Should you pay to pitch an angel group? What the data says

tennis-serve-technique-pitchWe have seen a pretty amazing wealth of information about financing models and structures come to light in the last 10 years. It wasn’t that long ago that VC and Angel financing were dark arts which few entrepreneurs understood. We have always worked hard to demystify startup financing on StartupNorth and have done a long series of articles which was focused on shedding light on angel investing as an option for entrepreneurs which began in 2006.

But the question we hear a lot is “Should I have to pay an angel group to pitch them?“ 

I’ll keep it simple: Generally the answer is No. By definition angel groups are made up of wealthy individuals who are happy to foot the bill to organize the group.

For example a group might have 100 members all paying $1000 a year. That would mean that the angels themselves are fronting $100,000, which is generally enough to hire a part time (or even fulltime) director or organizer as well as to host the necessary meetings (sometimes members will donate space for the meetings as well or offer other services in-kind).

But if you do have to pay, how much should you expect to pay?

The Angel Capital Association provides direct guidance on this here.

  • 31 out of 81 angel groups surveyed charge fees.
  • Of the groups that charge, the range of fees is $175 – $750
  • with two outliers at $1,500 and $3,000, average = $580
  • average without outliers = $338

We have surveyed all Canadian groups and with the exception of one of the outliers mentioned by the Angel Capital Association above, fees in Canada are at similar levels but are charged less often (closer to 25% of the time).

We have only found two groups in North America which currently also charge a percentage fee (Both in Atlantic Canada, one charging 8% and the other charging approx a 1/2 percent to 2 percent) of the transaction, so generally speaking you will never have to give another fee or piece of the transaction over to the group. We have not completed our research on this and if we uncover any more we will share that data here.

Our advice? Tell the angel group that you prefer to forego the fee completely. If they believe you have a great deal then a shrewd angel group will still want to get an opportunity to fund you. If they say “no way”? Then you have to decide just how serious you think THEY are.

  • http://twitter.com/JohnPhilipGreen John Philip Green

    Amen.

  • http://twitter.com/GilKatz Gil Katz

    You should never buy an expensive lottery ticket.. it’s a joke. It sounds like one of those old programs on ‘how to become a model’ only re-packaged for inexperienced start ups, kinda funny, a great business with high margins, but a trap for the start ups.

  • http://startupnorth.ca Jevon

    There is a small fee for us to do a photo shoot to build your portfolio Gil. All the agencies will love it, we promise!

  • http://twitter.com/GilKatz Gil Katz

    Awesome.. can’t wait.. actually we have it scheduled in a few months once ComicReply (http://comicreply.com) is finally launched.. along with the laundry, spring cleaning, etc. we’ll probably do it ourselves by if need help will keep you in mind.. thanks ;)

  • StarterUpper99999

    Amen brutha Jevon, the startup choir says Amen!

    …And once again, shame on mofos from pay-to-play grps like FAN and their defenders.

  • Peter Vessenes

    I haven’t heard of this, but find it surprising. Angels in the US FIGHT for deal-flow. Deal-flow Deal-flow Deal-flow. Legit, professional angels work extremely hard to see as many deals as possible in the States. There’s lots of writing on this thinking, including Paul Graham’s essays. Ron Conway has pursued a similar approach successfully for a long time.

    Add to this the idea that a startup looking for angel funding is fundamentally about conserving cash while it proves out a market — why are investors forcing a contrary motion while they evaluate the startup?

    I guess I’d pass on principle if asked to pay to pitch; stupid investors or just bad actors are indicated.

  • http://davidcrow.ca/ davidcrow

    You nailed it @google-043bfcde3c590039fe7c670b53fd3ae7:disqus

    I think we’re just trying to continue to share and educate Canadian founders about the perils of the world. PG, Fred Wilson and others have realized that great founders and strong startups are the scarce resource. Not capital.

  • http://www.facebook.com/lana.delrey.9828 Lana DelRey

    Have you ever had an Edmonton glass eye? Even if you have two eyes already, it can be useful. Like in that movie where Carey Grant has a glass eye and two good eyes and he makes people think he’s missing one so they’ll bid higher on his glass eye. Pretty smart thinking if you ask me.

  • http://windigobay.com/ Keith Bates

    Never pay to pitch. Ever.