Should You Have to Pay a Huge Fee to Pitch an Angel Network's Investors?
The controversy over angel investor networks which charge struggling cash-strapped entrepreneurs anywhere from hundreds to thousands of dollars merely for the privilege of presenting their opportunities is finally picking up a head of steam. And it's about time. Many of these networks attempt to charge unconscionable fees while offering no guarantees of any kind. Basically their propositions make about as much sense as someone telling you to take your last $1000 or $3000 and put it into lottery tickets.
It really wasn't all that long ago when entrepreneurs and investors gathered monthly for presentations and networking. Normally, the venue was a meeting room booked for free at a university. At most, attendees might have been asked to pay a $5 admission fee to cover the cost of the coffee and donuts.
The system worked because both sides got what they wanted. The investors who bothered to attend after a full day at the office were business people seriously committed to finding young companies to invest in. The entrepreneurs in turn knew that they were going to meet people who could help them with either money or good advice, so they came prepared.
Then with the advent of the dotcom boom a new animal started to rear its ugly head. This new network charged fees to entrepreneurs. At first the fees appeared reasonable. In my neck of the woods, it was around $125 to $200, when it wasn't free. But the fees started exploding after the dotcoms turned into smoking craters. Now you regularly hear complaints from founders about being asked to pay $750 to $3000 and more just to present a 15 minute pitch.
It really has become outrageous.
Rule #1 of capital raising: never pay up-front fees to anyone who claims to be able to help you find money. Stick to this rule and you will avoid the tears.
Now finally this ugly boil looks like it's at the bursting point. Every day I find more discussions over this practice. Even Digg's founder has chosen to discuss angel networks which charge fees.