Comments on: Revolutionary Angels – Round II

By: Phli Sugar

Phli Sugar — Thu, 03 Dec 2009 22:40:37 +0000

Maybe I should be more precise and call it a contest…….ever look at contest rules??? What is the first thing always in caps. No purchase required. I would say a $5,000 fee would be a purchase. There are reasons for these laws and the one of the primary reasons is because if not I could essentially hold contest which were basically gambling. I.e. put up $100 winner take all. or I could run scams.

Now of course like many things small infractions are overlooked. Office pools etc. However when you start taking real money and giving real money….those are not overlooked.

By: Phil Sugar

Phil Sugar — Thu, 03 Dec 2009 22:05:21 +0000

Just because it involves skill doesn't mean its not gambling I can bet you that I can solve math problems faster than you and that is gambling.

Placing bets on a horse-race or poker is certainly skill, frankly so is betting on sports. That does not however mean I can take those bets pool them and take a cut. Ask your local bookie if that's legal.

I'm telling you there are very strict contest/sweepstakes/gambling rules. As a matter of fact many times games that aren't purely chance are specifically outlawed. The whole basis of many slot machines were that they were based on lottery and specifically not games of skill. For instance you can not build a slot machine where because I can hit a button faster than you I win.

By: sethlevine

sethlevine — Thu, 03 Dec 2009 21:35:05 +0000

this is in part what makes me label it a âscamâ although i think theyâre safe from gambling laws . . .

By: Randy Levine (Dad)

Randy Levine (Dad) — Thu, 03 Dec 2009 19:55:20 +0000

>>Does it really matter that the determination of the winner is a business plan??
Yes, it does. Briefly, if it's purely chance then it's gambling; if skill is involved it isn't. I would think these folks could make a valid claim of skill here.

Something similar went to the Supreme Court many years ago when a professional poker player deducted his travel expenses. IRS said no, he was gambling. Poker player said he was a professional using skill to make a living, so it wasn't just chance. SC had to decide, in effect, if poker is a game of skill or a game of chance.

If you've ever played poker you'll know what they decided.

By: Phli Sugar

Phli Sugar — Thu, 03 Dec 2009 18:44:42 +0000

Thought about this. This has to be some form of illegal gambling. I'm not a lawyer so that's not a legal opinion but think about this:

I'm going to sell 100 chances at $5k a piece. First prize is $250k, second is $50k. I keep $200k. If I don't sell 100 the pool decreases.

Does it really matter that the determination of the winner is a business plan?? It could be picking on football games, horse races, who has the highest card, fastest cockroach, whatever……you're taking money pooling it, giving big prizes to winners, and taking a cut. (40% is one hell of a cut….craps is about 2%, slots take about 8%, horseracing 15%)

By: sethlevine

sethlevine — Wed, 02 Dec 2009 20:46:04 +0000

i strongly agree!

By: sethlevine

sethlevine — Wed, 02 Dec 2009 20:45:06 +0000

itâs a kluged model either way, dad. if they are consultants, they should advertise as such, provide project perameters, deliverables, etc. if itâs a lottery the participants in the lottery should get the upside (i.e., the companies that contribute to the pool). they are neither (and bill themselves as âangelsâ â thus the name of their firm). so iâm really objecting to both.

By: sethlevine

sethlevine — Wed, 02 Dec 2009 20:41:05 +0000

zero risk for revolutionary angels and 100% of the updsideâ¦ grrr

By: Randy Levine (Dad)

Randy Levine (Dad) — Wed, 02 Dec 2009 19:37:52 +0000

So do I object to the mechanics or to who they say they are? Both, of course, but primarily the mechanics. So I object to my hypothetical as well as to the reality. As an entrepreneur, if I want consulting services then I'll pay market rates for them and I wouldn't pay what has to be a premium that will likely go toward funding some OTHER start-up. As an investor or board member I would question a CEO closely on paying such a premium

By: Randy Levine (Dad)

Randy Levine (Dad) — Wed, 02 Dec 2009 19:35:26 +0000

Seth, what would you say if the pitch was that they were consultants who charged $5K for their services to review advise but also gave back by providing $250K to the best plan they saw (in return for a very small equity stake) as an incentive to professional investors to look at that company seriously. In other words, are you objecting to the mechanics (my hypothetical is the same mechanics) or to what they say they are? Think about it before you see my reason for objecting in the next reply.

Secondly, if the CEO of Revolutionary Angels says they are really consultants then shouldn't the companies who fork over $5K be encouraged to get their tax ID and send them a 1099? I suspect that the tax treatment of an “entry fee” is a lot different than a consulting fee.