Be a Shark or an Angel, Your Choice

In a recent rant by Jason Calacanis, he raged about angel groups that charge entrepreneurs a fee up to US$6,000 for the opportunity to pitch.

The main argument for a shark-fee-based pitching system is to cover costs and weed out frivolous entrepreneurs. The rationale is that if an entrepreneur is serious enough to pay thousands of dollars to pitch to an angel group then his idea must be worth hearing.

True, some entrepreneurs might see this as a shortcut to get in front of the investors, but many promising individuals simply look elsewhere or find a way to look elsewhere. They don’t buy opportunities; they create opportunities. And investors in such angel groups miss out on what could be a solid investment.

I’m not suggesting that all angel groups that charge a fee are scams. For some, a cost of several hundred, max, might be justified. But asking cash-strapped entrepreneurs to cough up thousands of greenbacks is a whole different story.

Real angels create wealth by investing in promising startups, not by charging entrepreneurs pitch fees. Set investment guidelines and look at the text or video submissions you receive. You can quickly tell who’ve done their homework and followed your criteria. Weed out those who haven’t. No need to put a ridiculous price tag to help make this assessment.

Shark hunters like Calacanis are out there. It’s just a matter of time sharks are turned into shark fin soup.

Note: Angel Capital Association (ACA) has published some guidelines for entrepreneurial fees [pdf], which include a survey and the association’s recommendation to angel groups regarding charging fees:

The fees should be no more than a few hundred dollars for applications and no more than [US]$500 for presentations. Transparency to entrepreneurs is of utmost importance, so full information about fee amounts and what the fees are for should be included on the group’s home page and/or other prominent portions of the site and other important promotional materials.

Based on a 2008 survey of ACA member groups’ fee practices, 62.2% don’t charge any fees. For the remaining 37.8% that do, application fees range from US$55 to $250 and presentation fees range from US$175 to $750, with two “outliers” at US$1,500 and $3,000.