This month, there’s been a lot of talk about the pay-to-pitch model certain organizations employ for startups. And most of it has not been positive.
Leading this discussion has been StartupNorth, who over the past week and change fired off three blog posts on the suddenly hot topic. David Crow ignited the fire with an article titled Atlantic Canadian Founders Deserve Better Than FAN. This was followed up by Jevon MacDonald penning If not an Angel Network, then what? and The only model that matters: Founders First.
After Crow so thoroughly flamed the First Angel Network in Atlantic Canada, we wondered how the group would respond. Today, FAN cofounders Ross Finlay and Brian Lowe issued an official response to the heated (and thus far one-sided) debate in a post written for Entrevestor.
“The First Angel Network, or FAN, goes where other investors fear to tread,” the cofounders write. “We are proud of the performance of the companies our angels have supported. Since 2005, we have invested in 22 early-stage companies. Only two have failed, while two FAN-supported firms have successfully exited—one after being sold for 1.5 times the organization’s investment.”
Here’s how they address the pay-to-pitch portion:
“Entrepreneurs get an hour or so to pitch their company, and then enjoy a working dinner with some of the most successful business leaders and angel investors in the region. FAN charges a $3,000 fee to each company that enjoys this opportunity,” they explain. “We are clear from the outset that the fee will apply, and common sense suggests it is fair to entrepreneurs. Every one of FAN’s presenting companies has been supported by angel investment funding.”
“In addition, companies are charged a consulting fee on the money raised through FAN’s angel network. This fee ranges from 0 to 8 percent, depending on the individual firm’s need for investment readiness support and the complexity of the investment,” they continue. “A minimum of one-half of this fee is immediately re-invested in the company.”
According to Finlay and Lowe, the fee covers the costs to perform due diligence on the investment opportunity, on behalf of angel investors and entrepreneurs.
“Our critics have deliberately misrepresented this fee,” they affirm.