Introduction
There has been quite a bit of excitement on the blogosphere and twitter with respect to Jason Calacanis’s crusade against angel groups charging entrepreneurs fees to pitch them (see, e.g., the discussion on Hacker News and this recent post). As a corporate attorney representing entrepreneurs, I generally agree in principle with Jason’s position; however, I think it is important to distinguish among the different angel groups and their respective practices.
Needless to say, to the extent an angel group (i) is not adequately disclosing their fees, (ii) is charging unreasonable fees and/or (iii) is deceiving entrepreneurs, it is a significant problem that needs to be addressed. On the other hand, (i) if the fees are reasonable/de minimis and are adequately disclosed and (ii) the angel group is providing a legitimate service to entrepreneurs, there may be compelling reasons to support such a fee-based service. Indeed, as discussed below, John Dilts (the founder and President of Maverick Angels, LLC) recently attempted to make that case to Frank Peters during his podcast interview on 9/24/09 here (referred to herein as the “Dilts Podcast”).
This post briefly (i) provides some background and context, (ii) sets forth the respective arguments made by Jason and John and (iii) concludes by recommending that they should meet face-to-face and have a live debate (in the great American tradition).
The Players
Below is some background information with respect to Jason Calacanis and John Dilts (which is quoted verbatim from the Mahalo website and the Maverick Angels website, respectively).
Jason Calacanis is an Internet entrepreneur and former blogger. He has founded many companies including Silicon Alley Reporter and Weblogs, Inc. He is the founder of Mahalo.com and has been its CEO since 2007. Calacanis returned to podcasting on May 1, 2009 with his new program This Week In Startups.
John Dilts is the Founder and President of Maverick Angels, LLC, a highly innovative angel investor network based in Southern California, which focuses on funding and mentoring early-stage companies. Since founding the company in 2006, John has established Maverick Angels Chapters in Southern California and in Europe. John is an expert in the areas of innovation, leadership and entrepreneurship and often serves as a featured speaker at innovation conferences and angel investor forums.
The Fees
Based upon (i) my review of the “Apply to Present” page of the Maverick Angels website and (ii) the comments made by John Dilts during the Dilts Podcast (beginning at the 31:02 mark), Maverick Angels has the following fee structure for entrepreneurs: (A) no fee to apply; (B) a mandatory fee of $495 for an 8-hour “bootcamp”; (C) no fee for the “deal line-up”; and (D) a $1,000 fee if the entrepreneur is chosen to “present” (all of which must be agreed to by the entrepreneur prior to applying).
Note that certain recent blog posts have been inaccurately disclosing such fee structure, including today’s post on PEHUB’s site, which provides in relevant part that:
“Any entrepreneur can apply for a hearing to Maverick Angels or Keiretsu Forum, [their representatives] said, and those who are chosen to move forward get weeks of free coaching and mentorship on their pitches before they’re asked to pay. Also, entrepreneurs don’t have to pay — they can drop out if they want.”
The Argument for Charging Fees: John Dilts
As expressly stated in the Dilts Podcast, John’s arguments for charging entrepreneurs fees to pitch the Maverick Angels are as follows:
1) “We feel it’s perfectly appropriate because we’re entrepreneurs; and we’re innovating in ways that a lot of angel groups just [cannot] because there are too many chefs in the kitchen.”
2) “Why do we [charge $495 for the bootcamp]? Because we have a full-time staff. It’s like saying why does an entrepreneur need to charge fees to sell their products or services? Can’t they give that away to customers? . . . Because we’re delivering value to entrepreneurs; we’re delivering value to our members; and we charge a fee for that. . . . [Otherwise,] “entrepreneurs don’t take us seriously.”
3) “The reason [they pay the $1,000 fee] is because we put a lot of effort into coaching that entrepreneur between the time they’re chosen at the deal line-up and the time [of the presentation]. Because we want them to put their best foot forward — not because we’re consulting to the entrepreneur and now all of a sudden they’re our customer — it’s that we want our members to see the best possible deals. And through the coaching and through the support and through the facilitation all the way through the process, we feel that’s in the best interest of our members. ”
The Argument Against Charging Fees: Jason Calacanis
As expressly set forth on his post, Jason’s arguments against charging entrepreneurs fees to pitch angel investors are as follows:
1) “It’s low-class, inappropriate and predatory for a rich person to ask an entrepreneur to PAY THEM for 15 minutes of their time. Seriously, what is the cost to the party hearing the pitch? If you answered ‘nothing’ or ‘the cost of two cups of coffee’ you win the prize!
Even if you rent a hotel room and put out breakfast for your fellow angel investors that’s like $20 a person. You mean to tell me that a room full of rich investors can’t afford to pay for their own God-damned $20 in bad coffee, stale pastry and stained ballroom rugs?
Really?
To be clear, I am making this a class war because it is one: cash-poor startups are bringing RICH angel investors an opportunity to become EVEN MORE RICH. As such, the rich folks should pick up the non-existent to minimal costs.”
2) “These pay-for-play scams remind me of the ‘modeling agencies’ that charge people for representation, acting lessons and to have their headshots done. Trust me kids, Brad Pitt and Kate Moss did not pay to get representation–they didn’t have to. If you’re paying to get an agent, it’s because you’re being scammed.”
3) “It’s your job as an angel investors to do the filtering and that should come out of YOUR RETURNS on your investments. If you have to charge it’s because either a) you’re a predatory DB or b) you suck at investing so much that your returns can’t pay for the time that you spend evaluating companies. . . .”
Conclusion
Based on the foregoing, I think it would be extremely productive (and indeed entertaining) to watch Jason Calacanis and John Dilts debate this important issue. I would suggest that such debate be shown live on the web to all interested parties via Ustream. I am happy to help in any respect to make this happen.
Tags: angel groups, angels, entrepreneurs, Jason Calacanis, John Dilts, Mahalo, Maverick Angels
