Start-Ups Get Free Chance To Pitch To Angel Investors

Start-Ups Get Free Chance To Pitch To Angel Investors

By SCOTT AUSTIN 

Wall Street Journal

JUNE 17, 2010

Start-ups hungry for cash are often expected to pay a fee to pitch to angel investors. But some free services are cropping up to counter the so-called pay-to-pitch model. 

Earlier this year, Internet entrepreneur and blogger Jason Calacanis started Open Angel Forum, which holds free pitch events in various cities where entrepreneurs selected from a pool of applicants can pitch to about 20 to 30 angel investors. At Open Angel's first event in Boulder, Co., in February, three of six companies found new investors.

Another free service, AngelList, started in February by angels Naval Ravikant and Babak Nivi, vets dozens of deals before highlighting the best ones in emails each week sent free to a group of 200 investors.

Messrs. Ravikant and Nivi—who also run Venture Hacks, a for-profit site that provides advice to start-ups—say they have received pitches from more than 1,000 start-ups, mostly consumer Internet companies. Of the 48 companies featured so far on AngelList, about half have received funding, they say.

Marco Zappacosta, founder of Thumbtack Inc., a site that lets people book services like tutors and dog walkers, won three commitments from angels after pitching his company in March at an Open Angel Forum event in San Francisco. He then turned to AngelList and received three more commitments to close a funding round at $1.2 million in June. The service, he says, "is good at getting worthy start-ups into the inbox of investors."

The free services come in the wake of recent criticism of the pay-to-pitch model, which some angel investors have argued is justified because they offer advice and should be paid for their time. Mr. Calacanis, an outspoken figure in the tech industry, last fall publicly admonished angel investment groups for charging bootstrapped entrepreneurs hundreds, if not thousands, of dollars to pitch to them.

More on Angels

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Last month, Chris Hurley shut down his Revolutionary Angels service that proposed to charge entrepreneurs $4,995 for advisory services and entry into a business-plan competition that would award $250,000 to the winner. After soliciting submissions in October, Revolutionary Angels received only 20 entries, far short of its goal of 60 participants.

In retrospect, "$5,000 is a lot of money for early-stage entrepreneurs," said Mr. Hurley.

But the new free services aren't entirely altruistic. Both AngelList and Open Angel give their founders inside access to companies in which they might be interested in investing, and Messrs. Ravikant and Nivi can use AngelList to indirectly market Venture Hacks' start-up guides.

"We're just trying to open up the way entrepreneurs and angels connect," said Mr. Ravikant, a serial entrepreneur who has founded companies such as Epinions Inc.

Not all entrepreneurs have won investments. Jen Lilienstein, one of six entrepreneurs selected to pitch last month at an Open Angel forum in Los Angeles, hasn't raised any cash for her start-up, Kidzmet.com, which helps parents enroll their kids in extracurricular activities.

But Ms. Lilienstein says the event was helpful because angels stuck around for hours to proffer advice. Ms. Lilienstein says she is now in "a dating phase" with investors and continuing conversations.

Some pay-to-pitch services have changed their business models amid the criticism. In September, FundingUniverse LLC stopped charging a $125 fee for entrepreneurs to pitch at its events, attended by angels and loan providers like banks. The winners of its events receive a few thousand dollars in in-kind services, and sometimes, investments.

FundingUniverse does, however, sell products through its website, such as a $99 online "diagnostic tool" that analyzes a business's funding prospects. "We think the services we do charge for are perfectly acceptable," says Alexander Lawrence, a partner at the company.

 

Write to Scott Austin at scott.austin@dowjones.com