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.
Got this comment earlier today from David S. Rose, the Chairman of the New York Angels. Very thoughtful and well-reasoned. Gotta say the man is winning me over a little bit. Still ruminating…
This is a response that came from the comments on my previous post: Is NY Angels a Pay-to-Play Scheme?
David, Using the simple math of users * fee might not have been fair. I can see that you are trying to create a portal/pipeline for angel and seed investors.
I just wonder about the business model as it stands. The prioce for an angel group is far below the cost to the entrepreneur that uses the monthly open deal solution.
I know it is difficult to charge angel groups – I have tried to make a go of creating software for VC groups in the past. The smaller firms compare any offering to the cost of buying Excel.
I will keep an eye on the developments. I can clearly see how you could expand the software and make it a good idea for a startup.
Regards, JHL
David, Using the simple math of users * fee might not have been fair. I can see that you are trying to create a portal/pipeline for angel and seed investors.
I just wonder about the business model as it stands. The prioce for an angel group is far below the cost to the entrepreneur that uses the monthly open deal solution.
I know it is difficult to charge angel groups – I have tried to make a go of creating software for VC groups in the past. The smaller firms compare any offering to the cost of buying Excel.
I will keep an eye on the developments. I can clearly see how you could expand the software and make it a good idea for a startup.
Regards, JHL
I only wish that was our business model [grin]. First, those application fees go to the group to which a company is applying for funding, not to Angelsoft (we simply handle the credit card charges for them for a processing fee), and second, not all groups and funds charge fees (as has been amply noted here and elsewhere :-).
Angelsoft’s business model is probably closest to LinkedIn’s: spend an enormous amount of time and money up front to build a useful network and create value, and then leverage that underlying platform as a base to offer optional, value-added services to the various constituents who find it useful (as LinkedIn does with InMail, job postings, contacts, etc.)
With tens of thousands of accredited investors, and tens of thousands of serious entrepreneurs, and over 600 angel groups and venture funds in 45 countries, we’ve so far managed to achieve something unprecedented in the early stage financing arena. But it’s been a long, hard hill to climb for half a decade (which is something I’m sure all of my fellow entrepreneurs can empathize with.)
The first of our new offerings will be announced this summer, and should be (at least we believe) really exciting for entrepreneurs who are in the process of fundraising. We’ve been running an exhaustive series of focus groups and surveys with hundreds of startups, and are working on stuff that we hope will be so cool, so useful and so cost effective, that every one of the 600,000 companies that get started every year in the US will coming running to sign up and give us some revenue. [Turning on his Maxwell Smart voice…] Would you believe 60,000? How about, umm, 6,000? 600?
Seriously, though, Angelsoft is a very, very long-term play, based on the assumption that both the number of entrepreneurs and the number of angel investors will continue to increase, and that by providing a world-class set of tools and services to everyone in the ecosystem, we can help them create real value, and be compensated for our small part in that value creation. Stay tuned! (And if you’re interested in getting involved with our beta program to get an early peek at this stuff, feel free to drop a note to jason at angelsoft dot net…)
-David S. Rose
CEO, Angelsoft
I only wish that was our business model [grin]. First, those application fees go to the group to which a company is applying for funding, not to Angelsoft (we simply handle the credit card charges for them for a processing fee), and second, not all groups and funds charge fees (as has been amply noted here and elsewhere :-).
Angelsoft’s business model is probably closest to LinkedIn’s: spend an enormous amount of time and money up front to build a useful network and create value, and then leverage that underlying platform as a base to offer optional, value-added services to the various constituents who find it useful (as LinkedIn does with InMail, job postings, contacts, etc.)
With tens of thousands of accredited investors, and tens of thousands of serious entrepreneurs, and over 600 angel groups and venture funds in 45 countries, we’ve so far managed to achieve something unprecedented in the early stage financing arena. But it’s been a long, hard hill to climb for half a decade (which is something I’m sure all of my fellow entrepreneurs can empathize with.)
The first of our new offerings will be announced this summer, and should be (at least we believe) really exciting for entrepreneurs who are in the process of fundraising. We’ve been running an exhaustive series of focus groups and surveys with hundreds of startups, and are working on stuff that we hope will be so cool, so useful and so cost effective, that every one of the 600,000 companies that get started every year in the US will coming running to sign up and give us some revenue. [Turning on his Maxwell Smart voice…] Would you believe 60,000? How about, umm, 6,000? 600?
Seriously, though, Angelsoft is a very, very long-term play, based on the assumption that both the number of entrepreneurs and the number of angel investors will continue to increase, and that by providing a world-class set of tools and services to everyone in the ecosystem, we can help them create real value, and be compensated for our small part in that value creation. Stay tuned! (And if you’re interested in getting involved with our beta program to get an early peek at this stuff, feel free to drop a note to jason at angelsoft dot net…)
-David S. Rose
CEO, Angelsoft
I always wondered what business model Angelsoft was using – 40,000 annual applications at $150 = $6,000,000 Not bad – that in of itself makes a successful company.
I always wondered what business model Angelsoft was using – 40,000 annual applications at $150 = $6,000,000 Not bad – that in of itself makes a successful company.
gimme a break! I mean @Jason’s stance against the keiretsu guys is great and also way different than this! they really charged a ton. 150$? come on. is that really a sum to get all ninja over against the ny angels?
gimme a break! I mean @Jason’s stance against the keiretsu guys is great and also way different than this! they really charged a ton. 150$? come on. is that really a sum to get all ninja over against the ny angels?
Here’s what they say RE: Valuation
“Your valuation must fit within our risk/reward expectations for the investment. Typically, we look for pre-money valuations well below $3 million, from as little as $250K. It takes unusual situations (e.g., a company with existing revenues, issued patents and demonstrated growth) to get us to consider a pre-money valuation higher than $2 million. The general range of company valuations for the majority of New York Angels investments during 2003-2004 was $750K-$2.5M.”
http://newyorkangels.com/entrepreneurs/valuation.html
Here’s what they say RE: Valuation
“Your valuation must fit within our risk/reward expectations for the investment. Typically, we look for pre-money valuations well below $3 million, from as little as $250K. It takes unusual situations (e.g., a company with existing revenues, issued patents and demonstrated growth) to get us to consider a pre-money valuation higher than $2 million. The general range of company valuations for the majority of New York Angels investments during 2003-2004 was $750K-$2.5M.”
http://newyorkangels.com/entrepreneurs/valuation.html
I would like to know if this group takes a smaller equity stake for investing a given amount, compared to other investment groups that do not charge to pitch. I mean, after all, as an entrepreneur, I’m expected to give a relatively large percentage of equity to secure real money; this is due in large part to the risk the investor is exposed to in the investment. If his “logic” holds fast, the pay-to-play filter they’re employing should reduce the group’s composite risk profile and therefore the amount of equity demanded in return. Simply put, their product (i.e. their investment money) is more expensive than the rest of the market. In order to justify that premium, what’s in it for me? I suspect the answer is “very little”; as someone else pointed out, the fee does not discriminate between good ideas/entrepreneurs and bad ones, so in practice I’d still be facing a comparably skeptical audience. On the flip side, it does tell me something about the investors themselves: if they’re willing to nickel-and-dime their investment opportunities, how do you think they’d behave once they’d actually invested?
F them
I would like to know if this group takes a smaller equity stake for investing a given amount, compared to other investment groups that do not charge to pitch. I mean, after all, as an entrepreneur, I’m expected to give a relatively large percentage of equity to secure real money; this is due in large part to the risk the investor is exposed to in the investment. If his “logic” holds fast, the pay-to-play filter they’re employing should reduce the group’s composite risk profile and therefore the amount of equity demanded in return. Simply put, their product (i.e. their investment money) is more expensive than the rest of the market. In order to justify that premium, what’s in it for me? I suspect the answer is “very little”; as someone else pointed out, the fee does not discriminate between good ideas/entrepreneurs and bad ones, so in practice I’d still be facing a comparably skeptical audience. On the flip side, it does tell me something about the investors themselves: if they’re willing to nickel-and-dime their investment opportunities, how do you think they’d behave once they’d actually invested?
F them
As a founder of several successful startups and an angel, I encourage you to drop the fee. See Jason Calacanis’ comments. Google Brad Feld and David Cohen for more credible and logical reasons why fees diminish you and your team. Spending time to review comes with the territory and some of the best angels and VCs actually enjoy the process.
As a founder of several successful startups and an angel, I encourage you to drop the fee. See Jason Calacanis’ comments. Google Brad Feld and David Cohen for more credible and logical reasons why fees diminish you and your team. Spending time to review comes with the territory and some of the best angels and VCs actually enjoy the process.
ahem most founders already are working two jobs..
Most angels I talk to manage their resources and time better.
Either work harder to get better excuses or get out sir..
ahem most founders already are working two jobs..
Most angels I talk to manage their resources and time better.
Either work harder to get better excuses or get out sir..
Have not heard truer words in a while. Build you biz and f*ck these MBA idiots.
Have not heard truer words in a while. Build you biz and f*ck these MBA idiots.
In case Rose is reading:
————————
One big reason NOT to charge is because it’s distasteful to legitimate startups. Everyone knows about the USUAL types of scam that work this way, so you’re starting things off on the wrong foot, because the FIRST association people will have is *scamville*.
So your filtering is going to work in reverse. The psycho, obsessed, but hopeless startup-wannabes will pay the fee, JUST LIKE all the ugly girls who don’t stand a chance with a real modelling agency. Meanwhile, the pretty girls and the COMPELLING startups will find all the OTHER opportunities. Just take a look at your portfolio and think about it.
The fact that you need to be told this just indicates you’re really out of touch, and thus your judgment is questionable. (Look at your portfolio again.)
Your excuse, “waaa it’s too much work” doesn’t fly with entrepreneurs who work 10 times that hard ALL THE TIME. You’re looking in the wrong place for sympathy.
The line, “you’ll see that our annual operating budget of hundreds of thousands of dollars, supporting all of our volunteer labor […]” is hilarious. If they’re VOLUNTEERS, then what the hell are you spending HUNDREDS OF THOUSANDS on, dinner parties?
Talking about how you must be crazy to be so dedicated to investing and how hard it is and how it costs so much money is a bunch of wankitude. “If other people do something, it’s easy. If *I* do something, it’s the hardest thing in the world and I must be a crazy maverick!”
Lacking a sense of perspective, more like.
In case Rose is reading:
————————
One big reason NOT to charge is because it’s distasteful to legitimate startups. Everyone knows about the USUAL types of scam that work this way, so you’re starting things off on the wrong foot, because the FIRST association people will have is *scamville*.
So your filtering is going to work in reverse. The psycho, obsessed, but hopeless startup-wannabes will pay the fee, JUST LIKE all the ugly girls who don’t stand a chance with a real modelling agency. Meanwhile, the pretty girls and the COMPELLING startups will find all the OTHER opportunities. Just take a look at your portfolio and think about it.
The fact that you need to be told this just indicates you’re really out of touch, and thus your judgment is questionable. (Look at your portfolio again.)
Your excuse, “waaa it’s too much work” doesn’t fly with entrepreneurs who work 10 times that hard ALL THE TIME. You’re looking in the wrong place for sympathy.
The line, “you’ll see that our annual operating budget of hundreds of thousands of dollars, supporting all of our volunteer labor […]” is hilarious. If they’re VOLUNTEERS, then what the hell are you spending HUNDREDS OF THOUSANDS on, dinner parties?
Talking about how you must be crazy to be so dedicated to investing and how hard it is and how it costs so much money is a bunch of wankitude. “If other people do something, it’s easy. If *I* do something, it’s the hardest thing in the world and I must be a crazy maverick!”
Lacking a sense of perspective, more like.
This is completely reasonable and personally I appreciate the option. Its admirable that folks are protecting startups from obvious scams but its dangerous to get overprotective when the end result is that you remove a reasonable option from the table. For $150 you get a sit-down with smart people and will at the very least get practice pitching under pressure and good feedback.
And this doesn’t have to be a choice between @jason’s model and yours. Jason’s is admirable but only 5% of applicants ever get to present. $150 is a reasonable fee to avoid that scrum, and its no more than picking up someone’s tab for a steak dinner, which is something @jason advises regularly.
This is completely reasonable and personally I appreciate the option. Its admirable that folks are protecting startups from obvious scams but its dangerous to get overprotective when the end result is that you remove a reasonable option from the table. For $150 you get a sit-down with smart people and will at the very least get practice pitching under pressure and good feedback.
And this doesn’t have to be a choice between @jason’s model and yours. Jason’s is admirable but only 5% of applicants ever get to present. $150 is a reasonable fee to avoid that scrum, and its no more than picking up someone’s tab for a steak dinner, which is something @jason advises regularly.
I agree with Jason… $150 is a lot of money and it would be better spend on getting a proof of concept developed. Some things u have to pay like patent application fees, web hosting, TM fees, etc… If an entrepreneur goes that route of paying application fees for advice then they will be in trouble. 1st its VERY hard to explain a new idea or even technology to someone. Case in point, my lead dev on wikitube.tv didn’t get my idea and went with it because it was interesting and thought why not… now we are about to release our proof of concept, he wrote me “Damn, mike this is something! Damn you for thinking of it and not me. I’m actually rather jealous that you and not I came up to it.” My point isn’t to boast, but to point out that this is a super bright dev with over 20 years in dev and he couldn’t see where I was headed with the idea. If he couldn’t get it, why would you think some Angel would? I spent 4 years trying to find angel support and couldn’t. And if I would have paid $150 to show it each time… I probably be out a heck of a lot of money. We have been taught the wrong way to go about getting our startups up. And an entrepreneur, unless money is no obstacle, needs to set a principle to follow: no credit cards. No risky loans. No robbing our 401k. No begging friends and family for $$. If it is meant to be it is meant to be.
Foundup.com is a founder with an idea for a startup. It’s that simple.
I agree with Jason… $150 is a lot of money and it would be better spend on getting a proof of concept developed. Some things u have to pay like patent application fees, web hosting, TM fees, etc… If an entrepreneur goes that route of paying application fees for advice then they will be in trouble. 1st its VERY hard to explain a new idea or even technology to someone. Case in point, my lead dev on wikitube.tv didn’t get my idea and went with it because it was interesting and thought why not… now we are about to release our proof of concept, he wrote me “Damn, mike this is something! Damn you for thinking of it and not me. I’m actually rather jealous that you and not I came up to it.” My point isn’t to boast, but to point out that this is a super bright dev with over 20 years in dev and he couldn’t see where I was headed with the idea. If he couldn’t get it, why would you think some Angel would? I spent 4 years trying to find angel support and couldn’t. And if I would have paid $150 to show it each time… I probably be out a heck of a lot of money. We have been taught the wrong way to go about getting our startups up. And an entrepreneur, unless money is no obstacle, needs to set a principle to follow: no credit cards. No risky loans. No robbing our 401k. No begging friends and family for $$. If it is meant to be it is meant to be.
Foundup.com is a founder with an idea for a startup. It’s that simple.
How about if you take the pool of money from the fees and give it to the best runner-up — the best applicant you don’t fund — without any equity stake at all.
How about if you take the pool of money from the fees and give it to the best runner-up — the best applicant you don’t fund — without any equity stake at all.
If the fee is an effective filter, why not donate the money to charity?
If the fee is an effective filter, why not donate the money to charity?
The NY Angel forum is filled with good people… which makes the application fee even more bizarre. It’s really not that big of deal to sort through the applications. THey should drop the fees or make them even lower–like $25 or $50.
The cost of applying is the time it takes to make a deck… i think that most folks are not going to take the time to do that… so this whole “it’s a filter thing” is just silly.
Horrible entrepreneurs and great ones can afford these fees… so, it’s not a filter, it’s a revenue stream.
now, if they say up front “this is how we keep the lights on” i might be more understanding.
either way, it’s sort of low class to charge in my opinion.
The NY Angel forum is filled with good people… which makes the application fee even more bizarre. It’s really not that big of deal to sort through the applications. THey should drop the fees or make them even lower–like $25 or $50.
The cost of applying is the time it takes to make a deck… i think that most folks are not going to take the time to do that… so this whole “it’s a filter thing” is just silly.
Horrible entrepreneurs and great ones can afford these fees… so, it’s not a filter, it’s a revenue stream.
now, if they say up front “this is how we keep the lights on” i might be more understanding.
either way, it’s sort of low class to charge in my opinion.
Is this one of those cases of “it’s not valuable to me” being different than “it’s not valuable to anyone”? It seems like a lot of people calling them out have the connections to pitch one of these members directly. I’d like to hear from the people who have paid the fee. How many get funded this way? Did any of those companies go on to be successful? What was the situation for the founders that they felt like they couldn’t finagle an introduction or recommendation (the impact of having a recommendation is probably far greater than saving $150).
Is this one of those cases of “it’s not valuable to me” being different than “it’s not valuable to anyone”? It seems like a lot of people calling them out have the connections to pitch one of these members directly. I’d like to hear from the people who have paid the fee. How many get funded this way? Did any of those companies go on to be successful? What was the situation for the founders that they felt like they couldn’t finagle an introduction or recommendation (the impact of having a recommendation is probably far greater than saving $150).
his reply is malarky
real investors seek out the real entrepreneurs
entrepreneurs should focus on generating cash flow
with it, investors will beat your door down
his reply is the same ole shite… if we don’t charge you, you lose
I’m so tired of the “good guys” bullshit
founders, use your entrepreneurial mojo building quality good & services people will pay for
last point: $150, in NYC is 2 or 3 rounds of drinks, it is in no way a deterrent to apply or a catalyst for reflection… instead, its really a door cover charge, plain and simple, and get you Nothing once inside; its an MBA thinking he is so smart that he can actually get people to pay him to do HIS job: finding quality investments through DEAL FLOW
don’t waste your time with these charlatans
go build your business
his reply is malarky
real investors seek out the real entrepreneurs
entrepreneurs should focus on generating cash flow
with it, investors will beat your door down
his reply is the same ole shite… if we don’t charge you, you lose
I’m so tired of the “good guys” bullshit
founders, use your entrepreneurial mojo building quality good & services people will pay for
last point: $150, in NYC is 2 or 3 rounds of drinks, it is in no way a deterrent to apply or a catalyst for reflection… instead, its really a door cover charge, plain and simple, and get you Nothing once inside; its an MBA thinking he is so smart that he can actually get people to pay him to do HIS job: finding quality investments through DEAL FLOW
don’t waste your time with these charlatans
go build your business