Thanks Frank. Been one of them weeks and needed a pick me up.

Peace.

Thanks for joining us in OKC-hope you found it valuable.

I need to find those Angels that are real Angels.

Those that can understand a persons limitations.
John Dilts sounds like one hell of a man.

Frank, I saw your email and went to their website. You make a great point about Keiretsu. Maverick Angels has no fee to submit a proposal but you have to take their $495 pitching class before you are allowed to pitch and then pay $1,000 for each chapter that you pitch to.

Therefore it does sound like Keiretsu. At Keiretsu's website they don't highlight any great successes from their portfolio; they just give an alphabetical listing of names with no further information. Did they IPO, were they acquired, or other; who knows? Divide what you see by the 750 members and the actual activity turns out to be smaller.

With no remarkable achievements at Keiretsu and Maverick following Keiretsu's game plan, Maverick doesn't seem to have an interest in attracting the Big Ideas. According to Keiretsu's portfolio list and press releases, when they want the Big Idea they invest millions of dollars in a VC fund, those funds don't have fees to submit a proposal. They claim that the VC funds they are invested in are doing well.

When are these silly pitching schools for the small idea going to disappear? I need enough investment for an initial small production run that will sell like hotcakes. The speed of the sells and customer testimonials will attract VC funding. If not, no pitching school is going to accomplish what the sells volume cannot. The way I see it, I'm being asked to pay for and spend my time on something that does not affect the final outcome and will not lead to anything productive.

The way I know this is not productive is that they want $1k for each chapter I pitch to. If this was an effective screening process, before asking for my money they would let me know who is interested and how much they are prepared to invest in my particular venture. There would also be only one pitch to all those interested. Pitching only one third of the interested members at a time and paying $1k each time shows a lack of seriousness on the part of the investors.

Maverick says it is interested in many things from pharmaceuticals, to food products, software, greentech, real estate and so on. No man is an island. It is not the goal of any serious entrepreneur to pitch to an entire chapter; just to those with an understanding and interest in his particular sector. It doesn't help to have those with a lack of understanding chiming in. Why pay $1k for that? Separate chapters identified by investment focus rather than location make more sense. Divide the number of areas that Maverick focuses on by the number of members and the available money for a single investment starts to get very small.

Dr. Saad, who was previously backed by TCA has a video on the internet expressing a negative experience of the Keiretsu model. He was disappointed in the turn out to hear the pitches and the fact that those in attendance did not appear to be there to hear his pitch. He didn't see that the money he paid got him any effort to match him with particular members who might be interested. For the money he paid he was allowed to pitch to a room of uninterested investors.

Entrepreneurs with a big idea are better off submitting their proposal to a fund where there is no fee and the amount of the fund and the education and interests of the fund manger(s) are all made known. It is also better to avoid those who rely on pitching rather than the creation of results to attract more interest.

Maverick may be good for the entrepreneur with the small idea who needs another way to differentiate himself such as the high fees and pitching skill. When these pitching schools can show that they increase product sells, then they can claim to be adding real value.

John Doerr of Kleiner Perkins Caufield & Byers, one of the most reputable VCs at one of the most reputable VC firms, says "Most of the profits in the venture capital business if not all of them are made by about 5% of the firms". We don't see the big money makers following this model of entrepreneurs paying a fee. They also claim to be swamped by proposals just like everyone else. These more successful firms pay the screeners rather than ask the entrepreneur to do it. Therefore the lack of a fee must be a sign of successful investing and a sign of the investor's skill, knowledge, value as a mentor, board member, network of contacts for attracting key employees and additional investors.

Charging me a fee, especially a high one in triplicate causes me to doubt your ability to add value to a Big Idea. Although I feel certain that you can add lots of value to a small idea.

It is cheap and easy to separate the chaff from the wheat. You only need to screen for two requirements:

1. The entrepreneur must show a market size of "x" amount per dollar invested.
2. The entrepreneur must show a markup of "y" amount per "z" number of sells.

By adjusting those numbers administrative costs can be cut to insignificant levels per investment achieved.

If you are not willing to cut your administrative costs, how am I supposed to believe that you should be my mentor or on my board? By not using this simplest of methods for effectively separating the wheat from the chaff, you are showing me that your real interest is in selling $495 seats in your pitching class. Of course you have to let some of the chaff through to pitch or else people will stop enrolling. There is no incentive for me to pay the $1k to $3k since I am not going to be separated from the chaff.

I also don't see that the investors will take me seriously if I am foolish enough to pay these fees.

Frank, you were right. My blood did boil, listening to John add fee upon fee, all with the enthusiasm of a community activist volunteer. I find the concept repulsive, and fear that first time entrepreneurs will be sold this process like a used car, most often by the "chapter president" in each location, each of whom receives a significant slice of every "sale".

John will try but not be able to oversee the individual chapter presidents, as they each find unique ways to promote their cash-producing "offering" to entrepreneurs.

He did not discuss the composition of the audience during pitch sessions, only the expectations of members and the annual cost for membership. To fill seats, he or his chapter presidents surely will have to offer comp attendance to service providers, as does Keiretsu Forum. That's a slippery slope where many of us have heard horror stories of entrepreneurs preyed upon by members of the audience masking as investors.

Sorry. I am not convinced.

Hi Frank,

Jason Calacanis just came out, today, blasting groups that charge to pitch and specifically mentioned these two groups.

- Joe

Jason posted his e-mail here:
http://calacanis.com/2009/10/09/why-startups-shouldnt-have-to-pay-to-pitch-angel-investors/

Fred Wilson jumped into the conversation this morning:
http://www.avc.com/a_vc/2009/10/paying-to-pitch.html

Frank - As a corporate attorney representing entrepreneurs, I generally agree in principle with Jason Calacanis's position that it is "inappropriate and predatory" for angel groups to charge entrepreneurs fees to pitch them; however, I think it is important to distinguish among the different angel groups and their respective practices. Indeed, if (i) the fees are reasonable/de minimis and are adequately disclosed and (ii) the angel group is providing a legitimate service to entrepreneurs, there may be compelling reasons to support such a fee-based service. That's why I have strongly recommended in a recent blog post (see http://bit.ly/hAYeu)
that Jason Calacanis and John Dilts meet face-to-face and have a live debate (in the great American tradition), which can be shown on the web to all interested parties via ustream. Many thanks - and keep up the great work. Scott