Ask HN: Has anyone ever gotten funding from this website?(angelsoft.net)
angelsoft.net
Ask HN: Has anyone ever gotten funding from this website?
http://angelsoft.net/
38 comments
As the COO of Angelsoft and the creator of the Open Deals/The Investor Community, I can shed some statistical light on this question.
First let me clarify that since 2004 Angelsoft has been building tools that help Startups and Investors communicate more effectively. That's what we talk about every day. That's what keeps me up at night. Open Deals is one of those tools.
We originally released Open Deals as a way for Angel Groups to post deals that they wanted to do, but didn't have enough cash to do alone (This is a surprisingly common problem for these groups).
As Open Deals gained traction with our groups, we thought we could use it to solve another problem: Unknown entrepreneurs applying to groups and getting rejected because they were unknown. Most guys who are unknown are unknown for a reason, but obviously if you can never get an investment unless you've been successful before, we've got a problem.
We figured we'd encourage these new entrepreneurs to apply to Open Deals, let the investors crowd source them, and if a guy was legit, he'd get voted up and referred into some groups. Since he was referred, we figured the group might pay attention to him.
So has it been successful?
1. First, our marketing around it has sucked (and still does). We're more of software company and marketing hasn't come naturally to us. We're working on a complete site redesign coming out early in March we think will fix this.
2. Since we began we've had 243 companies referred from Open Deals to groups. That's about 25% who applied.
3. Companies that are referred from Open Deals are 225% more likely to get a meeting with a group than a direct submission to that group.
In short, Open Deals is doing okay. You guys are smart enough to figure out if it's worth $250 for you, but I can say, that for most entrepreneurs its more than worth the money. And I'm not talking about those that get meetings. A lot of entrepreneurs get dinged or ignored when they apply. We take some heat for that, but the truth is, these guys paid $250 to find out they're not ready for prime-time. And speaking as an entrepreneur who has spent thousands of dollars and years of his life pursuing ideas that were not ready, I can say that $250 is a bargain.
First let me clarify that since 2004 Angelsoft has been building tools that help Startups and Investors communicate more effectively. That's what we talk about every day. That's what keeps me up at night. Open Deals is one of those tools.
We originally released Open Deals as a way for Angel Groups to post deals that they wanted to do, but didn't have enough cash to do alone (This is a surprisingly common problem for these groups).
As Open Deals gained traction with our groups, we thought we could use it to solve another problem: Unknown entrepreneurs applying to groups and getting rejected because they were unknown. Most guys who are unknown are unknown for a reason, but obviously if you can never get an investment unless you've been successful before, we've got a problem.
We figured we'd encourage these new entrepreneurs to apply to Open Deals, let the investors crowd source them, and if a guy was legit, he'd get voted up and referred into some groups. Since he was referred, we figured the group might pay attention to him.
So has it been successful?
1. First, our marketing around it has sucked (and still does). We're more of software company and marketing hasn't come naturally to us. We're working on a complete site redesign coming out early in March we think will fix this.
2. Since we began we've had 243 companies referred from Open Deals to groups. That's about 25% who applied.
3. Companies that are referred from Open Deals are 225% more likely to get a meeting with a group than a direct submission to that group.
In short, Open Deals is doing okay. You guys are smart enough to figure out if it's worth $250 for you, but I can say, that for most entrepreneurs its more than worth the money. And I'm not talking about those that get meetings. A lot of entrepreneurs get dinged or ignored when they apply. We take some heat for that, but the truth is, these guys paid $250 to find out they're not ready for prime-time. And speaking as an entrepreneur who has spent thousands of dollars and years of his life pursuing ideas that were not ready, I can say that $250 is a bargain.
I think a cheaper way to figure out how ready you are for primetime is to submit your site to Hacker News. It doesn't cost a penny.
I appreciate and agree with most of your comments, but saying that $250 is a cheap price to learn the ropes seems wrong and somewhat predatory to me. I think you should spend time polishing your value prop if you have to fall back on this sort of rhetoric.
I think I'll follow pg's advice.
I appreciate and agree with most of your comments, but saying that $250 is a cheap price to learn the ropes seems wrong and somewhat predatory to me. I think you should spend time polishing your value prop if you have to fall back on this sort of rhetoric.
I think I'll follow pg's advice.
Submitting your site to Hacker News can yield insightful comments, new users, and potentially result in an investor taking some notice. That isn't the same as deliberately pitching investors, though. I don't see how charging a specific fee for a specific service in an up-front fashion like this is predatory. A barrier to entry such as the fee charged probably makes the quality of applications and applicants better. That being said, at this point, I can't imagine myself paying for such a service. I prefer to network the old-fashioned way.
as a investor using angelsoft, i think it is a great service for angels to manage their dealflow. however deals in angelsoft have not been too interesting, my guess is it will probably never be the top tier deal flow. However, you may need a ranking system (not crowd sourced) to bring the top dealflow to the top of the list, this may drive some activity.
as an entrepreneur, i think the $250 mark is not expensive IF we know who the investors are out there and how many actually read my documents and how many actually respond to it constructively. Paying and not getting heard/read/feedback may not be the way to do. I would not mind paying if the right group of investors read my summary and will pay more if they submit comments or questions more on a success base rather than upfront.
my 2 cents. cheers
as an entrepreneur, i think the $250 mark is not expensive IF we know who the investors are out there and how many actually read my documents and how many actually respond to it constructively. Paying and not getting heard/read/feedback may not be the way to do. I would not mind paying if the right group of investors read my summary and will pay more if they submit comments or questions more on a success base rather than upfront.
my 2 cents. cheers
This site charges $250 to put you in front of a bunch of angels. They claim 5% get funded. Has anyone ever gotten funding through this outfit?
I'm considering applying for my company - www.trailbehind.com, after we launch our new version next week.
I'm considering applying for my company - www.trailbehind.com, after we launch our new version next week.
There are several angel groups that charge money to present to them. I would not recommend doing this.
Angel groups generally are worthless (out of 102 YC-funded startups prior to this cycle, zero got money from angel groups), and the ones that charge you to present seem particularly dubious. If they had good deal flow, they wouldn't have to charge you to pay their operating expenses; angels would pay them for access to it. Plus the best angels tend not to be members of these groups; they don't need to. Which means this is a world where lame startups present to lame investors.
Angel groups generally are worthless (out of 102 YC-funded startups prior to this cycle, zero got money from angel groups), and the ones that charge you to present seem particularly dubious. If they had good deal flow, they wouldn't have to charge you to pay their operating expenses; angels would pay them for access to it. Plus the best angels tend not to be members of these groups; they don't need to. Which means this is a world where lame startups present to lame investors.
Paul -- could you elaborate a bit here?
We all see hundreds of angel groups all over the world. There must be thousands or even tens of thousands of angel investors. How come "Angel groups generally are worthless"? Unable to make decisions? Poor management? No funds to invest? People just fishing for good ideas? etc?
I know a lot of people have tried something like "E-bay for Funding Startups" but not to much success. What's the major obstacle here?
We all see hundreds of angel groups all over the world. There must be thousands or even tens of thousands of angel investors. How come "Angel groups generally are worthless"? Unable to make decisions? Poor management? No funds to invest? People just fishing for good ideas? etc?
I know a lot of people have tried something like "E-bay for Funding Startups" but not to much success. What's the major obstacle here?
I'm not sure what the cause is. I've just noticed that I never come across startups who've been funded by them.
If I had to guess, I think the problem might be the investors they attract. None of the top angels I know would join an angel group; they're all already plugged into the startup world, usually because they came from it themselves.
I came across framemedia, not that that proves anything.
http://www.commonangels.com/loader_funded.html
http://www.commonangels.com/loader_funded.html
Thanks for the advice Paul. You'll have our application in the summer, and I'll skip this site.
Paul, with all due respect, I have to disagree. As both the Chairman of New York Angels, and the CEO of Angelsoft (which grew out of our perceived need for a comprehensive deal management platform), I think it's both inaccurate and unfair to state that angel groups are "generally worthless" and "the best angels are not members".
Taking our own group as an example, we have directly funded over $35 million into 54 companies during the past five years, have had successful exits in sales to companies like CBS and Kodak, and have a membership that includes 75 active, participating angels such as Esther Dyson, Scott Kurnit, Chris Anderson, Roger Ehrenberg, Brian Cohen, Charlie Federman, Lewis Gersh, David Hirsch and many others, all of whom commit to investing at least $100,000 annually. This year we funded about $4 million into 22 companies. How far off are those stats from yours at yC? For my own part, I have personally invested in over 70 startups and serve on half a dozen early stage boards. If that means I'm a "lame investor", I'm a little confused.
Angelsoft was founded to bring to the world of angel investing the type of infrastructure, tools and communications that venture funds and commercial organizations like yCombinator already have. Since angels are, by definition, part-time investors for whom this is not a primary occupation, it has always been a pretty chaotic and haphazard way to put to work the $25 billion annually that angels in the US invest (which is just about the same amount as all VCs put together.) Now that something like 90% of the angel groups in the world, with 15,000+ accredited investors in 43 countries, have all standardized on a single platform, we're finally beginning to bring some order to the chaos.
The Investor Community on Angelsoft was designed, as Ryan Janssen pointed out, to enable groups to syndicate deals with each other. At New York Angels, we have worked together with groups from Boston, California, Washington, Florida, Texas, Nevada, Missouri and Connecticut to fund cool startups...something that would have been logistically impractical prior to the advent of a single, standardized platform.
Now that we've opened it up to direct submissions by entrepreneurs, we seem to be on our way to solving the biggest challenge of angel investing: "I want to increase my deal flow, but I don't want to be spammed by having to respond to every company asking for funding". Instead of having entrepreneurs apply directly to one group for which they may well not be appropriate, the Investor Community allows angels to browse a much wider array of deals, and then affirmatively bring to their group only deals in which they have an interest. As Ryan noted in an early response here, companies that posted to the Investor Community and then were referred into groups by the angels themselves were over 200% more likely to get funded.
Paul, we both know how tough the funding environment is for startups, and we both know that your small investments and support into 102 companies, and our larger investments and support into 54 companies, are only drops in the bucket when one considers that there are over 600,000 companies started each year in the US. But angels and angel groups really ARE a legitimate part of the ecosystem, and I don't think you're doing a service to your readers by disputing that.
yCombinator was a brilliant idea with which you are doing a superb job of execution, and your results speak for themselves. You don't need to promote yC by slinging mud at others who are equally active and supportive of entrepreneurs.
Taking our own group as an example, we have directly funded over $35 million into 54 companies during the past five years, have had successful exits in sales to companies like CBS and Kodak, and have a membership that includes 75 active, participating angels such as Esther Dyson, Scott Kurnit, Chris Anderson, Roger Ehrenberg, Brian Cohen, Charlie Federman, Lewis Gersh, David Hirsch and many others, all of whom commit to investing at least $100,000 annually. This year we funded about $4 million into 22 companies. How far off are those stats from yours at yC? For my own part, I have personally invested in over 70 startups and serve on half a dozen early stage boards. If that means I'm a "lame investor", I'm a little confused.
Angelsoft was founded to bring to the world of angel investing the type of infrastructure, tools and communications that venture funds and commercial organizations like yCombinator already have. Since angels are, by definition, part-time investors for whom this is not a primary occupation, it has always been a pretty chaotic and haphazard way to put to work the $25 billion annually that angels in the US invest (which is just about the same amount as all VCs put together.) Now that something like 90% of the angel groups in the world, with 15,000+ accredited investors in 43 countries, have all standardized on a single platform, we're finally beginning to bring some order to the chaos.
The Investor Community on Angelsoft was designed, as Ryan Janssen pointed out, to enable groups to syndicate deals with each other. At New York Angels, we have worked together with groups from Boston, California, Washington, Florida, Texas, Nevada, Missouri and Connecticut to fund cool startups...something that would have been logistically impractical prior to the advent of a single, standardized platform.
Now that we've opened it up to direct submissions by entrepreneurs, we seem to be on our way to solving the biggest challenge of angel investing: "I want to increase my deal flow, but I don't want to be spammed by having to respond to every company asking for funding". Instead of having entrepreneurs apply directly to one group for which they may well not be appropriate, the Investor Community allows angels to browse a much wider array of deals, and then affirmatively bring to their group only deals in which they have an interest. As Ryan noted in an early response here, companies that posted to the Investor Community and then were referred into groups by the angels themselves were over 200% more likely to get funded.
Paul, we both know how tough the funding environment is for startups, and we both know that your small investments and support into 102 companies, and our larger investments and support into 54 companies, are only drops in the bucket when one considers that there are over 600,000 companies started each year in the US. But angels and angel groups really ARE a legitimate part of the ecosystem, and I don't think you're doing a service to your readers by disputing that.
yCombinator was a brilliant idea with which you are doing a superb job of execution, and your results speak for themselves. You don't need to promote yC by slinging mud at others who are equally active and supportive of entrepreneurs.
Dude, you've got every right to stand up for your reputation and your business model, but your post is completely inappropriate in this setting.
It sounds like the script a telemarketer reads you after interrupting your dinner. Like PR and Legal tweaked the language to make it optimally appealing, synergistic, and defensible.
Boilerplate gets no respect in this community. How can you not know this after being a member yourself for the last two years?
It sounds like the script a telemarketer reads you after interrupting your dinner. Like PR and Legal tweaked the language to make it optimally appealing, synergistic, and defensible.
Boilerplate gets no respect in this community. How can you not know this after being a member yourself for the last two years?
ROFL! mnemonicscloth, you've made my day! It took me an hour and a half to write that post in direct response to Paul's, and it's certainly not boilerplate (feel free to Google any chunk of it you'd like, and I'd be surprised if you'd find even a single sentence written anywhere previously). But if the result was "optimally appealing, synergistic and defensible", the 90 minutes was absolutely worth it [grin].
Seriously, I'm a big fan of Paul's, and he knows it (and we know each other). I was simply responding to an overly broad-brush, inaccurate indictment (that he likely tossed off quickly) with a calm, factual response clarifying what the real story is. I believe it is completely appropriate for this forum, and I'm happy to continue the discussion either here, on my own blog (rose.vc/angelnotes) or by email (david AT angelsoft.net).
For those who would like to delve further into the role of Angels-Other-Than-Paul, there's a good book that has recently been published titled "Fool's Gold?: The Truth Behind Angel Investing in America" by Scott Shane. While I happen to personally disagree with the tone (and some of the conclusions) of the author, there's no question but that he is a serious researcher in the field, and that his underlying facts are essentially correct.
Thanks again for your comments, and feel free to email directly if you'd like to continue taking me to task :-).
-David
Disclaimer: "No Boilerplate, PR, or Legal Personnel were harmed (or used) the making of this post or the previous one."
Seriously, I'm a big fan of Paul's, and he knows it (and we know each other). I was simply responding to an overly broad-brush, inaccurate indictment (that he likely tossed off quickly) with a calm, factual response clarifying what the real story is. I believe it is completely appropriate for this forum, and I'm happy to continue the discussion either here, on my own blog (rose.vc/angelnotes) or by email (david AT angelsoft.net).
For those who would like to delve further into the role of Angels-Other-Than-Paul, there's a good book that has recently been published titled "Fool's Gold?: The Truth Behind Angel Investing in America" by Scott Shane. While I happen to personally disagree with the tone (and some of the conclusions) of the author, there's no question but that he is a serious researcher in the field, and that his underlying facts are essentially correct.
Thanks again for your comments, and feel free to email directly if you'd like to continue taking me to task :-).
-David
Disclaimer: "No Boilerplate, PR, or Legal Personnel were harmed (or used) the making of this post or the previous one."
Perhaps you shouldn't attack Paul personally when the consensus of everyone else who replied was pretty much the same?
Better would be if you were open about how many groups paid you $250 and out of those, how many ended up getting funding. Or if you named some companies that got funded this way.
Better would be if you were open about how many groups paid you $250 and out of those, how many ended up getting funding. Or if you named some companies that got funded this way.
A thread about AngelSoft funding: http://news.ycombinator.com/item?id=168575
I think somewhere around 5% of people who apply to YC get funded. Would you pay $250 to apply to YC?
One difference is that YC money is capped at a very small amount.
My gut says, skip it, but...
Why not apply without paying and if they actually ask you for the $250 then say screw it.
If they think you're going to be successful, they'd want you to use their site and won't charge you.
Why not apply without paying and if they actually ask you for the $250 then say screw it.
If they think you're going to be successful, they'd want you to use their site and won't charge you.
As much as I like the creator of AngelSoft, I think the $250 offer is wrong. AngelSoft provides good value by unifying the application process to many legitimate groups out there (angel forum for instance). One thing I hate is when each web site has a slightly different format to ask me about my business. TechCrunch has a template. YC has one. It goes on and on.
So AngelSoft is successful in that regard, with the hundreds of groups using them. The fact that they tried to monetize it by charging rookie entrepreneurs, well... it depreciates their brand.
So AngelSoft is successful in that regard, with the hundreds of groups using them. The fact that they tried to monetize it by charging rookie entrepreneurs, well... it depreciates their brand.
Alain, as much as I appreciate your kind words [grin], I disagree with your premise. If the alternative is to NOT open the platform to entrepreneurs, how does that help anyone? Even in a world of Web 2.0 and fast-track development, creating, maintaining and operating a site like Angelsoft is very non-trivial. Since the company is not a charity, there needs to be a business model somewhere through which we provide enough value (both real and perceived) that someone(s) is willing to pay for it.
After spending five years of time, effort and a 20 person team developing a single platform that now powers a large majority of the world's organized angel investing, we've finally got something which entrepreneurs [correctly, in my view] believe is worth paying $250 for: powerful tools for managing their fundraising process, combined with access to over 15,000 legitimate investors who use the other side of the platform as their own deal processing tool.
In contrast, there are probably two dozen sites on the web which purport to be 'matching services' for entrepreneurs and investors, but the unfortunate dark secret is that while those sites often charge much, much more (in some cases, thousands of dollars), they have NO investors at all. With Angelsoft, we have created (for the first time anywhere) and provide (completely for free) a single, searchable directory of just about every angel group around. Together with a free "common app" for funding (as you noted), and the ability to apply to multiple groups at no charge through the site with a single click, I think it is fair to say that Angelsoft has done more to help entrepreneurs navigate the often-confusing world of angel investing than anyone else, ever. That's why we're the official software platform of the non-profit national and international associations of angels and angel groups in the US, Canada, Europe, Australia, the Middle East and elsewhere.
I think the best way to look at Angelsoft is in the context of something like LinkedIn, for both investors and entrepreneurs. As with LinkedIn, basic use of the system is free to all, which enabled them (and enables us) to establish a meaningful universe of participants who gain real value from the basic services. With the platform then in place, they (and we) can now layer on additional, value-added services which may (or may not) be worth the cost to any given participant.
Do you think less of LinkedIn because they charge for job postings? How about receiving InMail, for which privilege the sender pays? If you don't want to receive InMail, you simply uncheck a box. If the sender doesn't feel that the ability to send messages is worth $25-$400/month, he or she doesn't pay it. But without the existence of the underlying site, value-added features like InMail and job postings wouldn't be possible in the first place.
With Angelsoft, we are always trying to navigate carefully among the needs of our three constituencies: angel investors, entrepreneurs...and ourselves as a for-profit company. Investors would love it if they only got one deal a month, and it was a guaranteed 30x return that was available only to them, for free. Entrepreneurs would love it if they could have free and unfettered access to the personal emails of 15,000 check-writing investors. I would love it if both of the forgoing paid Angelsoft hundreds of millions of dollars annually :-). Unfortunately, all of the above desires are mutually exclusive.
We think that we've done a pretty good job at creating a compromise platform that supports all three constituencies (well, at least the first two; we're not quite breakeven at Angelsoft yet :-), but we welcome any constructive comments or suggestions as to how we can improve our value proposition to everyone.
-David S. Rose, CEO, Angelsoft
After spending five years of time, effort and a 20 person team developing a single platform that now powers a large majority of the world's organized angel investing, we've finally got something which entrepreneurs [correctly, in my view] believe is worth paying $250 for: powerful tools for managing their fundraising process, combined with access to over 15,000 legitimate investors who use the other side of the platform as their own deal processing tool.
In contrast, there are probably two dozen sites on the web which purport to be 'matching services' for entrepreneurs and investors, but the unfortunate dark secret is that while those sites often charge much, much more (in some cases, thousands of dollars), they have NO investors at all. With Angelsoft, we have created (for the first time anywhere) and provide (completely for free) a single, searchable directory of just about every angel group around. Together with a free "common app" for funding (as you noted), and the ability to apply to multiple groups at no charge through the site with a single click, I think it is fair to say that Angelsoft has done more to help entrepreneurs navigate the often-confusing world of angel investing than anyone else, ever. That's why we're the official software platform of the non-profit national and international associations of angels and angel groups in the US, Canada, Europe, Australia, the Middle East and elsewhere.
I think the best way to look at Angelsoft is in the context of something like LinkedIn, for both investors and entrepreneurs. As with LinkedIn, basic use of the system is free to all, which enabled them (and enables us) to establish a meaningful universe of participants who gain real value from the basic services. With the platform then in place, they (and we) can now layer on additional, value-added services which may (or may not) be worth the cost to any given participant.
Do you think less of LinkedIn because they charge for job postings? How about receiving InMail, for which privilege the sender pays? If you don't want to receive InMail, you simply uncheck a box. If the sender doesn't feel that the ability to send messages is worth $25-$400/month, he or she doesn't pay it. But without the existence of the underlying site, value-added features like InMail and job postings wouldn't be possible in the first place.
With Angelsoft, we are always trying to navigate carefully among the needs of our three constituencies: angel investors, entrepreneurs...and ourselves as a for-profit company. Investors would love it if they only got one deal a month, and it was a guaranteed 30x return that was available only to them, for free. Entrepreneurs would love it if they could have free and unfettered access to the personal emails of 15,000 check-writing investors. I would love it if both of the forgoing paid Angelsoft hundreds of millions of dollars annually :-). Unfortunately, all of the above desires are mutually exclusive.
We think that we've done a pretty good job at creating a compromise platform that supports all three constituencies (well, at least the first two; we're not quite breakeven at Angelsoft yet :-), but we welcome any constructive comments or suggestions as to how we can improve our value proposition to everyone.
-David S. Rose, CEO, Angelsoft
David,
Thanks again for the detailed counterpoint. I'll reiterate that I'm a big fan.
My only objection is the upfront payment by entrepreneurs. How do you reconcile this with advice found on thefunded and other places, that tells entrepreneurs to never pay to pitch?
If you charged $1,000 on contingency, or a percentage of funds raised, then I'd be your best supporter.
Maybe I'm showing my bias, since I believe in helping entrepreneurs get started with no upfront cash. You probably think that anything contingent may be hard to enforce. That's certainly true. But think of it this way: if my startup has an agreement with AngelSoft that says I owe you something, when big VCs come in for due diligence, they'll flag the issue and force me to resolve it. So you have some protection!
If you don't like contingent payment because you are worried that the sucess rate is too low, then you have a major problem. You'd better be selling a service that works. By accepting contingencies, you signal to me, the entrepreneur, that you believe in the quality of your product. I'll have no problem paying fees way higher than $250.
There is a minor issue of filtering the quality of the deal flow, but $250 is probably not the right filter.
- Alain, CEO, FairSoftware.net :-)
Thanks again for the detailed counterpoint. I'll reiterate that I'm a big fan.
My only objection is the upfront payment by entrepreneurs. How do you reconcile this with advice found on thefunded and other places, that tells entrepreneurs to never pay to pitch?
If you charged $1,000 on contingency, or a percentage of funds raised, then I'd be your best supporter.
Maybe I'm showing my bias, since I believe in helping entrepreneurs get started with no upfront cash. You probably think that anything contingent may be hard to enforce. That's certainly true. But think of it this way: if my startup has an agreement with AngelSoft that says I owe you something, when big VCs come in for due diligence, they'll flag the issue and force me to resolve it. So you have some protection!
If you don't like contingent payment because you are worried that the sucess rate is too low, then you have a major problem. You'd better be selling a service that works. By accepting contingencies, you signal to me, the entrepreneur, that you believe in the quality of your product. I'll have no problem paying fees way higher than $250.
There is a minor issue of filtering the quality of the deal flow, but $250 is probably not the right filter.
- Alain, CEO, FairSoftware.net :-)
Alain,
That's a good question, which I'd answer as follows: (a) just because someone says something on TheFunded doesn't make it gospel [grin], but (b) IN GENERAL, and taken as a rule of thumb, the advice is pretty good.
Where it breaks down is in the details, which is why the Angel Capital Association convened a panel to consider this very question, and ultimately came out with a specific, detailed statement on it, which is available online at http://www.angelcapitalassociation.org/dir_resources/entrepr....
Angelsoft's corporate (and my personal) philosophy is as follows: the primary determinant as to whether it is appropriate to charge a fee of any kind to an entrepreneur to pitch, is the answer to the following question: "If you represent yourself to be an investor (or group of investors), is your business model based in any way on the fees you charge entrepreneurs?"
There are a number of 'venture summits', and 'angel groups' and others who represent themselves as investors and charge large fees (often several thousand dollars, for application, appearance, 'training', presentation, diligence, etc.) to companies, because that's how they make their money, regardless of whether or not the company receives an investment (which it rarely does.) In those cases, the whole point of the business is to make money from the entrepreneur fees.
On the other hand, take as an example New York Angels, my own local angel group. We charge a $150 application fee to submit a plan. Is that any part of our business model, and do our members make any money from that fee? ABSOLUTELY NOT! Quite the opposite: while we charge entrepreneurs the $150, we charge OURSELVES $3500 per person per year to allow us to maintain a non-profit organization that enables us to coordinate investments in the first place! So in the case of the 37% of legitimate angel groups that have a similar policy, I/we (obviously) have no problem with the practice.
That said, there are two significant problems with your suggestion for contingency-only fees, one legal and one practical:
Legally, anyone who charges any type of contingent fee relating to equity financing MUST be a registered broker/dealer with the SEC. There are no exceptions to this, and no wiggle room. Since by definition no legitimate angel group is a Broker/Dealer, adopting this policy would immediately end organized angel investing in the US, and you'd be back to having to find angels at your local country club, or by paying an investment banker (who IS a B/D) to introduce you.
The practical problem is the perhaps-unfortunate-but-nonetheless-true fact of the Golden Rule of financing: "S/he with the gold makes the rules." If YOU believe that anyone should be able to send you their business plan and expect you to read it, and then invest in them, then by all means YOU should go forth and do it! But if the only people who are willing to make these risky investments are only willing to do so if you follow the procedures they have set up (for reasons which seem sensible to them), then either (a) it's worth it to you to do so, and you will, or (b) it's not worth it and you won't. But there's no percentage in telling such an investor that he or she should do it your way because YOU think it makes sense for THEM.
Just to put things in perspective, and show you how things look from the angels' side, Angelsoft currently processes over three thousand (3,000!!) funding applications every month. By investing unholy amounts of time, energy and money, we have now made the process so easy that the temptation is overwhelming for virtually every entrepreneur in the world to want to hit virtually every potential investor in the world with his/her plan. While this is understandable from the entrepreneurial side, it should be apparent that it is completely unworkable from the angel side, particularly considering that angel investing is a part-time activity which (given the risk, effort, et al) is a tenuous practice in the first place.
On top of that, another fact that needs to be considered is that the quality of funding applications varies widely (to put it mildly). YOUR plan for FairSoftware.net may be brilliant, incisive, carefully reasoned, and a logical investment for any rational investor...but that would be the exception rather than the rule [grin]. Looked at another way, if angels invest in somewhere between 1% and 5% of deals seeking funding, that means they are in effect (and in aggregate) making a series of value judgments, and rank ordering all 100% of the deals so they can choose those which, in their opinions, are the top 1-5 deals. A fair argument could be made that they make mistakes, aren't perceptive, have poor vision, etc. etc., and that in reality (as with college admissions), EVERY one of the top 10% should be funded.
You could further say that the NEXT 10% down should, in an ideal world, be fundable if we could only match the specific deal to the specific investor under certain specific circumstances. And then, since we are entrepreneurs ourselves with faith in our ilk, let us say that the NEXT 5% we should fund because, even though the plan doesn't make sense and the financials are unrealistic, this might be a really good potential entrepreneur who could break the mold and defy all of our investing experience to date.
OK.
But...that still leaves a full 75%(!) of aspiring entrepreneurs seeking funding for ideas which are clearly and unequivocally inappropriate for an outside angel investment. In my experience, #26 might be the kind of deal for which I'd conceivably take a meeting, but know within the first minute or two that it simply wasn't fundable; #50 might be a deal which might make sense in theory, but not in practice ("I want to start a new, generic online social network"); #75 is a deal that should never have even been put to paper ("I've got a website that will obviously put Google, Yahoo and Microsoft out of business in six months!"); and #100 is from someone who is not necessarily playing with a full deck ("Send me $100 million to publish my book which will instantly result in world peace.")
So, Alain, if you would like to volunteer to read through 3,000 business plans a month and give me a quick write-up on each of them (at your own expense, of course), I would be delighted (and I'm stating this here in public) to give you (subject to appropriate legal structure, etc, etc. etc.) a 1% contingent interest in any investment I end up making in any such deal you send me.
You see the problem. :-)
So therefore, how can we establish a system, given our free-market, capitalist economy, to try to get smart money into good deals? Having been doing this for nearly a decade, I can attest to the fact that it's not easy. Angelsoft is (I believe) the best approach to date, and we are constantly iterating it to maximize the aggregate return to the entire system, which will in turn help entrepreneurs and investors, and make money for Angelsoft as a commercial entity.
But, as with everything else in a free market economy, each player has to make a decision for him or herself as to whether doing something is economically (or otherwise) justifiable. At Angelsoft (unlike ANY other site, service, company or institution) we freely publish our full, live statistics online (at www.angelsoft.net/industry) so that we can be as transparent as possible. We also make our Group Finder (without close second the most comprehensive on the planet) available for free, and we make it trivially easy to apply for free to as many groups as you want. And if, after reviewing our Investor Community posting opportunity, an entrepreneur determines that it makes sense to post his or her plan there for 30 days for $250, then we welcome them. If not, we completely understand, and invite them to continue to use the rest of our tools for free.
I apologize for the length of this post, but you were kind enough to ask, so I figured you deserved a full [perhaps too full?] reply.
-David S. Rose, CEO, Angelsoft
That's a good question, which I'd answer as follows: (a) just because someone says something on TheFunded doesn't make it gospel [grin], but (b) IN GENERAL, and taken as a rule of thumb, the advice is pretty good.
Where it breaks down is in the details, which is why the Angel Capital Association convened a panel to consider this very question, and ultimately came out with a specific, detailed statement on it, which is available online at http://www.angelcapitalassociation.org/dir_resources/entrepr....
Angelsoft's corporate (and my personal) philosophy is as follows: the primary determinant as to whether it is appropriate to charge a fee of any kind to an entrepreneur to pitch, is the answer to the following question: "If you represent yourself to be an investor (or group of investors), is your business model based in any way on the fees you charge entrepreneurs?"
There are a number of 'venture summits', and 'angel groups' and others who represent themselves as investors and charge large fees (often several thousand dollars, for application, appearance, 'training', presentation, diligence, etc.) to companies, because that's how they make their money, regardless of whether or not the company receives an investment (which it rarely does.) In those cases, the whole point of the business is to make money from the entrepreneur fees.
On the other hand, take as an example New York Angels, my own local angel group. We charge a $150 application fee to submit a plan. Is that any part of our business model, and do our members make any money from that fee? ABSOLUTELY NOT! Quite the opposite: while we charge entrepreneurs the $150, we charge OURSELVES $3500 per person per year to allow us to maintain a non-profit organization that enables us to coordinate investments in the first place! So in the case of the 37% of legitimate angel groups that have a similar policy, I/we (obviously) have no problem with the practice.
That said, there are two significant problems with your suggestion for contingency-only fees, one legal and one practical:
Legally, anyone who charges any type of contingent fee relating to equity financing MUST be a registered broker/dealer with the SEC. There are no exceptions to this, and no wiggle room. Since by definition no legitimate angel group is a Broker/Dealer, adopting this policy would immediately end organized angel investing in the US, and you'd be back to having to find angels at your local country club, or by paying an investment banker (who IS a B/D) to introduce you.
The practical problem is the perhaps-unfortunate-but-nonetheless-true fact of the Golden Rule of financing: "S/he with the gold makes the rules." If YOU believe that anyone should be able to send you their business plan and expect you to read it, and then invest in them, then by all means YOU should go forth and do it! But if the only people who are willing to make these risky investments are only willing to do so if you follow the procedures they have set up (for reasons which seem sensible to them), then either (a) it's worth it to you to do so, and you will, or (b) it's not worth it and you won't. But there's no percentage in telling such an investor that he or she should do it your way because YOU think it makes sense for THEM.
Just to put things in perspective, and show you how things look from the angels' side, Angelsoft currently processes over three thousand (3,000!!) funding applications every month. By investing unholy amounts of time, energy and money, we have now made the process so easy that the temptation is overwhelming for virtually every entrepreneur in the world to want to hit virtually every potential investor in the world with his/her plan. While this is understandable from the entrepreneurial side, it should be apparent that it is completely unworkable from the angel side, particularly considering that angel investing is a part-time activity which (given the risk, effort, et al) is a tenuous practice in the first place.
On top of that, another fact that needs to be considered is that the quality of funding applications varies widely (to put it mildly). YOUR plan for FairSoftware.net may be brilliant, incisive, carefully reasoned, and a logical investment for any rational investor...but that would be the exception rather than the rule [grin]. Looked at another way, if angels invest in somewhere between 1% and 5% of deals seeking funding, that means they are in effect (and in aggregate) making a series of value judgments, and rank ordering all 100% of the deals so they can choose those which, in their opinions, are the top 1-5 deals. A fair argument could be made that they make mistakes, aren't perceptive, have poor vision, etc. etc., and that in reality (as with college admissions), EVERY one of the top 10% should be funded.
You could further say that the NEXT 10% down should, in an ideal world, be fundable if we could only match the specific deal to the specific investor under certain specific circumstances. And then, since we are entrepreneurs ourselves with faith in our ilk, let us say that the NEXT 5% we should fund because, even though the plan doesn't make sense and the financials are unrealistic, this might be a really good potential entrepreneur who could break the mold and defy all of our investing experience to date.
OK.
But...that still leaves a full 75%(!) of aspiring entrepreneurs seeking funding for ideas which are clearly and unequivocally inappropriate for an outside angel investment. In my experience, #26 might be the kind of deal for which I'd conceivably take a meeting, but know within the first minute or two that it simply wasn't fundable; #50 might be a deal which might make sense in theory, but not in practice ("I want to start a new, generic online social network"); #75 is a deal that should never have even been put to paper ("I've got a website that will obviously put Google, Yahoo and Microsoft out of business in six months!"); and #100 is from someone who is not necessarily playing with a full deck ("Send me $100 million to publish my book which will instantly result in world peace.")
So, Alain, if you would like to volunteer to read through 3,000 business plans a month and give me a quick write-up on each of them (at your own expense, of course), I would be delighted (and I'm stating this here in public) to give you (subject to appropriate legal structure, etc, etc. etc.) a 1% contingent interest in any investment I end up making in any such deal you send me.
You see the problem. :-)
So therefore, how can we establish a system, given our free-market, capitalist economy, to try to get smart money into good deals? Having been doing this for nearly a decade, I can attest to the fact that it's not easy. Angelsoft is (I believe) the best approach to date, and we are constantly iterating it to maximize the aggregate return to the entire system, which will in turn help entrepreneurs and investors, and make money for Angelsoft as a commercial entity.
But, as with everything else in a free market economy, each player has to make a decision for him or herself as to whether doing something is economically (or otherwise) justifiable. At Angelsoft (unlike ANY other site, service, company or institution) we freely publish our full, live statistics online (at www.angelsoft.net/industry) so that we can be as transparent as possible. We also make our Group Finder (without close second the most comprehensive on the planet) available for free, and we make it trivially easy to apply for free to as many groups as you want. And if, after reviewing our Investor Community posting opportunity, an entrepreneur determines that it makes sense to post his or her plan there for 30 days for $250, then we welcome them. If not, we completely understand, and invite them to continue to use the rest of our tools for free.
I apologize for the length of this post, but you were kind enough to ask, so I figured you deserved a full [perhaps too full?] reply.
-David S. Rose, CEO, Angelsoft
The live activity monitor is pretty nifty.
Thank you. I had the same question.
If you're dumb enough to pay money for this, you're dumb enough that your site will never make any money. The only ones who will get rich from this are the owners of the site - they are selling you a dream, and you are paying for it.
Spend the money on some proper SEO services instead, it will do you more good.
And let me give it to you square - your site will NEVER get funding. It's not hot, it has little potential of becoming huge. It's the type of site that can make solid money, but only by targeting the users directly. When you are making good money, the angels will come to you.
If you are trying to raise funding for your site, you are in the business of dreams, not reality.
Spend the money on some proper SEO services instead, it will do you more good.
And let me give it to you square - your site will NEVER get funding. It's not hot, it has little potential of becoming huge. It's the type of site that can make solid money, but only by targeting the users directly. When you are making good money, the angels will come to you.
If you are trying to raise funding for your site, you are in the business of dreams, not reality.
Our site already got funding, thanks. And an fbFund grant.
Of course, we'll need more in 2010, hence my constant quest for more money.
Of course, we'll need more in 2010, hence my constant quest for more money.
what site?
www.trailbehind.com
We have a buggy, but much more powerful and fast, update on cabin dot trailbehind dot com (spelled out like this so Google won't index it).
New features include:
* rankings of sites by popularity/popularity-based search
* static caches of maps
* better arrangement of icons on the maps
* updated reporting interface
* expanded data set
We're in bug fix mode right now, and we'll be pushing the update Monday or so.
We have a buggy, but much more powerful and fast, update on cabin dot trailbehind dot com (spelled out like this so Google won't index it).
New features include:
* rankings of sites by popularity/popularity-based search
* static caches of maps
* better arrangement of icons on the maps
* updated reporting interface
* expanded data set
We're in bug fix mode right now, and we'll be pushing the update Monday or so.
spelled out like this so Google won't index it
Obscurity will NOT HELP YOU avoiding a Google index. They have many sources of data, including receiving toolbar data from users, and they very pointedly do not mention all sources they use to generate the crawl lists.
If you want to not get indexed, use the nonindex meta tag, or sign up for their webmaster console and remove that particular URL from the index. (Somewhat counterintuitively, robots.txt-ing out a site doesn't prevent it from being indexed, only from being crawled. They will still include it in their search results if it has external indicia of trust.)
Obscurity will NOT HELP YOU avoiding a Google index. They have many sources of data, including receiving toolbar data from users, and they very pointedly do not mention all sources they use to generate the crawl lists.
If you want to not get indexed, use the nonindex meta tag, or sign up for their webmaster console and remove that particular URL from the index. (Somewhat counterintuitively, robots.txt-ing out a site doesn't prevent it from being indexed, only from being crawled. They will still include it in their search results if it has external indicia of trust.)
So you have no plan to make money for the entire year of 2009? Are you running a business or a charity?
We have a plan to make money this year. But then again, so did the last start-up I worked at, and it took us a while longer than a year to post revenues of any kind.
For TrailBehind, we think we can start bringing in revenues this summer (or a large enough audience for institutional funding), but our fallback is to seek additional angel funding. And Plan C is to accept some consulting gigs. We're also going to apply to YC, but that's more for the intangibles than the money.
This month, I brought on our first employee (besides the two founders, who are hackers), to execute our sales and marketing plan. We have multiple paths to revenue that he is charged with exploring, along with seeking out additional funding.
Because our website is devoted to the outdoors, the market is cyclical, and I have determined what that cycle is using Google Analytics. So, we have been developing for a few months, and we'll have a major go-to-market push in the late spring as the hiking season revs up. We're also using the next few months to begin laying seeds with potential partners and additional investors.
For TrailBehind, we think we can start bringing in revenues this summer (or a large enough audience for institutional funding), but our fallback is to seek additional angel funding. And Plan C is to accept some consulting gigs. We're also going to apply to YC, but that's more for the intangibles than the money.
This month, I brought on our first employee (besides the two founders, who are hackers), to execute our sales and marketing plan. We have multiple paths to revenue that he is charged with exploring, along with seeking out additional funding.
Because our website is devoted to the outdoors, the market is cyclical, and I have determined what that cycle is using Google Analytics. So, we have been developing for a few months, and we'll have a major go-to-market push in the late spring as the hiking season revs up. We're also using the next few months to begin laying seeds with potential partners and additional investors.
I'd suggest that you keep a more constructive tone on this board.
While I believe the first model is useless money spent, I do believe the second model is much better and entreprenuers should not avoid filling out an angel groups investment application based solely on the fact they use Angelsoft to process the application. I have utilized the process myself and while I did not get funding from (I did get face-to-face meetings though) the angel groups I submitted to I found the application process easy and organized. I am familiar with several groups that utilize the Angelsoft platform and all are very reputable.
Long story short, blindly sending your business plan to just about ANY investment group (excluding YC and similar models) is not going to get you anywhere. Introductions and networking are the only true way of having a chance at any investment. I can think of other things to spend the $250 on than a membership with Angelsoft. On the other hand, if you have interest in a specific angel group or VC and they point you to Angelsoft to submit your business plan, etc... know that (a) it is free for you; and (b) that Angelsoft is a legitimate platform for submitting your application.
Note that I have no affiliation with Angelsoft other than I have utilized their platform to submit to several VCs.