Episode 23: Angel Funding Showdown

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If you’re part of the tech world, you’ve no doubt heard by now about the controversy over “angel” investing groups charging startups to present to them (for full background, check out Jason’s posts on the subject: Part 1 and Part 2).  So for this week’s episode, we dropped the normal guest and instead had a ton of callers from all sides of the issues: Steve Bell, a member of the Keiretsu Forum; Mike Sid, a CEO who was hounded by one of these forums; an entrepreneur who’s pitched several of the forums; and a venture capitalist who’s attended all of them.  Check out what all of them have to say about this practice and where they think its going.

Of course we wouldn’t leave you without some of your favorite regular segments too, we’ve got callers for Ask Jason & Jason’s Shark Tank, and of course Lon is stopping by to read the news.

Enjoy the episode, and make sure to leave your comments about this hot-button, and important issue.

Remember, next week we’ll be on early @ 11am PDT with Gary Vaynerchuck!


TWiST is brought to you by our generous sponsors:

 

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  • Patrick

    By the way you might want to check this group out. They charge as well!

    This is ludicrous

    http://www.maverickangels.com/apply_to_present.shtml

  • Jordan DeMoss

    The guy that skyped in is definitely drinking the kool-aid.

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  • http://www.whenbusiness.com Robert Hinojosa

    Top 3 Twist Episodes:
    1. Angel Funding Showdown
    2. Mark Goulston
    3. UStream Guys

    Thank you for all you do.

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  • Jamie

    Best TWiST ever! Calacanis DESTROYED! I like the angry calacanis, very entertaining. Keep up the good work.

  • http://www.firstpersondigital.com Chris Advansun

    I am a long-time viewer of the show and have always enjoyed the energetic stylings and keen insights of Jason and his guests. That said, this showdown against pay-to-play pitch events is not TWIST’s finest moment.

    Insisting that these companies, which simply run on a different price structure than that favored by Jason, adhere by Jason’s price structure, is a little like Dunkin’ Doughnuts insisting that Starbucks drop its prices. After all, why the hell should anyone pay $4 bucks for a cup of coffee?

    If these pay-to-play guys have survived as long as they have, it’s probably because they are creating some kind of demonstrable value for entrepreneurs and investors.

    This is where Jason would suggest that the pay-to-play price structure is not only ineffective, but also unethical. But how can that be, if we’re all true believers in the free market? The guys who charge should be allowed to charge. If their model is ineffective, they’ll figure that out eventually and either change or drift off into oblivion. Let the market decide.

    Am I a proponent of the pay-to-play model? If you’ll pardon the colloquialism, hells no! I’ve got one angel-financed start-up under my belt and am working on a second. I speak from experience when I say that rarely will bona fide investment interest come from those sorts of events and pay-to-present angel networks. But the fact that I wouldn’t touch pay-to-play with a ten foot pole doesn’t make pay-to-play unethical. It certainly makes it stupid and largely ineffective for the start-up ecosystem as a whole, but it doesn’t make it unethical.

    My advise to Jason and the others who seem to have rallied behind his battle cry against the pay-to-play movement is this: Stand down, soldiers. These pay-to-play schmucks will suffer the natural consequences of having an inferior business model. Let the market run its course.

    (Although the whole Jihad thing certainly makes for an entertaining show.)

  • Randin

    You maybe interested in the comments about the Keiretsu Forum on this site.

    http://www.thefunded.com/funds/show/Keiretsu+Forum

  • http://www.dasolar.com Douglas Arrison

    Great show – thank you for speaking for us.

    BTW – should change “cereal” to “serial” on Twitter profile.

    Cheers.

  • http://gfree.tv Mike

    Chris,

    While you have valid points, there are many startups with great ideas that are wasting money because they’re paying to sit in front of people, some of whom may not even be angels… or even investors. As an angel, I’d want to see as many companies with great ideas I could, and not limit myself to only those who can squeeze out another $6K that could be better spent.

    Mike

  • Dave Galton

    I’m sorry, but I can’t trust anyone with a haircut like that!

  • http://www.kashifpasta.com Kashif P

    As an 18 year old student working hard on fully launching my own company, I really have to thank you for things like this. The show overall for sure, but especially this episode for the specific things you’re doing and the lesson’s you’re teaching by way of displaying your passion and willingness to take action.

    And yeah, the ‘my family fights in Iraq’ thing was a bit of a cheap ploy – as a religious Muslim who’s been faced with and have had to put up with Islamophobia and hurtful stereotypes my whole life, even when you say something like ‘Praise Allah’ in relation to violence, etc. It’s not hard to tell that you’re not a racist/bigoted/mean-spirited person. Regardless of whether or not people respond to your sense of humour, it is humour.

    and @ Chris Advansun above, the Open Angel Forum *is* a free-market move. If Dunkin’ Donuts threatened to lower their prices if Starbucks doesn’t, and then did just that, it’s fair game if their sales surpass the ‘bucks. It wouldn’t, though. The difference is that the OAF will likely win, making it a more potent, albeit mechanically identical scenario here.

    Looking forward to GaryVee,
    -Kashif
    kashifpasta.com
    mkpmedia.net

  • jay

    yeah i have to agree with Chris Advansun. I thnk Jason was a little over the top. It a good idea letting the public know about these kind of guys. But saying that they need to change there business plan or else is kind of childish.

  • Martin

    @Chris Advansun
    “If these pay-to-play guys have survived as long as they have, it’s probably because they are creating some kind of demonstrable value for entrepreneurs and investors.”

    Scams can run for years and years, it’s only until they become widespread and people are more educated that they stop working. I’m not saying these forums are 100% scams but just because they have been running for years doesn’t mean very much. Jason is doing a good job warning people about these forums.

    “This is where Jason would suggest that the pay-to-play price structure is not only ineffective, but also unethical. But how can that be, if we’re all true believers in the free market? The guys who charge should be allowed to charge. If their model is ineffective, they’ll figure that out eventually and either change or drift off into oblivion. Let the market decide.”

    You say you believe in the free market but then saying Jason shouldn’t be launching a campaign against these forums. Are opinions and campaigning not part of a free market then?

  • McBeese

    Fantastic show! You know why the Keiretsu guy came across as so weak? Because his position is weak. He was like a guy from Exxon trying to defend record profits last year during a shortage that hurt everyone. Or like the wall street DBs who defend their bonuses after destroying our economy.

    The worst enemy of these types is exposure. Thank-you Jason for putting these guys under the limelight.

  • BJ

    I don’t agree with Chris Advansun, I believe Jason is doing the right thing. For example just Chris’s reasoning is because Kieretsu have lasted or existed so long in the market give them free rain. Bernie Madoff ripped off people for I don’t know the exact time? But for many many years and he got taken down rightfully so, what he was doing was down and right wrong. He was ripping people off all that time and it took that long for it to be known its a shame. We do have laws and such in this country to protect consumers or people in general against fraud in business. Not saying or do not know if Kieretsu is doing anything illegal but if they are then the public has a right to know and questions about the organization should be raised if it is a scam period and it should be stopped.

    As the person paying $6000 dollars even if I had it, I better know exactly what I’m getting upfront is my legal right before I pay. That guy Steve was NOT directly answering Jason’s questions, his answers were vague and was avoiding telling you what you specifically got means is a warning signs of a scam and something is not right?

  • http://www.firstpersondigital.com Chris Advansun

    @ BJ and @ Martin: I can see where both of you are coming from. Isn’t Jason’s open angel forum a legitimate free market move?

    Of course it is. I take no issue with the Open Angel Forum; my point was that Jason’s insistence that Keiretsu eliminate their prices makes no sense. Don’t insist that your competitors drop their prices – Just compete with them on a different price structure. Once again, let the market decide. This is what TechCrunch 50 has been doing for a few years now, quite successfully.

    Once again, Dunkin’ Doughnuts doesn’t insist that Starbucks drops its prices. It simply competes against them using a well differentiated price structure.

    In short, I take no issue with the Open Angel Forum. It’s a great idea. I hope Jason goes for it. I take issue with this 30-day ultimatum. Why bother? Just compete with them.

  • Craig Davey

    My company is not a start up. We are an established private real estate company with a very good track record. However, our traditional sources of real estate equity have changed to the negative in the last two years. We have in excess of 350 private investors who had provided us all the capital we have needed since launching the company in 2004. Times have changed in the equity world for almost every investment class including real estate. This is probably one of the best times in recent history to be cautiously acquiring distressed real estate but our traditional sources are either scared or out of investment capital. We have no experience with angel funding at all. It was suggested by one of our board members that we at least try it out. In the last 45 days we submitted our latest real estate investment to Kieretsu Forum, a well known pay to play angel group. I must say that our recent experience was professional, transparent and profitable. We started out with 64 other companies in free preliminary screening. The field was then narrowed to 25 companies for free telephone interviews. Then reduced to 16 companies for face to face interviews with the entire committee also free. At each step candid feedback and guidance was provided to us regarding how to improve both our investment offering and our presentation. Only 5 companies including ours were advanced to present to four area chapters for actual capital funding. The cost to present was $2,500 per chapter. Each chapter had an average of over 100 people in attendance. We believe the process was fair and the exposure was well worth the cost. We plan to present future transactions to this angel group. My only negative comment is that there is an increasing number of people who attend these kind of forums who are out of work consultants and others who are look for work and not to invest in presenting companies. Forums such as Keiretsu and others need to police their ranks so that those of us who are willing to pay to play will be playing to a real audience of investors and not a room full of people trying to reinvent themselves at the pay to players expense. Having said that it is a free country. Lastly we totally believe in the free market as capitalists not waiting for the government to bail us out. We have way too much of that all ready going on.

  • http://trilithontechnologiesdotcom Todd Livingstone

    Any of you guys know how to get in touch with jason calacanis?,
    I have a bunch of researchers & technologies gathering dust that I am getting pressure to capitalize upon.

    for example,:A working spheromak stable at 1ATM, stable electric arc technologies for use with laser induced plasma channels for military & industrial apps, plasma gasification. the technology lends itself to arc furnaces as well to reduce energy costs.

    The technololgy can lend itself to his Tesla,
    so he may actually drive to LA to oakland without a recharge.

    best
    Todd

  • http://twitter.com/morefromalan morefromalan

    I’m with Chris. Thank you Chris for saving me the typing time.

    They don’t have a monopoly on funding. Am I going to spend the money? No.

    If you have connections, you don’t need to pay for them at angel groups like these. If you don’t for whatever reason, maybe it’s a good investment.

  • http://estatecreate.com Henry Yates

    London Business Angels try to defend charging start ups to pitch on Techcrunch Europe: http://eu.techcrunch.com/2009/10/22/the-angel-empire-strikes-back-why-pay-to-pitch-works/

  • http://stevezeidner.com Steve Zeidner

    Awesome episode of TWiST – I agree with Jamie – angry Calacanis is entertaining (and inspiring I might add).

    I have a question – does anyone have a link to the Gary Vaynerchuk video that Tyler mentioned?

    Keep up the good work on the show Jason and crew…
    Regards,
    -Steve

  • http://www.expandthebrand.net Tia Dobi

    Hi Did Guy Kawasaki reply to this?
    Peace and profits,
    – Tia D.
    Hypnotic Copywriting and Niche Marketing That Sells More
    http://www.twitter.com/tiadobi

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  • http://twitter.com/baba12 baba

    well you may not pay if you don’t wish to.Fair enough but as far as I know I am not sure there is any start up that raised capital purely based on their merit and idea.
    The way you get funded is you got to know folks and be introduced to those who have the monies.It is not always about great ideas.
    So if someone offers you that they can open doors and present you to the folks who have the monies, time and time again you will have one in a hundred who will fall for it and maybe think they can make it.
    I am not sure you can name 10 companies that got funded purely for their idea being good.
    I will not comment about TC50 as I am not sure if it is fair and open or not, so it would be wrong to make assumptions.
    If you don’t have the pedigree and or have access to the connections doubt you get funded.

  • Mike

    does anyone have a link to the Gary Vaynerchuk video that Tyler mentioned around the 14:00 minute mark?

  • chabunkazur

    great show :)

  • Wakeupsmiling

    Wow. I had a company approach me asking for $4500 as a down payment to ‘coach’ me and then put me in front of angels. Interesting discussion.

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