Why Entrepreneurs should not pay Investors to Pitch

Recently, I read that Angels Den from Europe has landed in Singapore. In their proposal, they are charging startups S$1499 upfront to pitch, and takes a 5% success fee. It also prompted response from local blogger DK that entrepreneurs should not pay investors to pitch. My stance is that entrepreneurs and start-ups should not pay investors to pitch and here are my opinions on this issue.

Probably, as an investor and entrepreneur myself, I have never believed that you should pay consortiums or groups of angels and venture capitalists to pitch. It is totally contrary to the spirit on how the entrepreneurial ecosystem should work. Sometime back, Jason Calacanis, CEO of Mahalo and also host to “This Week in Startups” took on angel groups in US, for example, Keiretsu Forum, Angels Den and Tech Super Club. According to Jason Calacanis, get entrepreneurs to pay for pitching is ridiculous. As a result of taking on these groups, Jason Calacanis led the beginning of an Open Angel Forum to provide a new model for entrepreneurs to pitch for free against these groups.

It is not in my place to offer any opinions about Angels Den, but I will state my opinion why entrepreneurs should not pay investors to pitch.

• Renowned Business Angels and Venture Capitalists who created big companies don’t do that: Ask the famous business angels like Joi Ito or famous venture capitalists from Sequoia Capital, Kleiner Perkins, Benchmark Capital and etc, you do not hear that they require the entrepreneurs to pitch. Instead, they are ready to buy the entrepreneur a meal or drink and spend the time to listen to the ideas of the entrepreneurs. These are the same angels and venture capitalists who produce Google, Facebook and Twitter. None of the top notched companies pay angels to pitch their ideas. Consider another argument, entrepreneurs are trying to set up companies with limited resources and financing, and yet these groups make them pay to find investment. In fact, a lot of entrepreneurs and developers enjoyed the free Neoteny Conference organized by Joi Ito last year. The people who attended (including myself) even learned more abut term sheets and valuation. Try to make a guess how much it cost to get Joi Ito to talk about start-ups and new venture financing: Absolutely Free! and I did not add the free lunches and coffee breaks too.
• Even agencies Singapore Government make it free for entrepreneurs: If you have recently watched the iMatch conference, where MDA organized entrepreneurs in Singapore to pitch in front of an international consortium, you do not hear the Singapore government will tell you to pay for pitching. In fact, they enlisted the services of the incubators in iJAM and several business angels to help the companies to prepare their presentation for the investors. It’s probably one of the things I praised the government agencies like SPRING and MDA are doing with the iJAM and TECS schemes.
• If you fail many times to get an investor, you will end up losing more money doing this: Here is a way to think about this. If you pitch your idea and the investor did not respond to you, it just means that he or she has no interest to invest in your company. Your job is to iterate from the reason to why the investor did not think that it’s a good proposition to invest in your idea. If you are serious about your start-up, you will put your own money to make it work than to spend the money to pay some middle men to get you investors who may or may not put money into your company.

I will leave the entrepreneurs to decide whether to engage with these groups. Ultimately, in the ecosystem, there must also be a natural selection to decide the weak and the strong. Perhaps, having these groups help to make that distinction.