The Price Of Money Part 2: At Least You Can Eat Catfish

03/11/09

By Doug Richard

As bottom feeders go, catfish are the best eating. Fried in bread crumbs they make a good meal. I cannot say the same for the people who prey on nascent entrepreneurs and young startups.

The defense these networks make is two-fold: that they provide support before the event and that they are really corporate finance specialists. As I mentioned in Part 1 of this series, I will only believe an entities’ assertions, implicit or explicit, that they are serving the corporate finance role, if, when they present themselves to...

...the public (ie their website) they show the tombstones of prior deals which they would do if they could to persuade new potential customers to work with them; but which they wouldn’t do if their hit rate were very low and they thought that showing so few would put entrepreneurs off from paying them a fee. It is, to me, the bellwether indicator: are they bragging about success or hiding failure?

An example of a worthy angel network is Pi Capital run by David Giampaolo. Pi Capital does not take a fee from the entrepreneur because Giampaolo views it as an inherent conflict of interest.

Not surprisingly, Pi is quite candid about their successes. More to the point it serves as a reminder that there are business models for intermediaries to run a successful business marrying angels and opportunities without charging the entrepreneurs.

Getting back to my original point though that angel networks provide essential training is also bordering on a scam. By tying the preparation to the money raising they are of course claiming that everyone needs it which is absurd and that their pricing because it is bundled cannot be directly compared to the same type of service provided elsewhere. Tying is the oldest game in the... continued on page two >

 

 

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