Guidewire Group

Jason Calacanis is at it again, and this time – dare I say it – the man has a point.  In a post last Friday, Jason rails (does he do anything other?) against angel investor groups that charge startups a fee to present at their forums.

He writes:

Recently, I was made aware of a group of angel investors that were charging startups to pitch them.

Yes, you heard that correctly: the rich people (angels) are charging the poor people (startup entrepreneurs desperate for cash to fuel their dreams) to hear their pitch. No, I’m not kidding. This is actually happening — and it’s widespread.

While I’ve long found insulting Jason’s “payola” rants and the accompanying characterizations of first-time founders as poor, lost and naïve inventors unable to make reasoned and reasonable decisions about how best to apply their scant resources, this time he’s got a point: savvy investors should bear the cost of meeting entrepreneurs and reviewing deal flow as the price of entry to the venture asset class.   But rather than decry the practice and advise young entrepreneurs, Jason does what he always does:

When I heard this, my blood started to boil immediately. So, I did what any maniacal, self-absorbed CEO from Brooklyn would do: I started a jihad against this dispicable [sic] form of payola and the people doing it. It’s on people … it’s on like a Donkey Kong.

. . . [If investor groups do not disclose their practices or stop charging fees],  my group of startup CEOs and angel investors will begin targeting specific groups for elimination. We will launch competing, fee-free events directly opposite your events. We will encourage angels [sic] investors, service providers and startups to boycott your events. You may even find our street teams outside your events handing out flyers.

So, while Jason arms his (cough) “Nation” with fliers and vindictive, how about some clear advice for entrepreneurs?

You see, unlike Jason, I don’t believe that entrepreneurs who pay to participate in investor pitch events are “ugly, unpopular and lack talent.”  Come on. Even Hugh Grant paid for sex.

Let’s face it: For the vast majority of startups, fund raising is a full-time occupation. Silicon Valley is a tight-knit and sometimes insular environment. It’s an environment of networks where who you know and how you know them is the difference between a call back and deafening silence.  And, frankly, an environment in which one should never confuse luck for talent.  Great entrepreneurs learn to navigate into that network, establishing relationships, seeking advice, giving as good as getting in order to be seen and heard above the throngs of entrepreneurs who also have dreams that just need a dose of capital to be realized.  For entrepreneurs relocating their businesses to the Valley from overseas or even across the Continent, the networking is even that much harder.

So, it’s tempting to want to shortcut that process, and nothing says “shortcut” like cash. Why not spend 1,000 bucks if a kiretsu of wealthy angels will listen to your pitch? And make no doubt about it, every entrepreneur who has ever pitched at a PlugAndPlay Expo has been told by at least one “investment consultant” that he’ll have to hire his way to venture capital.   A fifteen grand retainer and five to 10 points are table stakes.

For some entrepreneurs, the gamble pays off.  It’s an expensive way to raise money; before you’re even started as much as 10 percent of the raised capital is gone.  But, again, let’s be real:  the vast majority of startups don’t raise money from name-brand angels or top tier institutional investors.  In fact, the vast majority of startups aren’t successful in raising outside money at all.  These pay-to-pitch venues exist as a resource of last resort for entrepreneurs who haven’t had the good counsel to consider other options.

Railing against investor groups is one way to fight pay-to-pitch sessions, but I doubt it will work.  So long as there are entrepreneurs who relentlessly pursue their dreams, someone will find some way to exploit them.  But again, it needs to be said: no one is forcing those entrepreneurs to pony up for a pitch.  They make that (perhaps bad) choice all on their own.

Picketing investor meetings may make a statement, but if Jason – or any of us – really wants to support entrepreneurs, we’d do well to open our minds and our networks to them, remembering to give as good as we got when we first came to the Valley.