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This is an interesting question to me, as I know someone who is actively making the rounds with these angel cartels.

My impression is that these are just VCs in angel costumes. You have to do all of the work and business development that you would need to do to pitch a VC, but the dollar amounts are much lower. The funding terms may or may not be good (my friend hasn't gotten a term-sheet yet), but the terminology is suspiciously similar to the VC world, and most of these groups' members seem to be VCs as well.

On the whole, it isn't clear that these organizations are worth the effort for the money involved. You're not going to have a chance with them if you're truly seed-stage (i.e. you probably won't make it past the telephone screen unless you have a really mature business plan), but if you're that far along as a business, then it's questionable that angel investment is the right strategy.

I think, perhaps, that these cartels are just a clever way for VCs to make themselves more relevant in a world where their services are less and less essential....

The $250 application fee is a big red flag to me. Given that angel investments are for small amounts of cash, $250 is a lot of money in exchange for a chance to maybe ask for $100,000 of investment. It's worse than the lottery, because you'd have to give up shares in exchange for that investment.

If I was an investor, I'd disqualify any company that was going to pay $250 for a chance to maybe speak to angel investors. That's not a sign of a capital-efficient or customer-focused company. I'd much rather see a company that put $250 into attracting customers or creating a product.

That said, I would contact the organizers anyway and try to meet some of the players. If your story is compelling, professional investors will want to hear it, even without a bribe.

Actually, the minimal amount this particular angel group invests is $200k. They classify themselves more as a "angel round" group than an initial "seed round" group. Again I think this comes down to risk avoidance.

Just curious, do you have experience raising capital? I am quickly discovering it is much harder than I previously thought. Its just not as easy as contacting organizers and having them hear you out. I think YC is extremely valuable to founders in this regard. But chances of being funded by them is unfortunately even less likely (statistically at least).

Hi,

I went in front of angel groups, VCs, etc... I'd never pay for the introduction. That's a really bad sign that something is wrong. Think of it this way: that group is now more motivated to get lots of unqualified candidates to apply, rather than find good investments.

I know it's tough to get your foot in the door, because you start from knowing no one, and it feels like only friends of friends get funded. It could take you a year to go out and meet investors and start to build your own reputation, so do it before you have a project to pitch. Really.

I have a small amount of experience raising capital. Very small. Earlier this year, I was working with a group that was able to get face time with some serious players without going to extremes. That said, we had some pretty good connections that we were able to leverage.

I should probably caveat all my posts with something like this: "I am not an expert. I haven't started any companies that have made it to incorporation. Why are you listening to me?!" ;-)

So basically, neither the founders nor the angels are sufficiently bold or well-connected to find a deal without going through some kind of rigid organizational structure. Sounds like a sure-fire winner!

But seriously, these kinds of organizations seem like a nice place to learn, network and meet angels... for the members. The startup founders of the world would be better off creating their own organization, that is if they ever do find the time...

pg's thoughts: http://news.ycombinator.com/item?id=35177

Thanks for the heads up. Have you had any success/discoveries since you posted that? Just curious.

Yeah, pg pointed out a big hole in my idea, so I scrapped it in favor of something bigger/better, which I'm still working on.

But nothing related to angels, no, besides the video I posted below.

> An underlying theme of the talk was "risk aversion"

That's really funny. Why are they investing in startups, then?

the really "good" angel investors are typically independent and work almost entirely off of recommendations.

Yes, but it's not that hard to network into a meeting with an angel (remember, they're out there trying to find you, too): use your alumni contacts, mentors, attorneys, financial advisors, et. al.

they will also look at business plans which are submitted cold turkey (although there is a $250 application fee, which I found strange given the organization is non-profit). Does anyone have input on this?

I've yet to hear of a deal coming to fruition through one of these "panel submissions" (it seems the only reason most angels participate is to research the current market, not to fund new companies).

If you really don't know anyone who might know an angel then you have to ask yourself if $250 is worth getting in front of them.

They all may say no, but at least you'll have the beginnings of a relationship.

I agree. I think getting to know an angel is pretty key, so as to have a reference. One thing nice about Austin is angles (at least from my impression) are very down to earth and friendly, and are very willing to chat about startups if you want to talk to them. Outside of that, it could be difficult getting angel's attention though (which I think is a huge benefit to being funded by YC, who help facilitate initial introductions through demo day). SV could be a totally different ball of wax.

One thing that was made clear by those who spoke is that you need to be careful not to spoil your image. News travels easily between angels. If your company looks promising but the angels do not invest for a specific reason (such as risk), then they are likely to look at you again in the future if you improve. But if you leave a very negative impression or piss someone off in some way, then you could have much more difficulty the 2nd time.

That makes sense because angels don't have to answer to anyone. They're people, not businesses. If you piss them off, you've pissed them off personally. If you pissed off a person at a company, the good of the company often trumps their own personal feelings.

also related: How to Find, Pitch, and Work with Angel Investors - MIT Enterprise Forum [video]

http://news.ycombinator.com/item?id=35393

Sounds like you went to Keiretsu. http://www.k4forum.com/

Our lawyers hooked us up w/ them. We're not ready to present there yet but it was an awesome experience to see everybody present. It showed us what investors are looking for. Ie: 20% of the time is spent talking about the idea, 80% of the time is spent talking about the exit and the terms.

"will only really invest in companies which have an established business plan with a viable plan for turning profit"

Look on the bright side. If you're one of these (which you should be), then they've already narrowed focus.

When the men are separated from the boys, the men oughta have a better chance.

If you're opening a sandwich shop, that's totally reasonable, but it's an unnecessary limitation for technology companies -- there are so many more unknowns. Companies like Google and PayPal certainly didn't start off with a viable plan for profit. Perhaps that is why these angel networks have failed to fund any truly significant technology company. They're probably great for funding sandwich shops though...

True, but not consistent with the theme of "risk aversion" cited in the source.

For each Google or Paypal, how many startups without a "viable plan for profit" failed? Hundreds? Thousands? More?

Just because a high tech startup has taken the time to pound the pavement and get a little traction BEFORE seeking funding doesn't put them in the same class as sandwich shops.

I don't think Paul is introducing a new argument such that if a high tech startup starts making money before seeking investment that they are in same class as sandwich shops are. It looks like he's just pointing out examples that disagree with your post (that every company needs to have that strategy.) He then suggests that maybe such Angel networks are behind the times and have unrealistic expectations, if they expect companies with customers, income, and a proven business plan to go to them for $200-300K when those may be ready to contact Silicon Valley VC's for millions.

I can see why Paul believes this isn't a very realistic strategy, long-term. With such a low volume of investments, the investors would be busy working on other things, some maybe unrelated to technology. On the other hand,Silicon Valley VC's would be researching technology and figuring out what is hot and how to help their companies full-time. (I'm just extrapolating here.)

Actually, this thread brings up an interesting point.

How many people here are trying to hit a home run right out of the box?

And how many are trying to hit a single, understanding that the odds are higher, but want to leave the door open to hitting the home run later?

I'd love to go for the home run out of the box, but I would need to raise at least one million. That's not going to happen anytime soon.

Thats another thing the seed investors at this talk harped on. Don't try to hit a home run right out of the box. Start out small and try to self fund early on. Once you are starting to prove yourself, and can back up your claims with customer references and numbers, then you should seek funding.

Doing it this way will make investors more confident that your venture can succeed, increasing your chances of being funded and improving the terms of the investment. At least this is how they explained it.

They suggest this to minimize their risk. I suggest it to minimize their equity.

as a rule - I think most people would stay away from a "service" from a for-profit or non-profit that charges something with a "tangible" product. It's almost like a pyramiding or Ponzi scheme.

Angel Networks