Thoughts on startups by investors that
fund them & entrepreneurs that run them

Pitching is never free.

If you are new to the startup space and Angel investing, you probably don’t realize that some groups of Angel investors charge entrepreneurs a fee to pitch to their groups. This practice has caused a rousing debate among key players, with some calling it a scam, and others defending it as necessary to cover expenses.

Jason Calacanis, a well-known entrepreneur and Angel investor, opened the debate a while back in a strongly-worded article on his blog which attacked the practice on ethical grounds, and called out popular Angel groups charging fees ranging from several hundred dollars to $5,000 or more.  He calls these a scam, and “Angel group” payola.

Others, including noted Angel David S. Rose, founder of the New York Angels and Gust, have spoken out in defense of the practice, at least for smaller amounts, commenting that, aside from covering expenses, it also provides a degree of “filtering”.  In reality, these fees are usually trivial compared to your real costs of preparing, traveling, and presenting to investors.

While I’m definitely a proponent of full disclosure to prevent surprises, I see nothing wrong with experienced investors charging a fee for listening and evaluating startup proposals, and providing feedback (or funding) to entrepreneurs to help them achieve their objectives.  Lawyers and other professional consultants have done this for generations.

I have long recommended that entrepreneurs do their own “due diligence” on potential investors and Angel groups before they waste their time and hard-strapped funds, and here are some additional thoughts for entrepreneurs thinking of paying to pitch their case to investors:

  • Be realistic about expectations of funding success.  According to the latest data from Gust, only about 3 out of 100 companies who initiate the formal funding request to Angel groups actually get funded.  Entrepreneurs who expect to get a hit the first time (or first five times) they pitch their story cold are likely to be disappointed. 
  • Improve your odds by networking and warm introductions first.  With the rise of social tools, potential investors are increasingly more accessible outside the pitch room. If they know you by a warm introduction from a friend well before the pitch, or you have one or more advocates in the room, your odds of success go up dramatically.
  • Evaluate feedback from individual investors first.  If you have been given private introductions, but the investors declined to hear your pitch, don’t assume that paying money or presenting to larger numbers will solve your problem.  There is probably a fundamental problem with your business or how you present it.  Find and fix that first.
  • Weigh the cost against the track record and “reach” of a specific Angel group.  A fair question to ask any Angel group, fee or no fee, is “What is your track record of funded investments, versus number of pitches?”  Spending $1K to get $1M is usually better than spending nothing to get nothing. Does their “sweet spot” match your type of business?
  • Consider your startup stage.  If you’re in seed-stage with young, first-time founders, and think you’re ready to raise some capital, your odds of funding success are so low that I would skip the fee alternatives. On the other hand, if you have solid revenues, good growth, and need to scale faster, it may be worthwhile to get to the best Angels in town.
  • Don’t wait until you are desperate. Investors can spot an out-of-money entrepreneur a mile away. They won’t even notice that you are angry because you had to pay for the opportunity, and they won’t fund you on principle, since it doesn’t appear that you can manage your plan very well.

I’m convinced that most Angel investors are not out to squeeze a dollar from poor cash-strapped entrepreneurs, as implied by Jason.  They are, however, always looking for better ways to make use of their time, and quickly find the entrepreneurs who have the best case and the least risk.  Their only real gain is from a win-win situation, and it’s up to you to take the right first step.



All opinions expressed are those of the author,  and do not necessarily represent those of Gust.


Written by Martin Zwilling

user Martin Zwilling Founder and CEO,
Startup Professionals

Martin is a veteran startup mentor, executive, blogger, author, tech professional, and angel investor. He is the Founder and CEO of Startup Professionals, a company that provides products and services to startup founders and small business owners.

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8 thoughts on “Pitching is never free.”

  1. Jay Clarke says:

    Great post Martin. It’s interesting that people would make a deal (big or small) about upfront fees, but then have little to no care at all about any fees that come about once you are working with the company. But you are right, having a fee, big or small, acts as a filter and in effect works to separate those with intent from the spray and pray tactics.

  2. Stephen Duke says:

    Would I pay $2000 to pitch to a group of so-called “Angels” in Edmonton?  No.  Especially because there was no way for me to qualify them as individuals or as a group.  Without a track record of deals or any other metric, I found that group unrealistic.  I think they just want to play Dragon’s Den.  About as unrealistic as the dude pitching the perpetual pump that runs on air – LOL.  

    Would I spend $3000 to have two days on the floor showing off product at the Spring DEMO Showcase in Silicon Valley – You bet.  I like my chances better with that one.  

  3. Stephen Duke says:

    Jay raises the other issue that is adjacent to this subject – the “upfront fee”.  It’s a scam.  Real Angels and real VC’s don’t charge upfront fees.  Two weeks ago I was introduced to a bird-dogger that wanted to introduce me to (can’t remember the name) group of super rainmaker “consultants” but they charge an upfront fee of $50k, so better “…ask for as much as you think you will need”.  He was offended by my rejection.  He said these guys have done so many deals with his clients and they are virtually guaranteed to fund the round or “…they wouldn’t take on the project”.  Sure, that $50k prevents them from taking on unfundable deals – right.  If they were so good at picking the right startups to fund, they wouldn’t need to charge a fee upfront.  
    What’s the best way for a financial consultant to look like a Fee-Mongering Scammer?  Charge upfront fees.  

    This upfront fee thing applies heavily in Real Estate Development where there are so many valid hard-money lenders that do charge big upfront fees i.e. north of $250k just to review a project and table a lending commitment.  But, it’s a crapshoot if that offer to finance will be acceptable or just a non-starter.  Been there, done that, written it off – more than once.  

    I don’t recommend anyone pay upfront fees because when you really look at the contract, you will see there are no performance representations.  Meaning they can really just take your money and do nothing more than talk to you about your project for a few days and offer you a deal you can’t close – while they are on to the next sucker.  

  4. Norman_pappous says:

    We keep getting told that risk capital requires management who demonstrate an efficient use of capital. Yet somehow this author believes that paying fees for a 1:100 shot at getting funding represents management efficiently using their capital. The contradiction is as plain on the nose on my face.

  5. davidsrose says:

    The first critical factor in this discussion is whether or not the INVESTOR is ‘making money’ off any fees prior to the investment. If the answer is “yes”, then I would strongly suggest ending the conversation immediately and moving on. Any INVESTOR who charges a fee to consider whether or not to make an investment is way out of line.

    On the other hand, if the fee is going to a THIRD PARTY to facilitate getting investments from others, the most important question (and, indeed, the ONLY one that matters) is “will paying this fee result in my getting an investment?”  The problem, however, is that since angel funding is a 1 in 40 shot, and venture funding is a 1 in 400 shot, it is virtually impossible to answer that question directly, so we need to keep going along the decision tree:

    “Can this individual person who is charging me a fee actually introduce me to investors who are likely to fund my venture?”  In most cases [I’d say ‘all’, but there are always exceptions] the answer is NO. Anyone who purports to sell their access to investors is almost by definition the kind of person who doesn’t have such access.

    “Is this commercial venue an event where real investors actively seeking my type of deal are likely to appear? And if so, is the cost of presenting commensurate with the likelihood of attracting investor interest?”  This is the area with the biggest range of possibilities. For an interesting startup exhibiting at the DEMO conference, the answer would typically be YES. For a startup of any kind presenting at a high-cost “Summit” purportedly to a room full of venture capital investors, with a $15K fee, the answer would typically be NO.

    “Is an application fee warranted to present to a group of angel investors?” The above analyses apply here as well. At one end, if the group is a not-for-profit organization (as most angel groups are) and the fee is under $500 (as most are), the answer is almost certainly YES. You have little to lose, and even the initial feedback and presentation experience is worth it. At the other end of the spectrum, if the group itself is a for-profit and the presentation fee is over $1000, the answer becomes more of a MAYBE, with much depending on your relative resources, and the track record of the group at making investments.

    So the bottom line, as is often the case in the real world, is “it depends”. One should neither blithely assume that there is any way to shortcut the fundraising process by paying someone for access, nor should one necesarily bring out the torches and start a jihad against a non-profit group of volunteer investors charging $100 to cover their room rental costs.

  6. Marty Zwilling says:

    All the Angel investors I know evaluate sometimes hundreds of proposals, all gratis, in hopes of finding the one that can win, both for the entrepreneur as well as the investor.  Most are frustrated and dismayed at the “spray and pray” tactics of some entrepreneurs, so fees are sometimes used as a filter. 

    I agree with David Rose, that anyone whose intent is to make money off the fees, rather than the investment, should be avoided at all costs.

  7. Gianinafb18 says:

    Does Gust charge any fee to sign up as a entrepenuer?

  8. Ashton Kutcher says:

    If you’re not already making money, nobody is interested. Not a single Angel nor VC is interested in your project. They want to see you already making money. then when they invest and YOU continue to make money, they take the credit as if THEY discovered your idea.