Posts Tagged ‘Pay-to-pitch’

We don’t charge companies to present at VCIR

There’s been an extremely lively debate online over the last few months about the practice of charging entrepreneurs to present to VCs. You can see my post on that subject here, one from my partner Jason Mendelson over on peHUB here, Jason Calicanis’ very popular post on the subject here (and a quick search on Google will pick up dozens more). At issue is the question of whether it’s reasonable to charge entrepreneurs to get in front of potential investors. I’m clearly on the side of not charging entrepreneurs to pitch to investor groups – reputable events of this nature can attract sponsor dollars and/or the angel investors involved should be footing the (relatively small) bill.

While the original discussion around this topic was specific to angel groups, the more recent conversation has included other forums where investors and companies come together such as conferences (like the one that Jason talks about in his post). To be completely clear, I don’t object to charging companies that attend these conferences the same registration fee as other paying attendees and I completely support the ability of conference organizers to make money by putting on a quality event through sponsorship dollars and attendee revenue. The practice I object to is charging only the presenting companies and/or charging them a multiple of what other attendees are charged.

I know that you can successfully operate a conference in this fashion because for the last 27 years the Rocky Mountain Venture Capital Association and KPMG have been running the Venture Capital in the Rockies conference that brings together companies headquartered in the Rocky Mountain Region with investors from across the country (and the world). I’ve had the pleasure of being the conference chair for the last two years – an experience that was eye-opening (running a successful conference is hard work!) but reinforced my view that one can successfully put on an event that both supports entrepreneurs and makes money. And while, as I state above, I think it’s fair game to charge presenting entrepreneurs who attend conferences the standard registration fee, in the case of VCIR we don’t charge our presenters anything at all. In fact we also allow them to bring additional executives from their companies for a deeply discounted rate from the standard conference fee (we actually lose money on these attendees as well). For 2010 this is not only true for the 20 main-track presenting companies but also true of the 5 “Technology Showcase” companies that are giving shorter, DEOM-style quick pitches at the front end of the conference (the Tech Showcase is something new that I’ve put into this year’s program).

We do this because it’s the right thing to do and because it helps us attract the best possible group of presenting companies from across our region, which in turn helps us attract quality investors, which in turn allows us to support the event through sponsors and attendance fees. I know that we have a quality product from the large number of sponsors, the number of returning attendees and the number of non-presenting companies who attend for the quality program and networking. The conference turns a profit (even this year in a difficult economy) and our presenters have been very successful attracting investment after their participation – all without charging our presenting companies.

February 22nd, 2010     Categories: Conferences     Tags: , ,

Revolutionary Angels – Round II

Online technology magazine Xconomy wrote an article yesterday that focused on the controversy surrounding Boston based Revolutionary Angels – the angel group that is sponsoring a business plan competition in which companies are charged a $4,995 “entry fee” and vie for a $250k investment from the group. I wrote extensively last week about my distaste for the “pay to pitch” practice in general and Revolutionary Angels’ spin on that practice in particular. The Xconomy article picked up that post and used it to effectively represent one side of the story.  They also talked to Chris Hurley, the CEO of Revolutionary Angles, who defended the group and their practices. Clearly this question has struck a chord with VCs, angels and entrepreneurs (it’s worth checking out the comments to my blog, the Xconomy story as well as the original NY Times blog that kicked off this round of discussion) and I thought it was worth addressing Hurley’s views with another post here.

Hurley had a few key responses – let me break them down.

Companies actually get consulting help for their entry fee. Xconomy reports Hurley saying that “Revolutionary Angels panel members are acting as consultants” and that “every startup that enters the competition “gets support and help with their business plan and their strategy.” (a benefit so great that companies should be willing to pay the $4,995 even if there was no chance for a prize, he says). Here Hurley hits on one of my main pet peeves of poorly run angel groups – that they really are just comprised of out of work executives looking for consulting fees. Consulting projects are consulting projects. They should include a clear scope of work, deliverables, project timeframes, etc. To me Hurley’s “we’re really consultants” argument is a poor rationalization. How do you justify charging companies to enter your competition? Talk about all the feedback you give them, of course! You’re a successful business person – just put a dollar value on the few hours you plan to spend with each company and voila! Your “entry fee” is justified! Not so. Business people who are attempting to support their local entrepreneurial ecosystem should be liberal with their time and provide feedback and advice to startups without looking for cash or equity. I do this all the time – and not just with companies that we’re looking to fund (although everyone who gets in to pitch a VC gets feedback in my experience) but with people in the community who seek me out, with companies that we’ve turned down but who stay in regular contact as well as with people whom I’ve never met before but who take the time to email me and ask a question. All of my partners do the same, as do most of the VCs I know and, importantly, most of the successful executives I know. While not everyone can respond to every request (nor will they all have the background to be relevant) but the kind of “support” that Hurley refers to is given out for free thousands of times a day. To be clear, I’m not saying that there isn’t a role for paid consulting work or equity compensated advisers – just that there’s a difference between a longer term consulting or advisory relationship and “providing feedback.”

Revolutionary Angels offers an above-market equity deal to the winner of their competition. The article paraphrases Hurley as defending the group’s practices because the deal they offer to the winning company is, by venture and angel standards, a really good one: “By funding Revolutionary Angels’ investments from the entry fee pool, he says, the group has the ability to invest in startups that may never provide returns on the scale angel or venture investors usually expect.” Basically the gist of this argument is that because RA suckers companies into funding the actual investment that the group makes (not to mention leaving a large sum left over presumably to cover the group’s fees and expenses on top of the investment) they can offer a really good deal. He’s correct that by national standards the deal that they say they will offer is probably above market (they claim that the winner of the competition will receive $250k in exchange for 10% of their business). But the argument falls short. Scam 100 companies into contributing to your investment pool, pick one to win the lottery and call yourselves the champions of entrepreneurs? And then justify this activity as some kind of community welfare (funding startups that may never have the chance to get funded)? And this may not actually be all that good for the winning company either. While $250k for 10% of your business may sound like a good deal, it may create the start of a cap structure that prevents other investors from wanting to participate (because they’re actually funding the investment themselves) and could just as easily act as a market disruptor rather than a lottery win for the chosen company.

There’s simply too much demand for quality feedback. Revolutionary Angels is filling a key gap in the market. “These investors don’t understand the scale of the demand, Hurley says. “If people think everybody has access to experienced entrepreneurs, that’s just not true,” he says. “In my talking to entrepreneurs, not enough of them are getting access to the people who have been there and done that. There is a much larger pool of people who aren’t being served.”" Not surprisingly, I don’t buy this argument either (and think it argues that Revolutionary Angles is very clearly preying on those that just don’t understand the entrepreneurial economy). While I agree that there is a large demand for feedback and agree that not all entrepreneurs are receiving the feedback they’d like I don’t think this is a supply and demand issue – it’s a connection issue. Too many entrepreneurs don’t know where to turn (and thus are susceptible to the kind of scheme that Revolutionary Angels has set up). I want to be careful about placing too much blame on the victim here, but I do believe that entrepreneurs sometimes don’t think broadly or creatively enough about how to expand their networks and gain access to people who can give them advice and feedback. This is really the topic of another post (which I’ll try to get up this week). In the meantime Micah has a few ideas on his blog here.

Fundamentally my issue with Revolutionary Angels and groups like them is that I don’t believe that they put the entrepreneur first (which I believe is how the dynamic should work). Instead they ride the backs of entrepreneurs to fund their “investment” and take advantage of their respective position in a market in which both sides don’t have the same access to information. The CEO’s of the companies that participate simply don’t know where else to turn – Hurley and the Revolutionary Angels are taking advantage of this. And hiding under the guise of a “business plan competition” rather than just hanging their hat out as business consultants suggests that they’re simply preying on the aspirational dreams of entrepreneurs.

December 1st, 2009     Categories: Uncategorized     Tags:

$5k to pitch your business? Who falls for this??

The NY Times is reporting today on the question of entrepreneurs paying to pitch their companies to prospective investors – “Should Start-Ups Pay to Pitch?”. Highlighted in the piece is a Boston-based group – Revolutionary Angels – that charges companies $4,995 to enter their “business plan competition” (the winner of the competition receives an investment from the group). To be clear on my view of this:

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THERE IS NO CIRCUMSTANCE IN WHICH ENTREPRENEURS SHOULD PAY TO PITCH THEIR BUSINESS TO PROSPECTIVE INVESTORS.

PERIOD. END OF STORY.

This kind of activity makes me absolutely sick. And the fact that Revolutionary Angels calls their scheme a “business plan competition” is reprehensible.

In the Revolutionary Angels setup they are asking 100 companies to each pay $4,995 to pitch to their group, after which they’ll select one to invest in (with the proceeds from the losers) with a runner up company getting the consolation prize of a smaller investment (and Revolutionary Angels pocketing the remainder of the cash? – it’s not completely clear). You can see who is involved in the group here. The reason there’s no actual venture capitalists on the list is because no respectable venture capitalist would ever be involved with such an underhanded hustle. I really don’t understand what would drive an entrepreneur to participate in such a scheme nor how the people associated with Revolutionary Angels can justify their involvement or the fees they are charging entrepreneurs. Because they give feedback on the plans? Because participating in a competition gives entrepreneurs access to the Revolutionary Angels? Pathetic. And the fact that more than 100% of their investment dollars come from the entrepreneurs they are supposedly helping out makes it even more pathetic.

My view of angel groups is simple. If you’re not rich enough to screen your own potential investments then you’re not rich enough to be an angel investor.

I’ve given the “don’t pay to pitch” advice to countless entrepreneurs over the years, but felt it was time to come out publically and take a stand on this. Kudos to Jason Calacanis for leading the charge against such practices. We need more credible investors to back him up (see Fred Wilson’s thoughts on the subject here; Brad Feld’s here for example).

And if you’re looking for “access”, try emailing me, signing up for my community hours (or my partners Brad or Jason’s community hours, or any number of other credible VCs that are increasingly more open with their time).

And if you’re thinking of entering the Revolutionary Angels business plan competition, save your money.

November 25th, 2009     Categories: Current Affairs     Tags: