Watch Out for Dodgy Seed Capital Raising Fees
As many of you know, I’m not really a fan of using money middle-men to raise seed capital or any capital for that matter. Capital raising should always be the responsibility of a senior team member who hopefully has connections. When you hand over this key function to outsiders the results are rarely good.
These days the lone “middle-man” is often replaced by a group such as an angel investor club. The problem here is that these groups tend to create overhead that then needs to be covered. Moreover some are for-profit. This can lead to a Ticketmaster-style cascade of fees. Some well-know entrepreneurs are now leading a charge against groups that overcharge cash-starved entrepreneurs for the simple opportunity to present.
I believe that there is simply no way to justify charging a startup a four figure fee for the privilege of pitching an audience of investors. Investors should make their money at the back end or liquidity event not before they even invest. Moreover, the organizing work can and should be done by student volunteers. In exchange for providing some pro bono labor they get to meet investors, learn how startups are evaluated, and see what’s hot in the market. All of this is ample reward.
Back when I started working with technology companies, we would book a meeting room for free at a local university. A few student volunteers would staff the registration table. The engineering or business school, or both, would pitch in for the donuts and coffee, and we were off to the races. A line up of startups would then take turns pitching for a total 60 to 90 minutes followed by a meet and greet session.
We didn’t need a professional staff to run the meetings. It was all done for free by volunteers “for the love of the game.”
Perhaps we need to start boycotting the groups that overcharge? I can reluctantly accept charging a nominal fee of say a couple of hundred dollars to companies to cover overhead and ensure that only serious entrepreneurs apply. However, charging over a thousand dollars smacks of exploitation.