agreed that they each provide something of value, then there has to be a way for them to not be shut down on economics.
I think when it comes to “pay to pitch”, there are some additional subtleties that need to be discussed.Sometimes, the entrepreneur is not really serious about his stated intentions: he has no intention of taking on the fight he is proposing. Yes, not every entrepreneur pitching wants the money, or the advice. We are all aware, I’m sure, of examples of this – there are some people out there that, when pushed, will stop short of taking the final step. These “weekend rock stars” just want to be able to tell their friends they “gave it a shot.”I’m sure the same is sometimes true with investors as well – lack of sincere intent. How can an entrepreneur even know if the angel in front of them truly has the ability to invest? They may be out of investment dollars, but still want to appear to be in the game. There is no way for the entrepreneur to know.If the investor does have money to invest, why the need for the fee? Any decent-sized investment outfit has a team of analysts in place (or at least one) for the purpose of protecting their principals from time-wasting business plans – and moving plans forward through due diligence. Investor has zero support staff? Don’t waste your money on pitch fees.The test for both sides is sincerity of purpose. If the entrepreneur is truly ready to take the risk and is willing to take investment and advice in support of building his enterprise, he should not have to pay to have his story heard. If an investor is truly in the business of investing, and has the capital and staff to support that activity, there should be no need to charge fees.Note re coaching: I disagree with some of the comments re coaching. I think this can be money well-spent. There are some really, really smart people out there that are incapable of writing a business plan or setting pricing for their services – because their smarts lie more in the area of storage array design or protease inhibitor innovation. For these folks, paying an Excel jockey or a business coach may be the difference between being able to articulate a business and floundering in obscurity.
I’m with you on coaching. But there should be a ‘rate the coach’ website so entrepreneurs know who is good and who is not
Agreed.But what to do if some do are not able to judge the quality of the advice they are receiving,because of lack of experience… it may be the right advice but not what they want to hear.
There is a rate the coach (or anyone else site). Linkedin. People with many, credible, referencable connections and recommendations are the ones you should go with.
Nice tip. Thanks!!
at tech crunch 50, the entrepreneurs that win/or want to be included cant pitch for weeks heading up to the event…is that not a cost.the cost of exclusivity ?it’s an ok discussion, but pretty flawed arguments and ambigous
good critique on the exclusivity thing howard. i don’t think that is a goodpolicy eitherbut just because Jason isn’t perfect, it doesn’t mean his point is wrong
i agree howard, excellent point
You guys are jasin hatin’ on this blog. I’m tempted to block you for that 🙂
well boss howard’s insightful comment has been liked three times, sending it to the top of the comments….meanwhile jdawg remains silent and defenseless in response to howard’s lethal blows…..you can call the TKO whenever you want boss, your blog so you are the ref, but i think it’s safe to say howard won yet another round in this beef….damn
All our bases are belong to Howard?(it’s the old video menes that get stuck in my craw).There is most certainly a shift in the way we judge businesses. No longer is it good enough to give terms and have a mutual agreement. Now we’re condemning Jason for taking advantage of startups (even though appears to be defending them)I’m on the open market side even though I lean heavily toward favoring startup founders if there is some leeway though.I paid 2 bucks to Mahalo to have Jason respond why startups were paying an sizable entry fee to TC 50. Isn’t that the same thing as paying to pitch?
This is an area that has been market reviewed but becomes stronger by info spread (known scammers can’t survive long under public light).The finer aspects of cost and value need to be reviewed, especially when it pertains to a startups potential survival.We’re still a culture dominated by the motto, let the buyer beware. But at least we are quick to share info about folks that lie.Depending on the situation, I might even pay for the opportunity to pitch. Certainly if I knew with confidence that the concept needed more than a minute or two to describe and “sell” to a reputable agency. I should be penalized with some cost if my pitch is a total waste of time. I think picking up a lunch tab is fair punishment 🙂
Much love to Stocktwits Howard, but as a TechCrunch 50 presenter in 2008 (www.emerginvest.com), I have to disagree!Waiting an extra month or two to launch our product in front of tens of thousands of interested people was well worth it. We could’ve launched on our own schedule and fought to get anyone to notice. Instead we had 10,000+ hits in a few days plus interest from VCs, the press, Angels, firms in our space, etc.. Plus each team had two hours of pitching coaching from Jason Calacanis and Michael Arrington personally before TC50. Invaluable for first-time CEOs like me and really improved the quality of our pitches during the real thing on stage…. and FREE to us mind you.The “cost” of giving exclusivity to Arrington and Jason on our launch was well worthwhile, and it was our choice beforehand to “pay.” Many other TC50 companies I know agree with me here.
Look, one of the reasons you probably should not pay to play is really obvious-You are hindering obvious connections from happening. One of the great things about stuff like the NYTech meetup, ect, is that people meet each otherm and start doing the stuff mentioned here naturally, and companies start pulling together naturally.Pay to play prevents those sorts of refinements from happening. It laso means that the psychological growth from people pushing themselves for putting themselves out there is much higher. It’s already hard to be an entrepreneur. It’s harder if your barrier of entry is to pay, when it could be the random person whop is willing to read something. Paying could put ideas out of reach, when people are willing already to do this stuff. I don’t get it…
great point Shana
Why can’t I edit this one, but I can edit my other one on the page? So strange…
It appears to be over punishment for fast typing. I pay dearly in grammar to phone comment, but it’s a price that needs to be paid.
In the ten years we’ve been investing in and consulting to startups we have seen many who have been sucked in by intermediaries. Right now, when someone comes to me saying “can you help me get money for my startup” I say no 99% of the time and go on to tell them there is no money for companies that a)aren’t companies b)don’t have anything but an idea. We tell them not to waste time looking for money but to go out and build something or get a real team together. We are sometimes given a success fee as a board position with some equity attached that takes many years to become liquid, and we certainly never charge and always advise our startups not to present anywhere that charges or pay anyone a fee. We don’t pay our speakers for the Arizona Entrepreneurship Conference and we allow people to pitch, launch for nothing, too. The people who attend the conference pay to attend. And yes, Loic, we also barely break even and it’s all on our nonprofit foundation to put the conference on –a big risk every year. You are right about that.For the conference, now the largest in Arizona, our goal is to charge as little as possible to as few people as possible, and still come out with enough money to run our programs for disadvantaged entrepreneurs. I’m trying to develop an ecosystem here, not make money off entrepreneurs.
Everyone benefits from these presentations. Investors get to see what’s happening in the marketplace. Entrepreneurs get to meet someone new. If they don’t like the idea they should avoid the pitch. If they are not sure about the idea they should ask for more information and only take meetings they view as potential investments.The idea of charging seems ugly and is not something I’ve ever encountered personally.
Me neither stone, but apparently it is very common, even here in NYC
Before I state my observation – Fred, the following is not an indictment of you or your firm (at least not aware of any participation from you guys at USV). So dont get upset with what follows.NOW to what I really wanted to say – “Yes, you heard that correctly: the rich people (angels) are charging the poor people (startup entrepreneurs desperate for cash to fuel their dreams) to hear their pitch. No, I’m not kidding. This is actually happening — and it’s widespread.” – Jason Calacanis.REALLY? Wait hold the phone – breaking news from Calacanis (who spent his early years in NYC startup world).Fred – this crap has been going on since the late 1999/2000 – and quite a bit in NYC. And here is more breaking news for Jason. VCs – YES, VCs are part of the panels at these pay to play breakfast type functions. In fact I have a receipt for one such scam in 2003 where I was invited and only to find out after I left the carnival that I owed these clowns $XXX to sit in from of a Jerry Springer Audition Panel. Of course I told them to stick it where the sun don’t shine – and that was the last time I heard from these buffoons. The panel was soo bad – I shut down my computer in half the time – and could not wait to just leave the room. They called me up unsolicited through mutual contacts with the invitation – and worse yet it was hosted at one of the top law firms in NYC. I won’t mention the names of the VC that sat on that panel – not worth it.Maybe some of the VCs on these panels are not aware of the shennigans behind the scenes – but you would think they show some discretion as to the people they choose to sit down with at these functions.The sample “reputable scam” usually has a few members in the band – in particular a law firm of prestige, and someone who is “of counsel” to the firm (as in I rent my desk at the law firm – but they don’t really care I exist).ENOUGH SAID.
can you list the names of the events in NYC that do this?i will promise you that nobody from USV will ever participate in them again(and I think you are right that we don’t participate in them now either)i just want to make sure we aren’t participating in this crap
Fred – rather not mention names – but a suggestion – give them your USV checklist to (that included a box for “pay for play” type shennigans – maybe even post that list on your blog) – and you can sort them out in a minute or so. I would also caution the entrepreneurs to check out the “name throwing” by these organizers. They all seem to know at least “one person” on your wish list of investors – and being that it is a small world out there – a ping to these “funders/VCs” is usually a good way to call out the lies. And, in many cases it seems these organizers usually have an newcomer in the VC world as a panelist “associate types” who fall for these forums (can’t blame them for though for tyring to seek out the deals). cheers –
Got it. Good advice
I have been in the money game — primarily as a consumer in the institutional real estate markets — for a big chunk of a century. The best advice I have ever been given was — “Network like hell and never, ever get mad at the money. The money will ultimately find the good deals. Work on your deal.”I cannot tell you the number of personal and professional kindnesses I have been afforded by being in the network with pension funds, major banks, brokerages, high net worth individuals, the LBO boys, etc. I have returned the favors through the years and have always made it a point to express my gratitude even if it was only a note and a bottle of wine.Every industry has its predators who attempt to take advantage of what in the end is a simple secret — folks who inventory money, only inventory money. Their job is to invest money and you are simply helping them to do their job. In the VC biz today, they also provide a meaningful level of coaching, expertise and contacts but it all starts and ends with leveraging their money.Sure there are some critical personal skills (like being a PPT or Excel wizard or being able to hit a low soft draw LOL) that are useful in telling your story but in the end, investors invest in people and only then invest in their deal.The single most important decision you will ever make is with whom to do business — customers, partners, employees and yes, VCs. Ooops, wives are much more important!The same guy told me that on the day you close the deal, imagine how it might be to “work out” a failure with the guy sitting across the table from you. Think it through.Stay clear of the blood suckers.
Indeed. A lot of scamming, at pitch time, and, even more rampantly, at term sheet time, when they try to tell you that this carrot for them or stick for you is “standard.”
This is an interesting debate — there are all sorts of people who live in the startup ecosystem and make money from it. Perhaps the dividing line could be whether the person charging for the service also has the possibility of making money from the startup later. For example, if you run a conference that provides some value to startups but you are not an investor, you should be entitled to charge (and they can make their own decision about whether to pay to attend). On the other hand, if you are charging someone to attend so they can pitch and you have the chance to invest and make money later, then you shouldn’t charge.I’ve been a practicing startup lawyer for 10 years. Since we defer fees on startups, we are like a super-angel in that we have “investments” in many startups, the majority of which will inevitably fail. We therefore have to have some filter on who we bring in as a client, and so we often meet with them before consummating the relationship. I can’t imagine charging those startups for that meeting (nor could I see them paying for it). But many hundreds of thousands of dollars of free legal advice has been doled out at these meetings and the hundreds of networking events that we attend. That’s just the price of admission to the ecosystem. We make our money advising the client as they get more mature and have various legal needs, including exit transactions. Anyone that thinks they can make real money nickel and diming startups at the early stages is in the wrong business.
We all do it Ree. Lots of free advice is doled out to entrepreneurs by service providers, and VCs are just another service provider to the entrepreneur. You have to date before you get married and soliciting free advice is a great way for an entrpreneur to ‘date’
In Austin, TX one of the most successful start up and intellectual property lawyers I have ever met — based on actual billings, mind you — used to and still does write a series of case studies and white papers which essentially provide a road map of many of the legal pitfalls of entrepreneurship, start ups, deal structures and venture capital. His writing is fair, unbiased and does not attempt to impose “his” solution. They are greatly educational. He used his website to disseminate this information and was known as a guy who would have lunch and spend an hour with anybody — anybody!Some of the deals he snagged were world class and ended up creating a client relationship which lasted forever and which tapped all the practice areas of his firm from real estate to securities to trust work. He was a real rainmaker.At his core, he was simply a nice guy who figured he had to eat lunch every day anyway why not help some aspiring guy get a helping hand.To this day I still see him at our favorite restaurant listening to, nodding along with and coaching some young entrepreneur.There is a huge difference between being a skillful lawyer and being a valued counselor.
Great, sounds like we’re all in agreement on this one.
That is how I want to approach business JLM. Its the best way
Actually, the fact that folks have to launch for the first time on stage and can’t do pre-PR is the reason why TechCrunch50 has become such a huge hit.The press realizes there is an open playing field for coverage, and the seats are PACKEd from start to finish because people want to know “what’s gonna come next?!?!!”It’s an entertainment thing… we like to keep people on the edge of their seat. I understand why some folks might not understand this, but it is our secret sauce to be honest.
I refuse to go to TC50 Jason for this and other reasons like disallowing any company that has already launched. Its a media event but it sucks for entrepreneurs and VCs
Fred, with respect for your own reasons to avoid TC50 as a VC, I have to stick up for @Jason here as a TechCrunch 50 company myself.Reason: You can’t underestimate how hard it is to get on the radar of a VC like you. With the clutter of startups trying to pitch to you, understandably you have to filter based on a founder’s reputation, your own network, the company’s location (NYC, SV, etc.), its prior market traction, and other factors other than just raw potential of the startup at time of its launch. TechCrunch 50 gives first-time CEOs a chance to cut through these factors that would usually work against them, to be recognized for their idea and execution so far. The result is that we get “onto the map” and noticed by VCs who might have never known about us because of factors out of our control.I agree startups that *recently* launched are penalized here just because their launch didn’t coincide with the TC50 application schedule — meanwhile a few TC50 companies are quite well funded and post-revenue but get in through loopholes like “launching a new product.”But letting into TC50 too many startups who already with PR coverage, market traction, VC funding (or connections to VCs like you), would really change the whole point of it. It’d take away its value as “leveling the playing field” and entrepreneur-discovery which we startups desperately crave. It would be like letting pros into the olympics, American Idol, So You Think You Can Dance, etc.
That’s bullshit. You are on my radar right now.This is the web. Use the medium to get noticedNot old school events that are just clones of DEMO which also sucks
I’m going to defend Fred here, not that he needs it ;-)I’ve had the chance to sit down with him before, and this happened because he isn’t sitting in some ivory tower. I’ve found Fred to be accessible and willing to take the time to hear me out. As an entrepreneur you will always need a good pitch to get attention from others (including investors). If you have a good story people will open up for you.
Just to clarify Fred — I certainly see just how accessible you are and didn’t mean to imply you’re not. I’m a big fan of avc. The fact that you respond to my comment on a week-old blog post is actually pretty amazing.My point is more general about getting VC financing. Getting noticed is simple, but getting funded is not so easy. The funding market is damn competitive and not perfectly efficient at the seed stage, especially in the last year.I did raise money — but I was helped enormously by TechCrunch 50. I got a dozen VC meetings with people I met at the conference who would not have known about us otherwise, plus another dozen investor pitches because of the signalling value of “TechCrunch 50” alone. (But I sure didn’t stop there and rest on any TC50 laurels.)
I get it. That’s helpful. It turns out the reason you like it is the reason I avoid it
Where do you come in on something like AngleSoft for this type of debate? If I’m not mistaken, start-ups are charged for access, but you could argue it’s for ‘software use’ as much as for access to the network of Angels…I’ve never chased any funding, and hopefully never will have to, so I really know nothing about the funding world…I just sort of watch fascinated from the outside (which is one of the reasons I enjoy your blog so much).
I don’t like charging startups/entrepreneurs. They are the raw material of the ecosystem. Without them, all of us leeches would have nothing
Kevin, just to clarify, Angelsoft provides the dealflow management software for the majority of legitimate angel groups (both in the US and worldwide). For this, we charge neither the groups nor entrepreneurs, so if you apply for funding to one of the majority of legitimate groups that don’t charge an application fee, then there’s no cost to you. If a group elects to charge application fees we simply collect it for them, much like Eventbrite collects ticket sales for events. No one is ever forced to pay Angelsoft anything.We do offer, purely as an option, the ability for entrepreneurs to directly post an application in the Open Deals area of the system, which is the place that angel groups themselves use to share deals for syndication. The cost for this is $250 for 30 days, which is fully described and disclosed up front. The Open Deals area is accessible by all 20,000 angels using the platform, who can browse or search for opportunities there, and then bring a company into their group for further screening. Since that $250 goes to Angelsoft, and not the group, it’s not a case of pay-to-pitch. It’s simply our compensation for having spent five years creating a platform that has aggregated 20,000 investors in one place. If a company believes the additional exposure is worth it, they can elect to make use of the option, but neither we nor any angel group forces them to do so.Our goal all along has been to try to use technology to improve the whole early stage funding ecosystem, and we think we’ve done a pretty good job. Above all, we are completely transparent about every single thing on the platform, from the fees we charge, to the statistical results of companies and groups using the system. Indeed, we do everything we can to urge the angel groups themselves to be completely transparent, opening up their own statistics to entrepreneurs (for an example, check out the detailed stats at http://angelsoft.net/angel-….In the months ahead, we’ll be releasing some extremely cool features to help entrepreneurs with the whole funding process. They’ll have nothing to do with access, but everything to do with efficiency, information, transparency and effectiveness. If we’re on target, then we hope companies will be happy to pay us for the use of the tools. If we’re not, then people won’t use them, and we’ll have to go back to the drawing board.The bottom line on all this is that the whole early stage funding arena is still wildly inefficient, and (because of the dollars and desperation involved) inescapably attractive to sleazy and semi-sleazy operators. I’m a firm believer that the best antidote to that is lots of sunlight, which is why we’ll continue our single-minded push for transparency on all sides.-David S. Rose, CEO, Angelsoft
David, Thanks for the clarification. Believe me, as a softwaredeveloper, I understand the need to charge for all the work that wentinto building and maintaining the platform…and that’s what I wasunder the impression the $250 was for (but great to hear about some ofthe other options too). I was just curious as to what the perception of AngleSoft by moststart-ups is as it relates to the idea of pay-to-pitch…since itseems like that’s still one of the biggest hurdles you guys have toget over (the perception vs. the reality)…but for whatever it’sworth, I’ve heard good stuff about Angelsoft from the few people Iknow that have used it…so keep up the great work!- Kevinhttp://blog.botfu.com
I agree, Fred, and I don’t buy the “screening” purpose that these fees could putatively play in selecting “serious” start-ups. The most precious commodity entrepreneurs have is time, and the best way to weed out those who aren’t serious is to ask logical, easily-answered questions about technology, or competition, or markets, and ask for the least bit of data to support it. I get contacted a lot by HR and human capital start-ups, and it is indeed revealing how efficient this stratagem is in discouraging those with half-baked ideas and half-willed efforts.
Totally agree with this. One potential good side effect of this is that it will cause Angel groups to increase their member dues, thus weeding out the wannabe investors and/or service providers from the real investors.
I see no difference between this and sites like Angelsoft, who consolidate VC/Angel info and then charge for the honor to be visible to them, when an e-mail would have done the same thing. Some investors now make it mandatory to submit a business plan through them.
Mike, I actually see a pretty significant difference. It’s one thing for ‘investors’ to make money by asking companies to pay them for the privilege of pitching. It’s another thing for a third-party company to invest a great deal of time and effort to develop a platform which enables a startup to reach out to 20,000 investors in 500 organized groups and VC funds. If you honestly believe that “an email would do the same thing”, then I will be the first to tell you that you absolutely, positively should send an email, and not use Angelsoft’s Open Deals option.But just to clarify, no investor (or Angelsoft itself) “makes it mandatory” to pay Angelsoft anything at all for any reason. If you apply to one of the 500 angel angel groups that uses Angelsoft to process their deal flow, Angelsoft doesn’t charge either you or the group. The ONLY thing you would be charged for is whatever the group itself charges as an application fee.The existence and amount of such fees is certainly a fair subject for discussion, as Fred and Jason have been doing, but they have nothing at all to do with Angelsoft, which simply process the credit card charges for the group, much like Eventbrite or other payment systems.I hope that helps clarify things.-David S. Rose, CEO, Angelsoft
I’ve done some work with an angel group that uses Angelsoft for applications from entrepreneurs. I think it is a great tool process the dealflow in that kind of a group. Entrepreneurs do not have to pay anything unless they want to. After submitting applications to a certain number of angel groups (I believe 5), additional submissions become “Bulk” submissions – just to let the angel group know that this entrepreneur may be blasting submissions to every group. But all the entrepreneurs we’ve dealt with have found it pretty easy to use and definitely free.
I agree that charging the entrepreneur is not a great model
I absolutely agree with Jason – particularly about the consultants and brokers who promise (directly or indirectly) a path to funding. The fee-charging Angels and brokers are easy to spot in any of the Silicon Valley-like areas, but they are rampant all over the country (and I suspect, the world) – where eager, naive, funding-desperate bootstrapped startups don’t have much choice. The practice is often more sophisticated, and the fee charging more subtle but no less destructive, under the guise of incubators, seminars, paid advisers, board members and Interim-executives. All of these are legitimate services in other circumstances, but are often offered to entrepreneurs who don’t know the difference between legit and scam.In many other instances, venture capitalists, associates, and angels are simply not accessible: Postponed meetings, unreturned phone calls etc. Often the only way the entrepreneur can ever get on their radar is to pitch at an event where the investor is a judge. These events almost always have fees, however disguised in clever semantics, and the effect is the same: Entrepreneurs have to pay for access. All of the rational sounding reasons are meaningless to the entrepreneur: It costs money see the investor. And it’s not just one event – they have to pitch many times at many venues.Most investors forget (or never knew) what it is like to be bootstrapped and seeking funding.This process discourages (often permanently) an otherwise promising young entrepreneur. Arguments about how the “real” entrepreneurs should persevere despite discouragement are valid – but it is worth noting how much easier things are near Sand Hill Road with 3,000 other doors to knock on. For entrepreneurs outside the major hubs – a single Angel group can represent 95% of the startup funding in his/her region. Is it any wonder they can charge fees?There is a reasonable amount of agreement here about fees, which is nice. I strongly suspect, however, that this discussion is like the dark times before “TheFunded” – where only a few brave and anonymous entrepreneurs would dare comment – for fear of being branded naive or difficult – particularly on their feelings about Techcrunch50, Demo etc.It doesn’t help nowadays that investors and conference organizers are often also top bloggers and tweeters. Not many entrepreneurs would want to risk challenging “the process” for fear they’d be branded unfundable. Now that a generation of entrepreneurs has become successful investors themselves – from Marc Andreessen to the former Paypal founders, along with a few notable and sympathetic VCs – we may see the last of these manipulative practices.
Please do not confuse Fred’s use of startup agents with the company StartupAgents. There is no relationship between the two.StartupAgents aims to helps startups build their team and is free for both startup and talent to sign-up, during the beta.
I certainly did not mean to imply your company with those words
Wow, that’s a pretty dynamic discussion. I’ve also seen VC events that pitch entrepreneurs to pay for presenting (they pitched me), e.g. this one http://www.youngstartup.com… , dubbed “The 2009 NY Venture Summit”, and included some respectable VC names. So, that practice is not entirely restricted to angels and agents,- although in the above case VC’s are brought in, but are not the organizers.I think there is enough transparency, social media and open channels in the market for VCs, Angels and Entrepreneurs to find each other without staging each encounter. If VCs/Angels are the ones holding the purses, they should be the ones bearing the largest cost.I’d like to see an event where entrepreneurs are chosen to present purely on the merits of their accomplishments and ventures status, and are invited to do so at “no-charge” whatsover.
Agreed – thanks Fred for voicing your opinion on this!JohnADstrucwww.adstruc.comBuilding an online marketplace for outdoor advertising.
For the record- this kind of drama makes someone young (IE me) want to shy away. Most things in life should not be this complicated or heated. Think about it. You are having a discussion about how to sort out annoying people from not annoying people, and in the end it just comes down to shades of gray and nuance, with some really dark gray/black and some very light gray/white, and practically nothing in between.Just lets all sit down, and say -we will not do business with asses. That’s it.
This is interesting. This entire argument is based on perceived value OR/AND supply and demand. It makes “access” a market. VC’s feel they can charge because they can provide access. Too many start-ups, not enough VC’s drives this market.The problem is this argument could be flipped upside down? In-demand properties could conceivably charge VC’s to pitch them for the opportunity to invest. How much in fees could Twitter or Facebook have generated if they charged VC’s for an opportunity to be considered as one of the firms with an opportunity to invest? Creating a market around access to investment on either side takes everyone’s eyes off the ball.The market shouldn’t be the access. It should be the perception of the start-ups business.
Dear Mr Wilson,I agree with you on organisations charging entrepreneurs for pitching in view to make money BUT our Angel network charges EUR 150 as an administrative fee in order to make sure that the entrepreneurs are committed as beforehand we had some no-shows as well as entrepreneurs not sincere.So YES it is bad to charge for pitching in view to make a profit.Best,
Well that is little different. There are many meetups that charge $10 to make sure someone is really coming.I guess it just comes down to when is a fee a revenue source and when is it a sign of committment to show up?
I was going to ask about this – what do you think of angel groups charging entrepreneurs for their variable costs (food, etc.) associated with attending the event?
Even for Business Plan competition we have to pay , take a lookhttp://www.wpiventureforum….EligibilityThe WPI Venture Forum Business Plan Contest is open to technology-based, pre-start, startup, and on-going businesses located in the Northeast. Students are eligible. The venture must involve the development of a new product, a new application, or process in an existing business or the start-up of a new technology-based business.Upon receipt of application and accompanying executive summary, applicants that meet the criteria compete through three rounds of judging – First Round, Semi Finals, and Final Competition. Those advancing beyond the first round are eligible for coaching and mentoring.Deadline, Application and FeeApplications and executive summaries are due by 5:00 P.M. Friday, October 9, 2009. The contest fee is $50.00 which should be submitted at the time of application. Mailing instructions are on the downloadable contest application. Application and Executive Summary may be emailed to ventureforum (at) wpi.edu. If emailing the application, please call 508-831-5075 about entry fee payment options.Collecting Fees to participate in BP competition as well , strange
Well $50 might not be a lot to complain about. There is some admin cost to do these
Tear those scam artists schemes apart by publicly sharing their identities. I stand by transparency as a means to eliminating the obfuscation of trickery.Great work by Jason, hope founders share knowledge of any and all shady groups like this. My brother went through a similar music distributor scam. Many aspiring artists fall prey to false promises, and knowledge of their practices has helped minimize casualties.
TechCrunch charges an appearance fee for the Demo Pit. Since you have to be approved and invited to the Demo Pit, why isn’t that free? The charge in 2008 was $2,000 to appear in Pit.
I have no personal experience with venture capital and getting a startup off the ground, but I think making startups “invest” in the pitch shouldn’t be a requirement. Be selective on what you’re willing to invest in and who to listen to and just go from there.
As a corporate attorney representing entrepreneurs, I generally agree in principle with Jason’s position that it is “inappropriate and predatory” for angel groups to charge entrepreneurs fees to pitch them; however, I think it is important to distinguish among the different angel groups and their respective practices. Indeed, if (i) the fees are reasonable/de minimis and are adequately disclosed and (ii) the angel group is providing a legitimate service to entrepreneurs, there may be compelling reasons to support such a fee-based service. That’s why I have strongly recommended in my recent blog post (see http://bit.ly/hAYeu) that Jason Calacanis and John Dilts (the founder and President of Maverick Angels, LLC and an attorney) meet face-to-face and have a live debate (in the great American tradition), which can be shown on the web to all interested parties via Ustream. Many thanks.
Love this comment on many levels
Much love to Stocktwits Howard, but as a TechCrunch 50 presenter in 2008 (www.emerginvest.com), I have to disagree!Waiting an extra month or two to launch our product in front of tens of thousands of interested people was well worth it. We could’ve launched on our own schedule and fought to get anyone to even notice. Instead we got 10,000+ hits in a few days plus interest from VCs, the press, Angels, firms in our space, etc. whom we would have struggled to reach on our own.Plus each team had two hours of pitching coaching from Jason Calacanis and Michael Arrington personally before TC50. Invaluable for first-time CEOs like me and really improved the quality of our pitches during the real thing on stage…. and FREE to us mind you. Not to mention being invited for free back to TechCrunch 50 2009 in the alumni demo pit.The “cost” of giving exclusivity to Arrington and Jason on our launch was well worthwhile, and it was our choice beforehand to “pay.” Many other TC50 companies I know agree with me here.(Sorry mistaken duplicate post here…was meant as reply to Howard’s at the top…can’t figure out how to delete this copy.)
Yeah but you’ll never get to some VCs that way. Its a huge turnoff to me, for example. I believe you should launch when you are ready and waiting for an event like TC50 is a bad idea
The Atlantic’s David Indiviglio is on the case now: Paying to Pitch.
can you do both the consulting and startup thing at the same time Charlie?
charlie – that link is not working for me
Why not sell some of your stake via Second Market or a similar outfit?
I’ll call him on that. You are right
I had a stock I own drop 90% this year, and now it’s back above where I bought it. So you never know…
Ouch. I bet you’ve kicked yourself for not hedging with some puts on Sun at the time.