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Financing

Ante-Up Angels?

by Kris Tuttle on October 14, 2009

There’s been a major kerfuffle on the net led by some self-absorbed Valley types about what an outrage it is for groups of angel investors to charge companies who want to present their plans to them.  Defenders of the practice argue that it’s a free market and companies can pay if they chose to.  However many venture investors and related types have decided to rail against the practice and take the “outing” of it as some kind of cause.  Pulling some facts together that may help entrepreneurs and start-up companies navigate a fund-raising process that is inscrutable would definitely help.  Singling out “ante-up” angels is not nearly as valuable.

The fact is there have long been many trade groups and event planners that are “pay to play.”  Some of the famous ones like Demo have charged fees that were high enough to attract attention.  Many are far more mundane and charge mostly to defray the costs of organizing an event.  For example there are some business development events held in the US for European companies that do an excellent job of helping them find potential business development partners.  The fees are modest at $4-5K per company but the value proposition is there for anyone to decide if it makes sense for them.

Capital raising is notoriously difficult and if ante-up angels are praying on these poor start-up companies then shame on them.  However expertise focused on a specific company situation is a scarce resource and figuring out a way to parcel it out is needed.  Everyone wants it but few want to pay for it.   Besides it’s been normal for advisors and gatekeepers to charge companies for their services.  Sometimes on an contingency basis but none of them can afford to work for free.  Companies need help with the process and unless they can manage to attract resources on their own that will invest the time, money and energy that they need there will need to be a fee paid to someone to help.  Does your account do your taxes for free?  Does a recruiter fill jobs and place candidates without a fee?   Do industry research groups consult with you on your products, strategy and positioning for free?   Generally speaking the rule of getting what you pay for holds.  If there are cases where it doesn’t those businesses and/or models will simply die off.

Lately we’ve even seen companies begin to charge job applicants a small fee to apply for a job.  Some people are upset about this too.  However it’s a fact that employers need a way to screen candidates and the fee is small.  Colleges have long charged application fees and we haven’t heard any complaints about it.   These are poor students after all!   There’s also something to be said for a price that seems fair. If Harvard starting charging $2000 for the application process there would be an understandable outcry.

Where do we stand on the ante-up angels?  We’d advise companies against it.  Paying someone to *hear* your story makes no sense.  Paying to have them critique, propose or otherwise add some value makes total sense.  If you need help we’d say it’s worth spending a small amount on getting the story down and obtaining some help with networking and introductions.  Or just network yourself into finding a decent advisor you can trust to help you a bit through the process.   That’s our 2c.

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