Several angel investor groups are battling over whether it’s acceptable to charge entrepreneurs to pitch their startups to members, and the war of words continues to escalate.
On one side of the debate stands Jason Calacanis, a California investor and entrepreneur who’s been conducting a one-man campaign against five angel networks—the
Last week, Calacanis, CEO of Mahalo.com, a human powered search engine that he founded in 2007, sent a blog post to 17,000 people on his e-mail list claiming that if the angel investment groups didn’t stop charging entrepreneurs, they’d be targeted for “elimination” with “competing, fee-free events directly opposite your events,” which investors would be encouraged to boycott.
A few days later, he sent a second post that listed anonymous complaints against a couple of the groups, and he claimed that the Keiretsu Forum was planning to sue him.
“If they are,” he wrote, “my official response is, ‘BRING IT ON!’”
Not so, says Randy Williams, founder and CEO of Lafayette, Calif.-based Keiretsu Forum, which has chapters worldwide.
“I have 850 members. If anybody is authorized to sue, it’s me,” he says.
Although he says he and his family feel hurt by the criticisms, he says: “Keiretsu will get tremendous exposure because of this. More companies will come to us and we’ll fund greater companies because of this.”
Calacanis is not a disinterested party in this conflict. He previously launched Rising Tide Studios, which hosted conferences and produced the Silicon Alley Reporter, a newsletter that chronicled the Internet and new media industries. After selling the company, he co-founded Weblogs, an operator of a blog network, which America Online bought for a reported $25 million in 2005.
He currently runs a well-attended conference in San Francisco for startups called TechCrunch50 that’s held at about the same time as a competing conference for startups called Demo, where entrepreneurs pay several thousand dollars to present.
TechCrunch50 charges entrepreneurs to attend its conferences although it’s free for the entrepreneurs to present to investors. Neither Demo nor TechCrunch50 invests in startups.
Williams says that he thinks Calacanis is using the campaign to build his personal brand and put pressure on competitors, going after the angel groups the same way that TechCrunch50 has competed against Demo.
Whatever Calacanis’ motives, there’s a lot of money at stake. As the venture capital industry continues to shrink—with fewer VCs raising less money—angel investors are becoming a more important source of funding for young companies.
Although angels and institutional VC firms invested less money last year, investments by angels dropped more as the personal wealth of individuals was hammered by the stock market decline. But the number of deals funded by angels rose, and they participated in more than 14 times the number of deals as VCs,
In 2008, angels invested $19.2 billion in 55,480 deals, a 26.2% drop in dollars compared to the year before, but a 2.9% increase in the number deals, according to the University of New Hampshire’s Center for Venture Research.
Investments by venture capitalists, however, dropped in dollar amount and the number of deals. VCs in 2008 invested $28.3 billion in 3,808 deals, a year over year decline of 8% and 4%, respectively, according to the National Venture Capital Association, based on data from Thomson Reuters (publisher of PE Week).
One challenge for entrepreneurs, says John Dilts, who left the Keiretsu Forum three years ago to found Thousand Oaks, Calif.-based Maverick Angels, is that angels are fragmented and most angel groups are run by volunteers.
A bigger problem may be that the old model of funding early stage companies is broken and all investors are missing out, he says. He says that Maverick Angels, which is one of Calacanis’ targets, charges entrepreneurs for a multistage process that includes a bootcamp and mentoring. He says he is also expanding internationally.
“New opportunities are coming up faster, entrepreneurs are doing more with less and there needs to be streamlining,” Dilts says.
Other angel groups, however, continue to debate how best to run their groups. While Williams and Dilts stand firmly behind their groups’ policies of charging entrepreneurs—they have costs to cover, they say, and they offer value for the money—
“We compete to an extent with other angel groups that charge entrepreneurs, but we feel it’s important not to run a business generating profits from entrepreneurs,” says Chairman Ralph Mayer. “Once you’re on that slippery slope, the money becomes important.”
Mayer adds that most of investment opportunities at Tech Coast Angels come referred by other members.
Chris Gill, president and CEO of the non-profit
“When I got involved with SVASE, I had the same outrage that Jason had,” Gill says. “How can groups justify charging thousands of dollars like some of these angel groups do?”
But Gill says that he now recognizes the services being provided are part of the business model of angel groups.
“Entrepreneurs can make their own choices,” he says. “It’s not up to me to police this. It’s up to the market.”