Saturday, October 10, 2009

Passion, lack of passion, Jason Calacanis, and New York Private Equity Forums

I just read a Jason Calacanis rant, and he was particularly steamed. In the post, entitled Why startups shouldn’t have to pay to pitch angel investors, this wasn't just a business issue - for Calacanis, this was a moral issue. Here's how he began:

When confronted with an abuse of power, an injustice or a scam I’ve developed a really effective technique: I blog, tweet and whine about it passionately for as long as possible. Basically, I do this until people get sick of me (some of you reading this have at various times told me this–I’m sorry!). I’ve learned over the years that this process is wildly effective in the long-term and has the added bonus of being great therapy. It’s a way for me to relieve the dissonance associated with the injustice, perceived or real, that I see.

So, I fight.

And if you read 1, 2, 3 paragraphs down, you'll see what is he fighting for.

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.

Calacanis goes on to detail what he's heard, and why he thinks it's morally wrong. In the process, he states:

I was sent details of one epic bastard that wanted $10-$25,000, plus a couple of percentage points of the value of the deal (you’ll find out who later in this email).

Actually, he names several groups that charge presenters, but my eye focused on the one who required the largest dollar value: (stunnning $14,500 to $25,000 plus 3-5% of your raise to present!) We’ve received information that Mike Segal of Joshua Capital Partners runs this forum that is looking for up to $25,000 and/or 3-10% of how much you raise! I’m in shock by this one… could this possibly be true? Do you know anyone who has attended this event or, worse, actually paid these fees? If so, I need you to email me immediately.

Well, I've never attended one of these angel investor gatherings - I don't think that my Empoprises blog empire is about to get five million dollars in funding - but it's easy enough for me to find the New York Private Equity Forums website and get their side of the story. It appears that they want to charge everyone involved, but I concentrated on their rationale for charging the presenters. But, rest assured - before detailing the advantages of their forum, this assurance is given:


So I guess they're not COMPLETE money-grubbing jerks. And hey, I didn't have to pay a fee to view their website. (Obviously News Corp and the Associated Press haven't gotten into the angel investing industry yet.)

Eventually, they do talk about fees:

As our events are not subsidized by vendors or service providers, companies are required to pay a Presenter Fee based upon a number of visibility options. Our forum could be best described as a co-op for the 12 to 15 companies that present. We underwrite the events and the presenting companies share in the cost. They do so because our model ensures them an audience of nearly 100% qualified investors, for an expenditure which generally pencils-out to less than $100 for each capital source in attendance.

In essence, their argument is that they pre-quality both the presenters and the investing attendees, and that it is therefore a worthwhile investment for you to pay, unlike (in their view) other disinterested investors who probably couldn't care less about what you're selling. So, in their view, their "less than $100 for each capital source in attendance" fee is economical:

We sincerely believe that if a company's potential is truly compelling, and that management's vision can be effectively communicated, it will not find a more cost-effective way to reach potential funding sources directly, than by presenting at the upcoming event. Again, this is a unique opportunity to get your message across in “one place and in one day” to active serious investors who want to see fundable deals.

I look forward to hearing from you and learning more about your funding requirements.

Kindest regards,

Mike Segal, President
630 W. 246th St. Suite 728
Riverdale, New York 10471
Direct Line: 347 346 6650

Ironically, MJ Segal Associates may be a little TOO selective in some instances. You see, they want more than your money. There are particular qualifications for the presenting companies:

With respect to the Presenter qualifications, we favor companies with some revenues, but will also consider pre-revenue development-stage companies with new platform technology or some proof of concept. Revenues forecast by the third year following funding should approach $15 to $20 million.

When I read that statement, my immediate first thought is that Twitter wouldn't have qualified for funding when it started, and probably wouldn't qualify even today. Yet there are people who are more than willing to plow investment dollars into Twitter...and Twitter probably didn't have to pay for the privilege of pitching. I'll grant that Twitter is an outlier example, but it's instructive, and helps to illustrate what angel investors actually do.

Let's return to Calacanis:

I’ve been in the startup scene since 1994 and in those 15 years I’ve met, interviewed — and in some cases, pitched — the most powerful investors in technology. None of them have ever charged me a dime for doing so.

[T]he more mature — or flat out better — startups would never pay to present. The best ideas by the best entrepreneurs get socialized instantly. As an new angel investor myself, one who has only done two investments of $25,000 and $50,000, I can tell you that I already get flooded with pitches. I can’t even imagine the volume of pitches real angel investors like Matt Coffin, Sandy Climan, Sky Dayton, Tony Hsieh and Ron Conway get inundated with....

Now, before you go saying “Jason is connected and he has access to angels” remember that I hustled my way into this industry from nothing. I networked at free conferences and figured out a way to get on the radar of uber-angels like Ted Leonsis, Fred Wilson and Mark Cuban. They paid attention to me because I had good ideas. If my ideas had sucked, they would have ignored me. Period.

It's significant that people such as Mark Cuban, as well as others who come to mind such as Mike Markkula, are people who are passionate about things. Maybe they're passionate about basketball or IHOP or whatever, but if all goes well they're also passionate about what you're doing. While a return on investment is obviously important to them, that passion also has to be there.

After thinking about this, I went back to the MJ Segal Associates/New York Private Equity Forums website, but this time I went to the invitation to investors (rather than to the invitation to presenters). The question that had formed in my mind - is Mike Segal seeking the PASSIONATE investor who will make a difference, or is Segal seeking money? Here's some of the language that was used:

This is an Exclusive “Invitation-Only” Private Event. Advance Reservations are Required.

Conference Includes a Banquet Luncheon and Gala Dinner/ Reception w/ Live Jazz

Party at the Yale Club, people.

(Companies chosen to present at the forum will feature breakthrough technologies and original business models which can "shape the future" of their respective industries.)

This is the closest to any statement of passion that I found - and it was in the description of the desired presenters, not the desired investors. Segal talked about the networking opportunities for investors, but didn't really specify the types of investors that he sought.

On a whim, I looked up the website for Fred Wilson's Union Square Ventures to see if he happened to use the P-word. He did:

We look to back passionate, experienced entrepreneurs who are focused on creating highly scalable services and significant value propositions for their end users.

Now obviously Wilson wants a return on his investment, but he's also seeking the passion thing. And, try as you might, you can't use $20,000 to buy passion. Well, I guess you can buy one week's worth of passion for $45,000, but it's not the same.

(Picture source, license)
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