David Rose: Why NY Angels Charges Entrepreneurs
metamorphblog.com
Matt Mireles just wrote up a post quoting David Rose the "The Father of Angel Investing in NY" on why he charges entrepreneurs. Wondering what everyone here thinks about his response?
metamorphblog.com
1) New York Angels is not a scam. We have invested over $40 million into 60 startup ventures over the past six years, all from our own personal pockets and not from other people's money.
2) New York Angels is not a venture fund. Unlike VCs, who receive 2% of their entire fund every year to pay their salaries and cover their expenses, none of us get paid a penny, and we pay for our own expenses.
3) New York Angels is not a money-making entity. Think about it for a minute. We each pay $3,500 out of our own pockets each year to fund our operations, and not one of us gets one penny from anything any entrepreneur pays. How on earth can this be a "money making operation", Jason??
4) New York Angels is not a bunch of Wall Street people. It is made up mostly of leading tech entrepreneurs in New York. Our current and former members include the entrepreneur/founders of companies such as About.com, Register.com, Mimeo, PC Forum, Gartner Group, Gilder Lehrman Group, LinkShare, MovieFone, Afternic, 24/7 Media, Technology Solutions, IGN.com, Unwired Technologies, Half.com, Core Software, Research Board, IdeaLab NY, TACODA, MNP, and TargetSpot.
5) New York Angels is not a bunch of tire kickers. Every one of our members commits to investing at least $50,000 each year into companies that present to the group. Unlike many other 'groups' that are full of, and funded by, service providers, 100% of the people you present to are accredited investors who are committed to writing checks.
6) New York Angels is not private club for only well-connected, insider entrepreneurs. Unlike many angel groups, VCs and individual angels, we accept (and read) applications from anyone who applies to us. We don't (yet) require that you know someone, or have connections.
7) New York Angels is not lazy. Every month our angel members meet personally with 10-15 companies looking for funding, of whom 3-5 are asked to come back a second time to present their pitch to the whole group. Before their presentation they are provided extensive personal coaching, and after their presentation they typically have at least one two hour in-depth session with interested investors.
8) New York Angels is not clueless. We've had exits to companies such as CBS and Kodak with returns of up to 12x, and co-invest regularly with half a dozen top-ranked venture funds. We recently ran an analysis of our current portfolio, and while it wasn't as impressive as that of FRC or KPCB, it came in as being roughly in the second quartile from the top relative to the returns of most US venture funds over the past five years.
So, here I am, ready to discuss the question of application fees calmly, but it's really hard to do that when quite a few of the anonymous posters seem to want to blindly hurl personal attacks that simply aren't true.
David S. Rose Chairman, New York Angels Personal investor in over 75 startups
The $150 fee, as well as the connection criteria, is not a very good screening filter. It test if the project promoter has $150 to give away and is able to make connections with members of NYA. Does this tell if the project is good ?
Would Facebook, in its very early stage, be detected this way ? I doubt it. YC, with its particular and unique project screening process, might have.
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I certainly understand that you are not some kind of epitome of evil. And I respect that with $150 and a realistic business plan that you would take my application for funding seriously.
However, there are lots of people with unrealistic dreams about businesses. They have no idea what kinds of businesses actually get funded. They don't have referrals. These people are tough to filter; I'm sure money doesn't filter all of them.
It seems a little unfair to the peasants when you take $150 from some sincerely earnest entrepreneur with realistic dreams of success. While being a not-for-profit does make your motivations sincere from a legal standpoint and you do provide a valuable service to people, mostly for free, you're nearly the very definition of for-profit enterprise from a utilitarian standpoint. Most people don't understand your valuable service and they just see you keeping money.
Are you willing to consider alternatives to application fees? You could charge $25 like Jason suggested. You refund the money for people that get rejected. Or as pg proposed, you could donate the money to the charity of your choice.
Maybe you could take that $150,000 and let public high schools have a pitch competition. That will probably get you a positive return over time.
Another alternative: keep the existing application available, possibly with a fee reduction. However, you read all applications sent via Twitter for free. If you want, I will reject Twitter applications for you for only $75 an hour.
Another alternative: do it like other successful angel groups that don't charge for reading applications. Reject people that apply without reading the application criteria. It's not hard to reject people. Maybe you could get people on Mechanical Turk to do those rejections for you.
As an angel investor I sort through this AS PART OF MY JOB. I don't need $150 to filter out the bad ones--I can tell in two minutes if something is really bad.
TechCrunch50 doesn't charge either and we get 1,000 folks to apply for that. Again, IT IS OUR JOB to sort through these. We don't need to charge the startups.
This is a really lame excuse in my mind. If you're not willing to sort through applications--which take minutes to process--why be an angel investor or run an angel group?
Open Angel Forum is now in four cities and we are coming to New York City in April. We should be in 15-20 cities two years from now and I think we can do enough by having the lawyers, accountants and headhunters pay to attended/sponsor to cover any costs.
David is a nice guy, but he's lazy I think.
If you get 100 applications and can only take 5 in an OAF event, there are still 95 other candidates of which some might find $150 to be a nominal cost to avoid this sort of scrum. 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 at $150, we're talking picking up the tab for a nice steak dinner, which is something you've advised numerous times.
If these dudes have invested in companies they met through this type of forum, all the better. And there's a certain amount of due diligence an entrepreneur should be expected to do -- no need for the rest of us to protect people from their own stupidity.
I think there are many young folks who would not come if they didn't do that, just like there are folks who won't apply to NY Angels for $150.
Frankly, there are better models coming into the space like TechStars, TheFunded/Founders Institute, YCombinator and ycombinator.
It's never been a better time to be an entrepreneur.... except for 1979 in software, 1994 in the internet, 2003 in the internet and, well, now. :-)
I wonder how many they get a year and what this equals in terms of revenue. I'm guessing they get 1,000+ a year. So, it's $150,000 out of the gate I'm guessing.
Feels icky and I'm sure $25 would have the same effect. It's clear this is for making money from my perspective.
That being said, I don't think they are bad people and they certainly are not the Keiretsu Forum charging $1,500-$6,000 to pitch... or that Mike Segal guy asking for 5% of your business and $10k+!!!
The fact that they have to explain themselves shows how much the tide has turned.
I'm an entrepreneur first and an angel investor second... so, I've built the Open Angel Forum from a startups perspective. These folks are angel investors and they don't always see the other side of the coin.
http://www.metamorphblog.com/2010/02/is-ny-angels-a-paytopla...
Honestly, I think entrepreneurs are scared to speak up and offend rich people with power and money. If you're the only one who sticks his head out, it gets cut off. And so nothing changes.
Now, I'm a bit more like you in that I've got something of a chip on my shoulder and I don't give a fuck, but regardless, thank you for having my and all our backs on this.
-Matt Mireles
He claims they are a not-for-profit, which is different than a non-profit.
In terms of nomenclature, "not-for-profit" and "non-profit" are colloquially used to mean the same thing (although technically the former signifies intention, and the latter what actually happens :-). However, you can be a legal not-for-profit organization (such as New York Angels) but NOT also be a public charity (which is what people typically think of when they say "not for profit"; that would mean that you register with the IRS under section 501(c)3 and can take in tax deductible contributions.)
That just means that the investors don't get monetary returns. It doesn't imply that employees are working for free.
NYA's portfolio of companies is simply un-compelling: http://newyorkangels.com/portfolio/default.html
How can an organization like this compete against innovative forms of funding like Betaworks and Founder's Collective?
David S. Rose on pitching to VCs
http://www.ted.com/index.php/talks/david_s_rose_on_pitching_...
The big win for this "angel" group is that they got anyone, including other VCs to talk about them as though they were legitimate...
Remember, this is $150 doesn't actually give you the chance to pitch. No you pay $150 for the CHANCE to have the chance to pitch.
When the fees go up to $1000 and over, then it becomes problematic, because then the application fees are obviously a source of profit. And if the angels or the entrepreneur forum or whatever make money from the application process they have little incentive to actually make investments.
But then I think that an entrepreneur is paying $150 or less for the opportunity to meet investors who might or might not ever invest in the company (actually they are prob more likely to not invest in terms of odds). So its paying for something that has a negative value, just a chance that they might be interested.
Also on the other side the investors should be cashed out entrepreneurs who have enough money to sustain themselves and are looking at companies to invest in and profit off of. Only seems fair that the investors should be footing that bill (even if its just administrative) and others like Chris Dixon agrees http://twitter.com/cdixon/status/9727260471
Hard to justify when the fee is such a small amount but it still feels wrong to charge entrepreneurs anything for an opportunity to pitch an investor group.
2) Even for a professional, you can't get chunks of work exactly 1 hour long. There are huge set-up and tear-down overheads to any job, plus little issues like finding the job and getting paid.
If you want to attract the next two MBA students, go ahead.
If you want to attract the next two poor, clever hackers disinterested in a normal job - perhaps you have chosen the wrong approach.
The insiders are whole-heartedly against this, because it threatens their influence. Its a scene right out of Ayn Rand.
If I were an angel investor, I would ideally want to receive every business plan ever created in hopes that I at least have the option to invest in the next GOOG or APPL. Then it'd be up to me to quickly sort out the junky ones.
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