UPDATE: David S. Rose, Chairman of the NY Angels, responded in the comments below and I broke it out into its own post.
In the comments of my previous post, Nate Westheimer, the NY Tech organizer and former EIR at Rose Tech Ventures, wrote this as part of a long, thoughtful comment:
To start, the NY Angels isn’t a pay-to-play scheme. Come on. If you networked with any of the members — many of whom devote their lives to helping entrepreneurs (David Rose, Jeff Stewart, Roger Eherenberg, Brian Cohen, etc) — I bet you’d get in without a charge. The “shmoes” who pay are those who haven’t had the sense to meet up independently with its members, excite them, and have you get in front of their colleagues without having to pay the administrative fee. [Emphasis added]
I was wondering when someone would bring this up. Here’s the thing: it’s not about me or what I can finagle because I have connections. It’s about the guy who has no connections and is a broke nobody. And for that guy, the price to apply to MAYBE get a chance to pitch some of New York’s richest people is $150. And that’s not cool.
See, I’ve got a bit of a chip on my shoulder regarding this particular point. I wasn’t poor, but I didn’t grow up with money. When I was a student at Columbia, I worked as a paramedic in Harlem and the South Bronx to pay for school. Two jobs. Two very working class jobs. I started off doing it cuz it was fun, and ended up having to do it because I needed to eat. I was a poor boy in a rich man’s world. No connections. No network. Another schmoe.
And yeah, I’ve gotten myself into a place where I’m a little bit of a somebody since then. But that doesn’t matter. What matters is how we treat the least among us.
Unfunded entrepreneurs should not be asked to pay investors to pitch. Period. It’s exploitative and just wrong.
And if you’re right and the members are in fact truly devoted to helping entrepreneurs, then I challenge them here and now to drop their $150 pitch application fee and to instead embrace the model pioneered by the Open Angel Forum and fund their efforts by charging service providers instead of entrepreneurs.
Honestly, I think there’s more than just a moral imperative involved here. By killing the application fees, they’ll get savvier founders, better startups, and improved deal flow––a true win-win for the New York ecosystem.
I think one of Matt’s best points is that the $150 fee is a turn-off to some good entrepreneurs and potentially hurts the NYA.
I think one of Matt’s best points is that the $150 fee is a turn-off to some good entrepreneurs and potentially hurts the NYA.
That “EZPass” “system” is a laugher. So if somehow you’ve ALREADY GOTTEN FUNDING from one of them then you don’t have to pay the application fee. The hell?
It’s also bizarre, the “please sir may I have another!” mentality espoused by the beta male contingent. “We all oughta thank our lucky stars that Jaysus saw fit to save our undeserving asses!” Investors are out to MAKE A PROFIT. It’s just business, not a moral crusade. If you think nobody else would support those entrepreneurs, it’s because nobody else thought they could make a profit off them (and looking at NYA’s portfolio, you can see why).
You ask why he doesn’t charge the investors INSTEAD of the entrepreneurs, and he says they charge them TOO! So they are eating off both sides of the table.
The MOST IMPORTANT thing for investors to do is JUDGE the applicants, and that’s not something you want to hand off to a lackey. Otherwise what’s the point in having all the experience and skill, if you’re not going to use it?
You can’t even use lackeys as a low-filter pass, because someone who doesn’t understand the applicable market segment isn’t going to be able to tell the difference between genius and madness.
Broken English? Poor spelling and grammar? Guess what, a huge number of startups are founded by foreigners.
Zed Shaw writes about the problems with the NY startup scene:
“Now, imagine you got a spare 20 million to throw around and you want to invest it someplace so you’re going to look for some companies to fund. Here’s your choice:
Option A: A couple of nerds who kind of smell and have this really cool thing that you don’t really understand involving the interwebs which has a very high chance of failing taking all your money with it, or if it succeeds making a whopping few hundred million.
Option B: A couple of slick Harvard MBAs who take you out for rows of coke in Atlantic City, buy you a blowjob or two, and tell you they have a “tiny” hedge fund already worth 500 million and they can give you a return on your investment within one year, and in 5 they’ll be worth a few hundred BILLION. Oh, and if they fail the Fed will bail them out so there’s no risk.
Now, which one will you choose? Obviously, you’re going with the Option B: the guys who know how to make money already, can continue to make money, are rich already like you, and will most likely have a constant government safety net if they fail.”
And “[…] Then again if you do have those things you could just go into Finance and make billions instead of millions.”
http://zedshaw.com/blog/2010-01-19.html
Also see “NYC VCs Can’t Do Math”
http://zedshaw.com/blog/2009-03-02-2.html
Andy Bechtolsheim gave the Google guys $100k after a chat. Facebook moved to SV after Boston investors had their chance but didn’t act. There’s a reason Silicon Valley is the epicenter, and it’s because confident people move with surety, and their confidence is from “game recognize game”. They are expert at judging these kinds of things since they not only did it themselves and thus have their OWN technical expertise, but have been around entrepreneurs their entire careers.
Note none of the top angels are from these “angel committees”. The angel groups are formed so people with money but without the requisite expertise in judgment can get expert judges to vet the startups for them — and that ONE essential thing is what NYA says it doesn’t have the TIME to do.
That “EZPass” “system” is a laugher. So if somehow you’ve ALREADY GOTTEN FUNDING from one of them then you don’t have to pay the application fee. The hell?
It’s also bizarre, the “please sir may I have another!” mentality espoused by the beta male contingent. “We all oughta thank our lucky stars that Jaysus saw fit to save our undeserving asses!” Investors are out to MAKE A PROFIT. It’s just business, not a moral crusade. If you think nobody else would support those entrepreneurs, it’s because nobody else thought they could make a profit off them (and looking at NYA’s portfolio, you can see why).
You ask why he doesn’t charge the investors INSTEAD of the entrepreneurs, and he says they charge them TOO! So they are eating off both sides of the table.
The MOST IMPORTANT thing for investors to do is JUDGE the applicants, and that’s not something you want to hand off to a lackey. Otherwise what’s the point in having all the experience and skill, if you’re not going to use it?
You can’t even use lackeys as a low-filter pass, because someone who doesn’t understand the applicable market segment isn’t going to be able to tell the difference between genius and madness.
Broken English? Poor spelling and grammar? Guess what, a huge number of startups are founded by foreigners.
Zed Shaw writes about the problems with the NY startup scene:
“Now, imagine you got a spare 20 million to throw around and you want to invest it someplace so you’re going to look for some companies to fund. Here’s your choice:
Option A: A couple of nerds who kind of smell and have this really cool thing that you don’t really understand involving the interwebs which has a very high chance of failing taking all your money with it, or if it succeeds making a whopping few hundred million.
Option B: A couple of slick Harvard MBAs who take you out for rows of coke in Atlantic City, buy you a blowjob or two, and tell you they have a “tiny” hedge fund already worth 500 million and they can give you a return on your investment within one year, and in 5 they’ll be worth a few hundred BILLION. Oh, and if they fail the Fed will bail them out so there’s no risk.
Now, which one will you choose? Obviously, you’re going with the Option B: the guys who know how to make money already, can continue to make money, are rich already like you, and will most likely have a constant government safety net if they fail.”
And “[…] Then again if you do have those things you could just go into Finance and make billions instead of millions.”
http://zedshaw.com/blog/2010-01-19.html
Also see “NYC VCs Can’t Do Math”
http://zedshaw.com/blog/2009-03-02-2.html
Andy Bechtolsheim gave the Google guys $100k after a chat. Facebook moved to SV after Boston investors had their chance but didn’t act. There’s a reason Silicon Valley is the epicenter, and it’s because confident people move with surety, and their confidence is from “game recognize game”. They are expert at judging these kinds of things since they not only did it themselves and thus have their OWN technical expertise, but have been around entrepreneurs their entire careers.
Note none of the top angels are from these “angel committees”. The angel groups are formed so people with money but without the requisite expertise in judgment can get expert judges to vet the startups for them — and that ONE essential thing is what NYA says it doesn’t have the TIME to do.
I turned this comment into its’ own post. Lots of comments, including from Jason Calacanis and Paul Graham of Y-Combinator. Take a look:
http://www.metamorphblog.com/2010/02/david-rose-why-ny-angels-charges-entrepreneurs.html
http://news.ycombinator.com/item?id=1155973
I turned this comment into its’ own post. Lots of comments, including from Jason Calacanis and Paul Graham of Y-Combinator. Take a look:
http://www.metamorphblog.com/2010/02/david-rose-why-ny-angels-charges-entrepreneurs.html
http://news.ycombinator.com/item?id=1155973
I don’t think that the New York Angels is trying to make a profit with their fees, I think they are trying to reduce their workload. However, their’s is a misguided technique, because I’m sure it alienates just as many good entrepreneurs as bad entrepreneurs. I don’t believe that it separates the wheat from the chaff effectively.
NY Angels should examine the approaches employed by other angel groups to pre-screen applicants. Perhaps they could get creative, and offer internships to students to do the initial screening?
I don’t think that the New York Angels is trying to make a profit with their fees, I think they are trying to reduce their workload. However, their’s is a misguided technique, because I’m sure it alienates just as many good entrepreneurs as bad entrepreneurs. I don’t believe that it separates the wheat from the chaff effectively.
NY Angels should examine the approaches employed by other angel groups to pre-screen applicants. Perhaps they could get creative, and offer internships to students to do the initial screening?
It’s great to see this conversation happening in New York. We started a similar conversation in Philly yesterday over the Angel Venture Fair, which charges $250 to apply and $1,000 if you are chosen to present.
http://www.blakejennelle.com/2010/02/angel-venture-fair-frustrations/
It sounds like NY Angels is much more reasonably priced. That said, I understand why you’d like to see pitching be free.
It’s great to see this conversation happening in New York. We started a similar conversation in Philly yesterday over the Angel Venture Fair, which charges $250 to apply and $1,000 if you are chosen to present.
http://www.blakejennelle.com/2010/02/angel-venture-fair-frustrations/
It sounds like NY Angels is much more reasonably priced. That said, I understand why you’d like to see pitching be free.
Matt, I don’t think you need to fight the fight for other entrepreneurs if it’s not something you know personally. Just makes you look like a shoot-first blogger, not a wise entrepreneur.
You talk about once being a schmoe and now being connected. Well, that’s the required path for ALL entrepreneurs. Guess what, I once knew no one and then met David and other great mentors too. No one who can’t figure that part out deserves to get funded any way. If you do figure that part out, it doen’t mean you deserve funding either.
Anyway, don’t say in one breath “it’s not about you” and then crusade for others. If it is about you, then it’s a different story. But if this NY Angels crusade isn’t about you, then let others speak for themselves. An entrepreneur worth his or her salt will, and doesn’t need you for this.
Matt, I don’t think you need to fight the fight for other entrepreneurs if it’s not something you know personally. Just makes you look like a shoot-first blogger, not a wise entrepreneur.
You talk about once being a schmoe and now being connected. Well, that’s the required path for ALL entrepreneurs. Guess what, I once knew no one and then met David and other great mentors too. No one who can’t figure that part out deserves to get funded any way. If you do figure that part out, it doen’t mean you deserve funding either.
Anyway, don’t say in one breath “it’s not about you” and then crusade for others. If it is about you, then it’s a different story. But if this NY Angels crusade isn’t about you, then let others speak for themselves. An entrepreneur worth his or her salt will, and doesn’t need you for this.
Hmm. Thank you David once again for your thoughtful reply. I’m gonna ruminate on this one for a bit and get back to you, but you do offer a compelling argument.
Hmm. Thank you David once again for your thoughtful reply. I’m gonna ruminate on this one for a bit and get back to you, but you do offer a compelling argument.
Umm…Matt, are you actually reading my responses to you? As I’ve noted in both of my previous posts, we DO charge our investors! In fact, every single member of New York Angels pays between $3500 and $7000 annually for the ‘privilege’ of investing their personal money into deserving entrepreneurs.
You keep trying to compare us to venture capital funds, which are profit-making businesses who get PAID by their LPs and all of whose overhead costs are covered by them. We are exactly the opposite! We are a not-for-profit group, that PAYS out of our pockets to do this! Our expenses include a full-time executive director, several interns, office space, meeting space and support, legal fees, accounting fees, web site fees, travel expenses, due diligence costs, sponsorship fees (we have been a lead sponsor of @shakeshack and other community events), professional dues and memberships, etc. etc.
Go back to the metrics that I gave you in my original post, and you’ll see that our annual operating budget of hundreds of thousands of dollars, supporting all of our volunteer labor, is a tiny fraction of that of ANY of the venture funds you’ve mentioned. Yet despite that, we have invested over $40 million into over 60 companies, which is a heck of lot more money than any of the individual angels you’ve mentioned, and more companies than most of the VCs.
The reason we charge a fee is because we’re between a rock and a hard place. The unfortunate but accurate fact is that 90% of all companies requesting funding are simply not fundable, by anyone, anywhere…no matter how earnest the entrepreneur might be. The larger VC funds get upwards of 10,000 plans each year, but that’s ok for them because they either completely ignore over-the-transom submissions, or have them read by a paid associate.
Since all of us are volunteers with day jobs who are doing this in our spare time out of love (and bit of masochism), we simply can’t process that kind of deal flow. So our choice is either to take the route that many VCs and quite a number of other angel groups do, and ONLY accept deals as referrals, or else TRY to have some kind of system which will at least dampen the flow of deals that should never have applied in the first place.
Charging $150 is a pretty poor way of making sure that an entrepreneur at least stops and takes the time to read our criteria before applying, but as Churchill said about democracy, “it’s the worst form of government there is…except for all the others.” I plead guilty to having contributed to making the problem worse by developing Angelsoft, which is now used by virtually all of the world’s angel groups to handle their deal flow. Since it functions much like the CommonApp for colleges, it is now very easy to apply to multiple angel groups for funding, whether you really should or not. The current flow through Angelsoft is around 40,000 applications annually. Should I have not done that, but instead gone out of my way to make it harder to apply?
With regard to Nate’s comment, he’s not quite correct. There are several ways to get to present before New York Angels, but the ‘free’ one is what we call our “EZPass” system: if one of our members is *already* committed to investing in a company, and there is a completed term sheet that other investors can sign on to, that member can bring the opportunity directly to the monthly meeting without a charge (because, if you think about it, this is exactly the kind of deal most likely to be fundable by other angels.) So absolutely, we will all tell you that by FAR the best way to get funded by NYA is for you to network your way to one of our 75 members, get them enthusiastic enough that they agree to invest individually, and then have them present you to the whole group. However, by offering an alternative, open-door policy that allows ‘un-connected’ entrepreneurs to at least apply, we thought we were being helpful, not harmful.
But at this point we have taken so much criticism that I’m beginning to think it’s just not worth trying to be good guys any longer. So we’re currently thinking about simply dropping the fee entirely, but also dropping people’s ability to directly apply to us. In that way, we’d function like many (most?) of the “savvy” investors you mention: no charge, but also don’t bother applying directly. Just use your entrepreneurial mojo to convince someone we know to recommend you to us…otherwise, if you can’t figure out how to do that, we probably shouldn’t be funding you in the first place.
Would that be rational? Yeah it would. But I think that ultimately the ecosystem would be poorer for it.
Umm…Matt, are you actually reading my responses to you? As I’ve noted in both of my previous posts, we DO charge our investors! In fact, every single member of New York Angels pays between $3500 and $7000 annually for the ‘privilege’ of investing their personal money into deserving entrepreneurs.
You keep trying to compare us to venture capital funds, which are profit-making businesses who get PAID by their LPs and all of whose overhead costs are covered by them. We are exactly the opposite! We are a not-for-profit group, that PAYS out of our pockets to do this! Our expenses include a full-time executive director, several interns, office space, meeting space and support, legal fees, accounting fees, web site fees, travel expenses, due diligence costs, sponsorship fees (we have been a lead sponsor of @shakeshack and other community events), professional dues and memberships, etc. etc.
Go back to the metrics that I gave you in my original post, and you’ll see that our annual operating budget of hundreds of thousands of dollars, supporting all of our volunteer labor, is a tiny fraction of that of ANY of the venture funds you’ve mentioned. Yet despite that, we have invested over $40 million into over 60 companies, which is a heck of lot more money than any of the individual angels you’ve mentioned, and more companies than most of the VCs.
The reason we charge a fee is because we’re between a rock and a hard place. The unfortunate but accurate fact is that 90% of all companies requesting funding are simply not fundable, by anyone, anywhere…no matter how earnest the entrepreneur might be. The larger VC funds get upwards of 10,000 plans each year, but that’s ok for them because they either completely ignore over-the-transom submissions, or have them read by a paid associate.
Since all of us are volunteers with day jobs who are doing this in our spare time out of love (and bit of masochism), we simply can’t process that kind of deal flow. So our choice is either to take the route that many VCs and quite a number of other angel groups do, and ONLY accept deals as referrals, or else TRY to have some kind of system which will at least dampen the flow of deals that should never have applied in the first place.
Charging $150 is a pretty poor way of making sure that an entrepreneur at least stops and takes the time to read our criteria before applying, but as Churchill said about democracy, “it’s the worst form of government there is…except for all the others.” I plead guilty to having contributed to making the problem worse by developing Angelsoft, which is now used by virtually all of the world’s angel groups to handle their deal flow. Since it functions much like the CommonApp for colleges, it is now very easy to apply to multiple angel groups for funding, whether you really should or not. The current flow through Angelsoft is around 40,000 applications annually. Should I have not done that, but instead gone out of my way to make it harder to apply?
With regard to Nate’s comment, he’s not quite correct. There are several ways to get to present before New York Angels, but the ‘free’ one is what we call our “EZPass” system: if one of our members is *already* committed to investing in a company, and there is a completed term sheet that other investors can sign on to, that member can bring the opportunity directly to the monthly meeting without a charge (because, if you think about it, this is exactly the kind of deal most likely to be fundable by other angels.) So absolutely, we will all tell you that by FAR the best way to get funded by NYA is for you to network your way to one of our 75 members, get them enthusiastic enough that they agree to invest individually, and then have them present you to the whole group. However, by offering an alternative, open-door policy that allows ‘un-connected’ entrepreneurs to at least apply, we thought we were being helpful, not harmful.
But at this point we have taken so much criticism that I’m beginning to think it’s just not worth trying to be good guys any longer. So we’re currently thinking about simply dropping the fee entirely, but also dropping people’s ability to directly apply to us. In that way, we’d function like many (most?) of the “savvy” investors you mention: no charge, but also don’t bother applying directly. Just use your entrepreneurial mojo to convince someone we know to recommend you to us…otherwise, if you can’t figure out how to do that, we probably shouldn’t be funding you in the first place.
Would that be rational? Yeah it would. But I think that ultimately the ecosystem would be poorer for it.
So why not charge the angel investors instead of the entrepreneurs? $150 seems like it would impact them much less economically than ramen-eating founders.
So why not charge the angel investors instead of the entrepreneurs? $150 seems like it would impact them much less economically than ramen-eating founders.
Interesting idea.
I’d love to see them offer a fee waiver for cash-poor bootstrapped startups.
Interesting idea.
I’d love to see them offer a fee waiver for cash-poor bootstrapped startups.
Hi David, thanks for taking the time to comment and push back. I really appreciate it.
First, a point of order: although my blog does normally contain a high occurrence of expletive, this post was actually expletive free, which is a bit of a rarity around here. So I don’t know where you’re getting that from.
Second, I’d be interested in hearing what the $150 fee is actually used for. If there’s some hidden overhead or built in cost structure or rationale for it that I hadn’t considered, I might change my mind. The title of this post is a question, not a statement, and the point of the blog is to provoke, discuss and learn.
Third, while I understand how it might appear to you that I’m writing just to get attention for myself, that’s just not how I operate. I’m bringing up a legit issue and asking for a response.
The thing that really bothered me, to be honest, was what Nate wrote: that only suckers pay $150 and that because I am someone with connections, I probably wouldn’t have to pay. That piqued my stick-up-for-the-little-guy fighter instincts and hence this blog post.
So is it true that only the un-connected masses have to pay the application fee? Would you consider offering a fee waiver for cash-poor bootstrapped startups?
Also, on your last point, I consider this blog itself a way to give back to the entrepreneurial community and help them learn alongside of me as I go through this process of becoming an entrepreneur. No need to wait for the future. And the feedback I’ve gotten from other founders and proto-founders has been extremely positive so far. I don’t pretend to know it all––I’m just a guy learning as I go along and trying to share the wealth.
Hi David, thanks for taking the time to comment and push back. I really appreciate it.
First, a point of order: although my blog does normally contain a high occurrence of expletive, this post was actually expletive free, which is a bit of a rarity around here. So I don’t know where you’re getting that from.
Second, I’d be interested in hearing what the $150 fee is actually used for. If there’s some hidden overhead or built in cost structure or rationale for it that I hadn’t considered, I might change my mind. The title of this post is a question, not a statement, and the point of the blog is to provoke, discuss and learn.
Third, while I understand how it might appear to you that I’m writing just to get attention for myself, that’s just not how I operate. I’m bringing up a legit issue and asking for a response.
The thing that really bothered me, to be honest, was what Nate wrote: that only suckers pay $150 and that because I am someone with connections, I probably wouldn’t have to pay. That piqued my stick-up-for-the-little-guy fighter instincts and hence this blog post.
So is it true that only the un-connected masses have to pay the application fee? Would you consider offering a fee waiver for cash-poor bootstrapped startups?
Also, on your last point, I consider this blog itself a way to give back to the entrepreneurial community and help them learn alongside of me as I go through this process of becoming an entrepreneur. No need to wait for the future. And the feedback I’ve gotten from other founders and proto-founders has been extremely positive so far. I don’t pretend to know it all––I’m just a guy learning as I go along and trying to share the wealth.
Hi, well I can’t speak for them but actually I think it’s more ethical to charge per application, like they do, rather than only if you get to pitch. I think they do it to offset the charges of the administration of going through all of the submissions, so it would make sense to charge per app.
Like I said above, I’d prefer not to pay any application fee. It probably would be ideal to take those fees and pass them on to the angels. But I don’t think $150 is evil or boycott-worthy, just mildly annoying.
And most importantly, it pales in comparison to the high praise they deserve for supporting NY entrepreneurs now, and when nobody else was doing it.
Hi, well I can’t speak for them but actually I think it’s more ethical to charge per application, like they do, rather than only if you get to pitch. I think they do it to offset the charges of the administration of going through all of the submissions, so it would make sense to charge per app.
Like I said above, I’d prefer not to pay any application fee. It probably would be ideal to take those fees and pass them on to the angels. But I don’t think $150 is evil or boycott-worthy, just mildly annoying.
And most importantly, it pales in comparison to the high praise they deserve for supporting NY entrepreneurs now, and when nobody else was doing it.
Hi Brandon,
Great to hear from you. Sounds like you’ve had a good experience with NY Angels. I’d love to hear more details.
Personally, I’m still very dubious of the $150 fee to apply to be considered to pitch (not to pitch, but to apply to be considered to pitch), but i might be able to be talked out of my deep skepticism if you or someone else offers up a rational argument I haven’t considered.
Cheers!
-Matt
Hi Brandon,
Great to hear from you. Sounds like you’ve had a good experience with NY Angels. I’d love to hear more details.
Personally, I’m still very dubious of the $150 fee to apply to be considered to pitch (not to pitch, but to apply to be considered to pitch), but i might be able to be talked out of my deep skepticism if you or someone else offers up a rational argument I haven’t considered.
Cheers!
-Matt
Hey Matt, nice to meet you. NY Angels (and their $150 application fee) is nothing like Keiretsu Forum who charge thousands of dollars in a tiered structure — the further you get the more you pay. NY Angels were supporting startups here way before it was cool to do so. They’re totally legit, and I think you do a disservice to entrepreneurs to mention pay-to-play in the same sentence.
I don’t like $100 or $150 application fees for anything. It’s annoying and probably unnecessary for any angel group, but it’s small enough not to be boycott-worthy, especially considering their legitimacy.
Hey Matt, nice to meet you. NY Angels (and their $150 application fee) is nothing like Keiretsu Forum who charge thousands of dollars in a tiered structure — the further you get the more you pay. NY Angels were supporting startups here way before it was cool to do so. They’re totally legit, and I think you do a disservice to entrepreneurs to mention pay-to-play in the same sentence.
I don’t like $100 or $150 application fees for anything. It’s annoying and probably unnecessary for any angel group, but it’s small enough not to be boycott-worthy, especially considering their legitimacy.
[sigh] Matt, what you seem to be missing here is that Kleiner and Sequoia and all the other VCs you mention get PAID to listen to pitches. That is their compensated job. The partners at a $200m fund get paid four million bucks a year for the life of the fund, even if every single one of their investments goes under. And in addition to their own salaries, that management fee pays for associates, administrative staff, rent and other overhead. And then if they make good investments which have positive returns, they get 20% of the profits, which means they’re getting the benefit of playing with $20 million of other people’s money.
In contrast, angel investors PAY to listen to pitches. We fund our operations mostly out of our own pockets, and have a 100% negative cash flow unless and until, many years (typically six or seven) down the road, enough of our entrepreneurs hit home runs that we eventually get back more than we laid out up front.
Sure, we could fund our operations by charging service providers; many groups do. But why don’t you ask other, experienced, entrepreneurs what it’s like to pitch a room of ‘investors’, when half of them are really there to sell you something. Trust me, it’s not great. That’s why NYA, unlike virtually every other angel group in the country, requires that members invest at least $50K each year in companies that present to us.
The bottom line, though, as I said in a presentation this week at NYU (which was not part of my ‘job’ and for which I didn’t get compensated) is that angel investors are, not to put too fine a point on it, crazy. There are many [much] easier ways to make money…including giving it to your ‘savvy’ VCs to manage for us. But instead, we spend enormous amounts of time, energy and personal cash trying to help the next generation of entrepreneurs benefit from our own experiences…and then find ourselves attacked in blog posts full of expletives by the very people we’re trying to help. Frankly, it’s pretty disheartening.
Ah well, as I said previously, I wish you good luck in finding funding for your venture, and congratulate you on the visibility you’ve managed to achieve so far on your own (NYTM, Inc., etc.) Perhaps after you make it big, you’ll give back to the succeeding entrepreneurial generation yourself.
[sigh] Matt, what you seem to be missing here is that Kleiner and Sequoia and all the other VCs you mention get PAID to listen to pitches. That is their compensated job. The partners at a $200m fund get paid four million bucks a year for the life of the fund, even if every single one of their investments goes under. And in addition to their own salaries, that management fee pays for associates, administrative staff, rent and other overhead. And then if they make good investments which have positive returns, they get 20% of the profits, which means they’re getting the benefit of playing with $20 million of other people’s money.
In contrast, angel investors PAY to listen to pitches. We fund our operations mostly out of our own pockets, and have a 100% negative cash flow unless and until, many years (typically six or seven) down the road, enough of our entrepreneurs hit home runs that we eventually get back more than we laid out up front.
Sure, we could fund our operations by charging service providers; many groups do. But why don’t you ask other, experienced, entrepreneurs what it’s like to pitch a room of ‘investors’, when half of them are really there to sell you something. Trust me, it’s not great. That’s why NYA, unlike virtually every other angel group in the country, requires that members invest at least $50K each year in companies that present to us.
The bottom line, though, as I said in a presentation this week at NYU (which was not part of my ‘job’ and for which I didn’t get compensated) is that angel investors are, not to put too fine a point on it, crazy. There are many [much] easier ways to make money…including giving it to your ‘savvy’ VCs to manage for us. But instead, we spend enormous amounts of time, energy and personal cash trying to help the next generation of entrepreneurs benefit from our own experiences…and then find ourselves attacked in blog posts full of expletives by the very people we’re trying to help. Frankly, it’s pretty disheartening.
Ah well, as I said previously, I wish you good luck in finding funding for your venture, and congratulate you on the visibility you’ve managed to achieve so far on your own (NYTM, Inc., etc.) Perhaps after you make it big, you’ll give back to the succeeding entrepreneurial generation yourself.
Great topic, and excellent comments. You’re spot on about paying to pitch. Whether it’s TC50 or an angel group, the concept of paying to partner up with a financial backer is like paying for a mail order bride that may or may not show up 🙂
Great topic, and excellent comments. You’re spot on about paying to pitch. Whether it’s TC50 or an angel group, the concept of paying to partner up with a financial backer is like paying for a mail order bride that may or may not show up 🙂
Hi David,
Thanks for responding directly. It’s great to be able to discuss this stuff in the open.
First off, you’re assuming that my complaint against the NY Angels pay-to-play system is the result of some unrelated and non-existent personal fundraising difficulties. Your assumptions on this front are false: a) our angel round is going well, thanks, and b) my beef with NY Angels is not about me or SpeakerText. So let’s stick to the topic at hand.
As you mentioned, I never approached NY Angels, so it’s not like I have some pre-existing grudge against the organization because you guys rejected me or anything like that. Quite the contrary: I know Nate and I know you and if I wanted, I probably could––as Nate suggested––get the application fee waived.
But honestly, as a founder, I know what I and my company are worth, and I’d just never pay to pitch, apply to pay to pitch or seek funding from an organization that asks startups to pay to pitch. As a savvy founder, I’ve know a little bit about how top-tier investors operate, and I know that the Kleiner Perkins and the Sequoias and the Reid Hoffmans and the Ron Conways of the world would never dream of asking startups to pay to APPLY to pitch. From where I stand, it sends a bad signal.
Realistically, I don’t see how the fee helps your deal flow. Savvy founders know the pay-to-play game is bogus, and they’re not gonna hunt you down. They––like me––have options. So I don’t see the benefit in the $150 application for you and/or New York Angels.
Now, I appreciate all that you’ve said about NY Angels being a non-profit and such, but you still haven’t explained exactly why you need to charge struggling founders $150 to APPLY to have the chance to pitch to your group. Obviously, other groups like the Open Angel Forum have successfully attracted top-tier investors and startups without requiring fees from the startups themselves. Where does the money go? Are there some some sort of hidden costs that we don’t know about?
Moreover, on a visceral level, doesn’t it strike you as somehow unfair that it is the struggling entrepreneur who pays the rich investors for access to capital. and not even assured access to capital at that?
Obviously, it’s always hard to separate out personal feelings in a situation like this, since NY Angels is your baby, but let’s focus on the specific charge and not get distracted in ad hominem attacks regarding SpeakerText or my own fundraising endeavors. That’s simply not the topic at hand.
Cheers!
-Matt
Hi David,
Thanks for responding directly. It’s great to be able to discuss this stuff in the open.
First off, you’re assuming that my complaint against the NY Angels pay-to-play system is the result of some unrelated and non-existent personal fundraising difficulties. Your assumptions on this front are false: a) our angel round is going well, thanks, and b) my beef with NY Angels is not about me or SpeakerText. So let’s stick to the topic at hand.
As you mentioned, I never approached NY Angels, so it’s not like I have some pre-existing grudge against the organization because you guys rejected me or anything like that. Quite the contrary: I know Nate and I know you and if I wanted, I probably could––as Nate suggested––get the application fee waived.
But honestly, as a founder, I know what I and my company are worth, and I’d just never pay to pitch, apply to pay to pitch or seek funding from an organization that asks startups to pay to pitch. As a savvy founder, I’ve know a little bit about how top-tier investors operate, and I know that the Kleiner Perkins and the Sequoias and the Reid Hoffmans and the Ron Conways of the world would never dream of asking startups to pay to APPLY to pitch. From where I stand, it sends a bad signal.
Realistically, I don’t see how the fee helps your deal flow. Savvy founders know the pay-to-play game is bogus, and they’re not gonna hunt you down. They––like me––have options. So I don’t see the benefit in the $150 application for you and/or New York Angels.
Now, I appreciate all that you’ve said about NY Angels being a non-profit and such, but you still haven’t explained exactly why you need to charge struggling founders $150 to APPLY to have the chance to pitch to your group. Obviously, other groups like the Open Angel Forum have successfully attracted top-tier investors and startups without requiring fees from the startups themselves. Where does the money go? Are there some some sort of hidden costs that we don’t know about?
Moreover, on a visceral level, doesn’t it strike you as somehow unfair that it is the struggling entrepreneur who pays the rich investors for access to capital. and not even assured access to capital at that?
Obviously, it’s always hard to separate out personal feelings in a situation like this, since NY Angels is your baby, but let’s focus on the specific charge and not get distracted in ad hominem attacks regarding SpeakerText or my own fundraising endeavors. That’s simply not the topic at hand.
Cheers!
-Matt
Morally wrong…?
No one is obligating anyone else to go through a pay-to-pitch. $150 is cheaper than most adwords campaigns. There are also plenty of free alternatives like contests, etc. to work your way up to that level.
If it’s wrong in principle to charge for a service, why get involved in business in the first place?
I’ve enjoyed your previous posts, just as a caveat. You’re a strong writer.
Morally wrong…?
No one is obligating anyone else to go through a pay-to-pitch. $150 is cheaper than most adwords campaigns. There are also plenty of free alternatives like contests, etc. to work your way up to that level.
If it’s wrong in principle to charge for a service, why get involved in business in the first place?
I’ve enjoyed your previous posts, just as a caveat. You’re a strong writer.
Re-posted from a comment on the Insider version of your original note:
Matt, while it’s always useful to speak from a personal perspective, it’s important to be careful about making over-generalized statements based *solely* on one’s individual experience (in this case your inability to find funding so far for SpeakerText). In particular you seem pretty vehement in your attack on angel investors in New York. While I absolutely agree with you that Fred, Chris and Betaworks are important and active players in the New York early stage ecosystem (and friends of ours!), I am frankly a little surprised by your back-handed attack on New York Angels. Let me try to set the record straight:
Were you aware that New York Angels has directly funded over $40 million into more than 60 early stage companies? That is twice as many startups as Union Square Ventures, and more than twice as many companies and more funding than the great guys at Founder Collective and Betaworks combined.
Were you also aware that the 65 individual members of New York Angels are for the most part entrepreneurs themselves, who have been seminal contributors to the growth of the tech community here in New York? Among our past and present members are founders Scott Kurnit (About.com), Rich Forman (Register.com), Jeff Stewart (Mimeo), Esther Dyson (PC Forum), Gideon Gartner (Gartner Group), Thomas Lehrman (Gilder Lehrman Group), Heidi Messer (LinkShare), Adam Slutsky (MovieFone), Jon Whelan (Afternic), Geoff Judge (24/7 Media), Brian Cohen (Technology Solutions), Chris Anderson (IGN.com), Larry Richenstein (Unwired Technologies), Josh Kopelman (Half.com), Mark Schneider (Core Software), Ernie von Simson (Research Board), Howard Morgan (IdeaLab NY), Gil Beyda (TACODA), Cliff Chapman (MNP), Eyal Goldwerger (TargetSpot) and many, many others.
Were you aware that among our ten VC members are some of the most respected early stage funds in the country, including First Round Capital, RRE Ventures, and Greycroft, and that we also regularly co-invest with many other top tier funds, including Intel Capital, Battery Ventures, .406, Next Stage, Innovation and Black Fin?
Finally, with regard to our $150 application fee, were you aware that instead of making money by charging entrepreneurs, we are a not-for-profit membership organization, and that each of our members personally pays more than *20* times that amount in annual dues, and commits to annually investing at least $50,000 into early stage ventures that present before the group?
But perhaps since you appear to have never even approached us for funding, this may come as a surprise.
Matt, as an entrepreneur who has founded (and gone through the funding process for) half a dozen companies myself, I completely empathize with the challenges that all startup entrepreneurs face (not just you, and not just in New York). This is especially true when you consider that nationwide, angels can only fund 2-3% of the companies that would like funding (and VCs, of course, fund at less than 1/10 that rate).
I wish you luck in finding financing for your venture, but blindly (and incorrectly) lashing out online is probably not the way to do it.
David S. Rose
Chairman, New York Angels
Re-posted from a comment on the Insider version of your original note:
Matt, while it’s always useful to speak from a personal perspective, it’s important to be careful about making over-generalized statements based *solely* on one’s individual experience (in this case your inability to find funding so far for SpeakerText). In particular you seem pretty vehement in your attack on angel investors in New York. While I absolutely agree with you that Fred, Chris and Betaworks are important and active players in the New York early stage ecosystem (and friends of ours!), I am frankly a little surprised by your back-handed attack on New York Angels. Let me try to set the record straight:
Were you aware that New York Angels has directly funded over $40 million into more than 60 early stage companies? That is twice as many startups as Union Square Ventures, and more than twice as many companies and more funding than the great guys at Founder Collective and Betaworks combined.
Were you also aware that the 65 individual members of New York Angels are for the most part entrepreneurs themselves, who have been seminal contributors to the growth of the tech community here in New York? Among our past and present members are founders Scott Kurnit (About.com), Rich Forman (Register.com), Jeff Stewart (Mimeo), Esther Dyson (PC Forum), Gideon Gartner (Gartner Group), Thomas Lehrman (Gilder Lehrman Group), Heidi Messer (LinkShare), Adam Slutsky (MovieFone), Jon Whelan (Afternic), Geoff Judge (24/7 Media), Brian Cohen (Technology Solutions), Chris Anderson (IGN.com), Larry Richenstein (Unwired Technologies), Josh Kopelman (Half.com), Mark Schneider (Core Software), Ernie von Simson (Research Board), Howard Morgan (IdeaLab NY), Gil Beyda (TACODA), Cliff Chapman (MNP), Eyal Goldwerger (TargetSpot) and many, many others.
Were you aware that among our ten VC members are some of the most respected early stage funds in the country, including First Round Capital, RRE Ventures, and Greycroft, and that we also regularly co-invest with many other top tier funds, including Intel Capital, Battery Ventures, .406, Next Stage, Innovation and Black Fin?
Finally, with regard to our $150 application fee, were you aware that instead of making money by charging entrepreneurs, we are a not-for-profit membership organization, and that each of our members personally pays more than *20* times that amount in annual dues, and commits to annually investing at least $50,000 into early stage ventures that present before the group?
But perhaps since you appear to have never even approached us for funding, this may come as a surprise.
Matt, as an entrepreneur who has founded (and gone through the funding process for) half a dozen companies myself, I completely empathize with the challenges that all startup entrepreneurs face (not just you, and not just in New York). This is especially true when you consider that nationwide, angels can only fund 2-3% of the companies that would like funding (and VCs, of course, fund at less than 1/10 that rate).
I wish you luck in finding financing for your venture, but blindly (and incorrectly) lashing out online is probably not the way to do it.
David S. Rose
Chairman, New York Angels
I just think it’s wrong and causes the most promising and saaviest startups to self-select out.
I just think it’s wrong and causes the most promising and saaviest startups to self-select out.
$150 isn’t that much. I used to make $100 in tips some days when I worked as a mover. There’s no moral imperative for them to provide the service for free.
At the same time, I see where you’re coming from.
I’d go with a hybrid model, like those used by colleges. Charge $25-50 and use an application.
$150 isn’t that much. I used to make $100 in tips some days when I worked as a mover. There’s no moral imperative for them to provide the service for free.
At the same time, I see where you’re coming from.
I’d go with a hybrid model, like those used by colleges. Charge $25-50 and use an application.