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Why startups shouldn't have to pay to pitch angel investors

10/9/2009

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[ disclaimer: written with boiling blood ]

Background/Disclaimer
=============================
When confronted with an abuse of power, an injustice or a scam I’ve developed a really effective technique: I blog, tweet and whine about it passionately for as long as possible. Basically, I do this until people get sick of me (some of you reading this have at various times told me this–I’m sorry!). I’ve learned over the years that this process is wildly effective in the long-term and has the added bonus of being great therapy. It’s a way for me to relieve the dissonance associated with the injustice, perceived or real, that I see.

So, I fight.

You see, where I grew up, you said what you felt and let the chips fall where they may. If you liked the Giants in a room full of Jet fans, well, tough s@#$t Jets fans (and Jet fans have a horrible existence anyway). My Irish mom and Greek dad are as opinionated as they come, and our dinner table was filled with healthy debate. So were the steps of the Brownstone where my brother and our crew sat all summer long in the 70′s and 80s, battling over the finer points of Star Wars, Yankees, X-Men and Howard Stern.

It probably didn’t help that I grew up in my dad’s bar. I watched him put an end to countless bar fights by clever debate techniques (i.e.
“is this really worth fighting over when we could be all be enjoying this amazing bottle of wine?”). Of course, when that didn’t work he would slam the offender’s heads into the mailbox on the corner of 89th and 3rd avenue. It’s probably still got the dents in it, I should go check. Ahh… the good old times.

I’m from the bottom, so I still feel like I’m from the bottom. In fact, my biggest fear in life is that at some point I’ll stop feeling like that. This is a long way of explaining to you guys where I’m coming from when you see me wound up like I am today.
Father forgive me for the rant I’m about to go on … you see, I’m simply programmed to fight.

My Latest War: Angels charging startups to pitch ================= Recently, I was made aware of a group of angel investors that were charging startups to pitch them.

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.

Last week, a number of the TechCrunch50 companies informed me about firms calling them to present at their “Angel forums” — only to discover that they would face fees ranging from $1,000 to $6,000 for a
10-15 minute pitch slot. After additionally investigation by the Jason Nation (the top 10% of the maniacs who follow me on Twitter), I was sent details of one epic bastard that wanted $10-$25,000, plus a couple of percentage points of the value of the deal (you’ll find out who later in this email).

When I heard this, my blood started to boil immediately. So, I did what any maniacal, self-absorbed CEO from Brooklyn would do: I started a jihad against this dispicable form of payola and the people doing it.
It’s on people … it’s on like a Donkey Kong.

Why it’s wrong to charge startups to pitch =========== I’ve been in the startup scene since 1994 and in those 15 years I’ve met, interviewed — and in some cases, pitched — the most powerful investors in technology. None of them have ever charged me a dime for doing so.
Why? BECAUSE THEY ARE RICH!

It’s low-class, inappropriate and predatory for a rich person to ask an entrepreneur to PAY THEM for 15 minutes of their time. Seriously, what is the cost to the party hearing the pitch? If you answered “nothing” or “the cost of two cups of coffee” you win the prize!
Even if you rent a hotel room and put out breakfast for your fellow angel investors that’s like $20 a person. You mean to tell me that a room full of rich investors can’t afford to pay for their own God-damned $20 in bad coffee, stale pastry and stained ballroom rugs?
Really?
To be clear, I am making this a class war because it is one: cash-poor startups are bringing RICH angel investors an opportunity to become EVEN MORE RICH. As such, the rich folks should pick up the non-existent to minimal costs.

Why startups fall for “angel group” payola =========== Now, you ask: why would any self-respecting entrepreneur pay thousands of dollars to rich people just for the opportunity to pitch?
Well, the truth is that the more mature — or flat out better — startups would never pay to present. The best ideas by the best entrepreneurs get socialized instantly. As an new angel investor myself, one who has only done two investments of $25,000 and $50,000, I can tell you that I already get flooded with pitches. I can’t even imagine the volume of pitches real angel investors like Matt Coffin, Sandy Climan, Sky Dayton, Tony Hsieh and Ron Conway get inundated with.

This means that the only people who would pay to present are the entrepreneurs who are either “less good” or less connected. Now, I’m being diplomatic here in saying “less good,” in many cases, these aren’t just folks who lack a track record: they’re simply pursuing a bad idea.

In other words, if this was Hollywood, the folks who pay to present to investors are ugly, unpopular and lack talent. I know, that’s harsh but I’m afraid it is true. If you’re idea is good it will spread–even if you have no track record. If you’re only option is to pay to get in front of these folks you’ve probably got an idea that is weak or bad.
Not always, but probably. Or maybe you’re a little naive or desperate to get things going–I don’t blame you for this startups.

Now, before you go saying “Jason is connected and he has access to angels” remember that I hustled my way into this industry from nothing. I networked at free conferences and figured out a way to get on the radar of uber-angels like Ted Leonsis, Fred Wilson and Mark Cuban. They paid attention to me because I had good ideas. If my ideas had sucked, they would have ignored me. Period.

These pay-for-play scams remind me of the “modeling agencies” that charge people for representation, acting lessons and to have their headshots done. Trust me kids, Brad Pitt and Kate Moss did not pay to get representation–they didn’t have to. If you’re paying to get an agent, it’s because you’re being scammed.

What about ‘presenting fees’ acting as a ‘filter’?
===========
The folks who run these scams are going to feed you some line of B.S.
like “we use these fees to filter out people who aren’t serious.”
They’ll say something like “if we didn’t charge these fees, we wouldn’t be able to filter through all the applications.”

Really? Well, the angels investors I know are really busy and they don’t charge fees. If Mark Cuban and Ted Leonsis — two really busy dudes running a dozen projects each — don’t charge why they hell do you? Oh yeah, right, you’re predatory DBs looking to double dip!

Classy.

It’s your job as an angel investors to do the filtering and that should come out of YOUR RETURNS on your investments. If you have to charge it’s because either a) you’re a predatory DB or b) you suck at investing so much that your returns can’t pay for the time that you spend evaluating companies.

… or maybe c) you are actually a good person who has just never thought about how smarmy it is to charge a startup for your time?
I’m willing to suspend judgement for a moment and consider all of those options.

What do we want?
===========
At this point I’m calling on all angel groups who are charging to do two things immediately:

1. disclose what fees they *were* charging, displayed prominently on the top-level of their website.
2. immediately state that they will never charge these fees — again, displayed prominently on the top level of their website.

If that is done, well, then this battle is over. We’ve accomplished our goal and everyone can get back to their day jobs.

However, if this is not done immediately, my group of startup CEOs and angel investors will begin targeting specific groups for elimination.
We will launch competing, fee-free events directly opposite your events. We will encourage angels investors, service providers and startups to boycott your events. You may even find our street teams outside your events handing out flyers.

This isn’t a joke and this is a threat: stop charging startup companies to present or we will do everything we can to put you out of business with a competing, free option.

Now, if you think this is too hardcore and you don’t like my style, well, I can understand that. If you would rather take this offline and try to work something out, well, that’s not available as an option.
There is not going to be any kind of negotiation and I’m not going to meet you for coffee.

Also, I don’t care what you think of me and I certainly don’t care if you email my investors (like one group has started doing) to tell them I’m out of control. The people who invest in me know exactly who they are investing in. In fact, one reason they back me is because I am a little out of control. Deal with it.

Angel Groups We’re Investigating
===========
1. Keiretsu Forum ($1,000 to $8,000 to present according to sources) The first group that was brought to my attention is something called the Keiretsu Forum. They have chapters all over the world, it seems, and they’ve been doing their program for a long time. I’m told by people that they charge between $1,000 to $8,000 to present and that a lot of good folks are involved. This is not publicly available
information: they hide it! Now, if there are so many ‘good people’
involved, well, that’s great because good people will understand where startup companies are coming from when they demand that Keiretsu Forum drop their fees. If you have information about this group, please email it to me at jason at calacanis.com. We especially want to hear from folks who have been asked to pay or who have paid. Send us the documents please.

2. Maverick Angels ($500 to $1,000 to present).
This group is a splinter group from Keiretsu we’re told. They hide their fees in a “boot camp” to prepare you to pitch (what a joke). If you have details on this group, again, send it to me.

3. PrivateEquityForums.com (stunnning $14,500 to $25,000 plus 3-5% of your raise to present!) We’ve received information that Mike Segal of Joshua Capital Partners runs this forum that is looking for up to $25,000 and/or 3-10% of how much you raise! I’m in shock by this one… could this possibly be true? Do you know anyone who has attended this event or, worse, actually paid these fees? If so, I need you to email me immediately.

4. Tech Super Club ($595 to present).
This seems like a small event, but folks tell me they are charging
$595 to pitch to angels.

5. Angels Den UK (£850 + 5% of raised funds) Across the pond we have another reported payola scam that is looking for big upside in introducing you to angels. Disgusting! Send us the details of this one if you have them!

In Summary
==================
To recap the email quickly:
a) There is no circumstance where an angel investing group should charge a startup to pitch
b) We’ve launched an investigation into these groups and need any information you have
c) If you would spread the word about this issue by discussing it with angel investors and startups we would appreciate it
d) We are demanding that angel groups waive all fees starting today
e) We are going to crush any group that doesn’t comply with our demands
f) There is no negotiation
g) Angel forums upset by this email: Jason doesn’t care what you think of him and could care less if you email his investors, his mother or the Principal of the Internet to complain about his bad behavior (plus these folks get emails all the time and are used to it).

JCAL out

More on the horrific Keiretsu Forum from @thefu… join the Jihad!

10/5/2009

A lot of folks have been asking for yesterday’s email newsletter. Now, this is a one time thing… if you want to get these in the future you have to signup for Jason’s email listwww.jasonnation.com

===============

This comments speaks to the value of “pay for play” nonsense like DEMO
and Keiretsu Forum.

We must killed the infidels and destroy their homeland! j

http://www.thefunded.com/funds/show/Keiretsu+Forum

We pitched last fall to this group. We subsequently raised what we
needed – but not a penny from this group. When I found out that the
group is pay-to-play, I had to make a qualified decision to ‘get
access’ to a group of investors. Part of that dilligence was
understanding more metrics about funding history, people involved,
other deals, etc….

The k4 group experience has certainly galvanized my thoughts that an
entrepreneur should NEVER pay to play and no matter what questions you
ask. The k4 model is flawed for this reason and there is no incentive
for the k4 people to be clear or honest about funding facts about
their group because it would become clear to the entrepreneur that
it’s not worth it to pay.

Case in point … when asked about history of funding deals, the k4
officials used metrics reaching back to 2001 (nothing in the last few
months from this event). When asking about recent deals – all of the
sudden, they don’t have very good metrics or tracking facilities.
These guys do qualifying pitches once a month and the actual meetings
once a month as well (for the previous month’s deals). They know
exactly what is going on – and over the last year when liquidity has
been non-existent for many angels – these guys haven’t funded
anything. The problem is that there is no incentive for them to be
honest about this – because their model is dependent on the 6k from
6-8 entrepreneurs *every month*.

After the event, when we qualified interest from the ‘Gold Sheet’, we
had over 25 inquiries. When we set up a follow on con-call meetings
for this – NOT A SINGLE PERSON showed up. After engaging with
individuals to make time for 1:1 meetings, the interest wasn’t all
that qualified (almost like someone who feels compelled to rate a
speaker survey as opposed to having qualified interest in investing).
On closer inspection and after I bugged the k4 group about this, I
learned this is common and ‘I need to just stay on them’. Having
raised angel money in the past – i appreciate the need to ‘stay on
angels to get something done’. This was above and beyond the norm. I
did a bit more research and found that the people behind the email
addresses were largely service providers.

In short, entrepreneurs are asked to pay for what is largely a social
event for angels who may not even have the capacity to invest in
anything – along with a handful of service providers who will waste
your time. The model is dependent on entrepreneurs paying the bills -
and if they were honest about the successes of qualified deals, the
deal flow would dry up and the group would no longer be relevant.

Again, we raised what we needed from other sources – but not a dime
from K4. I don’t have an axe to grind – I just feel compelled to
protect any other entrepreneur out there whose most valuable asset is
their time (and money) and tell them to save it. K4 is a waste.

Ohh – one last little gem. There was one blow-hard in the audience who
was effectively a patent troll whose approach was apparently to scour
the k4 meetings for potentially aligned tech and then threaten the
entrepreneurs with licensing conversations. After reading the guy the
riot act off-line about how dis-similar our tech is from this guys 10
year old garbage, I stopped getting calls.

===========

A lot of folks have been asking for yesterday’s email newsletter. Now, this is a one time thing… if you want to get these in the future you have to signup for Jason’s email listwww.jasonnation.com

Life from the Jason's Jihad meeting…

10/5/2009

—————
Jason@Calacanis.com | Mobile: 310-456-4900
http://www.calacanis.com | http://www.mahalo.com
Executive Assistant: admin@calacanis.com

Jason Jihad: Keiretsu Forum Must be Stopped!

10/5/2009

My brothers, a new evil is upon us. The evil infidels have grown strong in the recession, taking advantage of startup companies by charging them $4-6k for an eight minute presentation in front of supposed “angel investors.”

We can not stop until the Keiretsu Forum is destroyed and replaced by an honorable organization that does not charge startup companies.

Phase One of the Jihad: Collect all information you can about Keiretsu Forum.

Phase Two of the Jihad: Write a blog post about how disgusted you are by the infidels and their unholy campaign against the righteous entrepreneurs.

Phase Three of the Jihad: Will be discussed in private on This Week in Startups and within the superfan group.

Would you buy a used car from this man? Exactly.

http://www.youtube.com/watch?v=pTjbWTTu0Ec

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English Bulldog

Hello, my name is Jason. Welcome to my blog on the interwebs. You can reach me on twitter @jason and by email at jason@inside.com. My Skype is jasoncalacanis, and my mobile phone is 310-456-4900.

I only pick up numbers I recognize, and in terms of emailing me, the best strategy is to write short, blunt and to the point requests. I can quickly respond to short messages, and many times I simply don't have the time to read five page pitches. In terms of taking meetings, I only do that after reviewing an actual product (not a business plan). So, the best time to ping me is when you have mockups or an alpha site. I don't read business plans, and I've never written one.

Other twitter accounts you can follow: Inside.com, Ticker, This Week in Startups and LAUNCH Festival

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