Posts Tagged: angel

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24
Oct 09

Why Angels Should Charge Startups To Pitch Their Ideas

Jason Calacanis revealed a “scam” in the startup investment market: some angel investors are charging would-be entrepreneurs to pitch them. How dare they? He disagrees with this practice, but I tend to think what those angels are doing is a good idea.

Why Angels Should Charge Potential Entrepreneurs

  1. Eliminates spam. Not typical email spam, but it is a way to separate out the great ideas from the startups that are using the shotgun approach. If an entrepreneur isn’t willing to fork over $10K to pitch their revolutionary business idea, I would start to doubt how truly revolutionary their idea is.
  2. Allows angels to concentrate on the really great ideas. With all the noise deterred by the entrance fee, the entrepreneurs that are left are going to be the cream of the crop. If an angel firm used to see 100 pitches a month, but now they see 20 and still invest in the same number of startups, wouldn’t that be a good thing?
  3. Idiots get shut down immediately. “Entrepreneurs” who are out to make a quick buck while putting someone else’s money wouldn’t even consider paying to pitch. This represents a small number of startups. The one’s with great ideas are going to succeed regardless of whether they pay to pitch or not, but the idiots are going to have a harder time if their money is on the line.

Luckily, if you disagree with this practice, the solution is easy: don’t pitch the angels that charge you money.

The angels who are charging are not doing this to make more money. $10K is nothing when your net worth is in the double digit millions.1 They are doing this to eliminate the entrepreneurs who don’t truly believe in this product in a subtle subconscious way.

Angels who charge for a pitch are going to have higher quality ideas being presented to them and likely have a higher success rate.

Keep in mind that these startups are asking for million of dollars of an angel’s money for a business that might not work. If you’re successful in raising $10,000,000, what is a $10K investment up front?2 To me, that seems worth it.

What if Craigslist charged $1 for a listing by Seth Godin illustrates this point perfectly although using a different example.

  1. If you have $15,000,000 in the bank, you earn $3,300 in interest every single day at a modest 8% interest. [↩]
  2. Literally speaking, $10K is 0.1% of 10 million. [↩]