Jason Calacanis has declared war on organizations that charge entrepreneurs to pitch investors on their startups. With "boiling blood", he used a post on his blog this weekend to shame these organizations and to threaten them with extinction.

Singled out: a number of groups, including the well-known Keiretsu Forum. All of which charge entrepreneurs fees to present their businesses to "rich angel investors" who Calacanis believes are exploiting "poor" entrepreneurs.

Not surprisingly, Calacanis has received plenty of support. Robert Scoble wrote "It is ridiculous startups have to pay to pitch". Venture capitalist Fred Wilson thinks "it is great that Jason is outing" these "scams and scam artists". And ReadWriteWeb's Jolie O'Dell even hinted that the pay-to-pitch events these organizations run should be made illegal.

While I generally don't like pay-to-pitch, I have a different perspective.

First, I take issue with Calacanis' statement that "the rich people (angels) are charging the poor people (startup entrepreneurs desperate for cash to fuel their dreams) to hear their pitch". Let's be honest here: anyone who has the luxury of building a startup and making the rounds seeking investment probably isn't worrying about putting food on the dinner table at night. Some entrepreneurs may be working out of apartments, living on a diet of cheap pizza and beer, but it's a bit disingenuous to use the words "poor people" next to the words "startup entrepreneurs".

Second, while I'm sure there are shady pay-to-pitch purveyors out there, having had a close friend in the States who was a consultant to a startup that considered presenting at the Keiretsu Forum several years ago, there are a few things Calacanis misses:

  • The Keiretsu Forum is a legitimate organization whose members, all accredited investors, have invested well over $100m in startups. Many of the companies funded are listed publicly.
  • The "rich" angel investor members of the Keiretsu Forum chapters aren't charging fees. The Keiretsu Forum itself charges a presentation fee and as far as I know, the investor members aren't receiving any profit or compensation from it.
  • Companies are only required to pay a presentation fee if they are offered the opportunity to present at a meeting of the full forum in their area. Before such an offer is made, they must pass a deal screening presentation.
  • All investments are made directly between presenting companies and interested investors. The Keiretsu Forum isn't involved in the transaction and doesn't charge any success fees. Which is worth noting because there are hired guns who do fundraising for startups -- almost all of whom take a success fee that is based on the amount raised. While pay-for-performance is nice in theory, that can easily turn out to be more expensive than a reasonable up-front retainer, which, of course, most of accomplished hired guns ask for too for obvious reasons.
  • According to the Keiretsu Forum, presenting companies "usually have accomplished a $500K to $1.5MM friends and family round before they reach us". So, in the Keiretsu Forum's case at least, it's hard to make the argument that cash-starved entrepreneurs are being exploited.

All of this said, the company my friend was working chose not to present at the Keiretsu Forum. Its management decided that the Forum's fees were hard to justify, and I don't disagree. Personally, I've never been impressed with what I've heard of the Keiretsu Forum and organizations like it. That doesn't mean, however, that startups can't evaluate their positions and come to a different conclusion -- that their fees are justified.

But all of this is missing the point. Let's talk about bigger issues. Like the fact that an entire cottage industry has been built up around technology startups and most of the money in it comes from hopeful entrepreneurs and startups.

Calacanis, for instance, is a partner in the TechCrunch50 conference. Startups selected to pitch to the conference's expert panels don't pay to get on stage, but Calacanis and company aren't footing the bill for travel and accommodations, either. Companies that aren't selected to pitch can choose to participate in the DemoPit and two of them earn the chance to pitch. But the DemoPit requires a conference pass. TechCrunch50 discounts the pass but it isn't free. Approximately 100 companies participated in the DemoPit this year. Now are all the tech conferences like TechCrunch50 that entrepreneurs are told offer the best 'networking opportunities' exploitative? I personally don't think so, but one could easily take the facts from this paragraph to make the argument.

For anyone really into defending the entrepreneur against injustice, why not call out angels and VCs themselves? After all, some of them expect the startups they're investing in to foot all or part of the investment closing costs. And let's not talk about the legal firepower a young entrepreneur reasonably needs to understand the implications of the term sheets that most professional investors employ.

The bottom line is that, not surprisingly, any entrepreneur who needs to raise money from professional investors is at a disadvantage. A debate over what you can charge entrepreneurs for as part of the fundraising process is a red herring. What nobody's talking about: the fact that the cost of pitching always goes beyond dollars and cents. No matter who and how you're pitching, the time and effort pitching takes has a very real cost for entrepreneurs and it's usually underestimated in importance.

But even recognizing this, the real scam is not that entrepreneurs spend lots of time, effort and money pitching investors. The real scam is the idea that it's sensible to start a business you can't fully finance yourself. I personally think the 'glamor' that has been built up around angel and VC funding is far more harmful to entrepreneurs than outfits which charge entrepreneurs to pitch investors. Pay-to-pitch is simply an inevitable response to entrepreneurs who have been seduced into believing that they can't go it alone; that they need to raise money to be successful.

While it is true that some new businesses do require the type of financing that only professional angels and VCs are likely to provide, the reality is that relatively few new businesses are financed by them. The majority of entrepreneurs who are lucky enough to get meetings with angels and VCs won't raise a dime. Which raises the key question: should the average entrepreneur be starting a business that he can't finance himself, or through more traditional means (friends and family, lines of credit, etc.)?

There are plenty of reasons to answer 'no!' to this question. One of the biggest: the risk involved. If you need to get from Point A to Point D and only have enough gas to get to Point B, leaving before you know that you'll be able to refuel the tank at Point B creates for a very risky journey. While entrepreneurs aren't generally risk averse, there's smart risk and dumb risk.

I'd argue starting a business for which your only hope of financing is by making the rounds door-to-door vacuum salesman style falls into the category of 'dumb risk'. The problem with starting a new business before you are reasonably confident you can obtain the necessary financing is two-fold:

  • At some point, trying to raise money is likely to take up most of your time and effort. That means that you'll be spending less time building your business, which is what you ought to be doing. In other words, pitching investors can easily become a harmful distraction.
  • The opportunity cost may be too great. An entrepreneur's most valuable assets are his knowledge, skill and time. By choosing to invest those things in a venture that he knows will fail if it doesn't get financed, he could be incurring a significant opportunity cost. Smart entrepreneurs look beyond the strength and appeal of their ideas and make wise decisions that take into consideration execution risk, such as the possibility that institutional funding won't come through.

In short, pitching almost always comes at a steep price for the average entrepreneur. Experienced entrepreneurs with a track record of success and rarefied relationships (like Calacanis) can often raise millions of dollars for just about anything they put their names on, making it easy to forget why other entrepreneurs are willing to pay to pitch, especially in today's oversaturated and competitive startup market. Which is why, for the rest of us, the words of Henry David Thoreau are worth considering:

The man who goes alone can start today; but he who travels with another must wait till that other is ready.

If Calacanis and others really want to do entrepreneurs a favor, they should stop contributing to the myth that startup success begins with a round of investment from top-tier angels or VCs and they should start selling the truth that self-sufficiency is a more more desirable and realistic foundation when starting a new tech company.

Patricio Robles

Published 13 October, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

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Comments (10)

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You can't be serious. Anyone who would make this ridiculous statement "... anyone who has the luxury of building a startup...." has clearly never been through this process as a technology entrepreneur.

There are some many things wrong with your assumptions, logic, and nonsensical conclusions that it isn't even worth getting in to. COMPLETE FAIL.

almost 9 years ago



The above misses the point. We have a society that needs money to function. The state or the local area should be providing the money for viable business startups. This should be provided either free of interest or with interest at cost. In either instance, it should be created, out of nowhere and nothing, just the same way money is already. There won't be any resultant inflation because you only have inflation where the money supply is increased in proportion to the available goods and services. If new money is created to support viable startups, effectively it can be donated for free to the community spawning the startup as the available goods and services will increase because of the startup.

You didn't know money was made up by banks out of thin air? Google for fractional reserve banking, or fractional reserve lending. Don't bother with the Wiki entry, in my view it's deliberately obfuscatory.

Then ask yourself again why you're even thinking of paying to put yourself in the way of startup capital.


almost 9 years ago



Jeff, I think you miss the point totally that the author made vis-a-vis you comment:

"Anyone who would make this ridiculous statement... anyone who has the luxury of building a startup...." has clearly never been through this process as a technology entrepreneur.

When Rodger Bannister broke the 4 minute mile his achievement was put into some context by a Clydeside shop steward who at a union meeting held up a pair of running spikes and asked if any of the hundreds of men present owned such an item of equipment.  The answer obviously was no.

However, as social comment is obviously not your strong point, I perhaps would put it this way, if you think you are smart enough to run a business, then you are smart enough to get enough money together to do things like present to investors. 

One prominant "entrepreneur" said bluntly at an event I attended years back, that anyone can get up to £150,000 together if they are geninely serious about what it is they are doing, and I think there is plenty of truth in that.  It just requires a bit of creativity (and ain't that what starter-uppers are meant to have in spades)

almost 9 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy


I've started several small businesses (tech-related) and have raised a modest amount of angel financing for one.

If you don't believe that building a tech startup is a luxury, get in touch with me if you're ever in Santiago and we can drive through the poor part of town. Maybe that would add some perspective.


Hilarious. :)

almost 9 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy


Nice post. I think a debate between Calacanis and Dilts would be very informative, and entertaining.

As a corporate attorney, I'd love to get your opinion on the legal costs entrepreneurs incur when trying to raise money from professional investors. I'm sure I don't need to tell you that the average entrepreneur, especially one raising money for the first time, is not capable of understanding a standard term sheet a professional angel or VC is going to present.

Obviously, angels and VCs have every right to protect their interests (and they'd be doing themselves and their limited partners a disservice if they didn't). But the end result is that entrepreneurs need to pay for competent legal counsel to protect theirs, which isn't cheap. And for good reason: an attorney's time, skills and knowledge all have value.

The point here is that entrepreneurs who go down the road of raising money are going to incur expenses at every turn. Fundraisers, lawyers, accountants, consultants, conferences. The list goes on and on. Which of these expenses are "inappropriate"?

If an organization charges $5,000 to put an entrepreneur in front of an audience of 100 accredited investors, is it really any different than a top-tier law firm charging a $5,000 retainer to form a corporation, file for a trademark and put together a few standard boilerplate agreements? What about a two-day conference attended by industry big-wigs charging $3,000 for a ticket? Food for thought.

Obviously there are predators (there are in every industry) but in my opinion, the glamorization of angel/VC funding, which most startups won't raise and which drives many entrepreneurs to start businesses they can't realistically take far enough, is far more harmful to entrepreneurs than anything else.

almost 9 years ago



I'd write a long comment back, but I think that the "smoking guns" tell the story:


almost 9 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy


Indeed the smoking guns do tell a story. In fact, they tell many stories.

The one you don't seem to want to pay any attention to is that of  entrepreneurs who will do just about anything to raise money because:

  • They have been seduced into believing it's what you need to do to be really successful.
  • They start businesses they don't have the resources to launch and sustain themselves (or through more accessible financing options).

Take Exhibit B. This person admits that he was "desperate", lambasts his city for being a "sad excuse for a startup hub" and then goes on to rant about "the old generation", "ex-enterprise software salesmen" and "sales and commissions and consultant fees". As I read on, I was half expecting to hear how the Pope had done him wrong. It's as if this person believes he was entitled to funding and that everybody who he thinks denied him of it was scum.

Look, I think we can all sympathize with the challenges entrepreneurs face but let's be honest:

  • Most new businesses fail (I have vast experience in this area, as I like to joke).
  • Most new tech startups will not receive funding from angels and VCs.
  • Many entrepreneurs launch startups that they can't fund with little more than a hope and belief that angels and VCs will come to their rescue.
  • Because these entrepreneurs start off in a weak position where they're dependent on something that so few obtain (financing from professional investors), they spend lots of time and money trying to climb a mountain that very few will actually scale. From attorneys to tech conferences to pitching events, there is no shortage of places they'll spend money trying to get funded, attract attention and make connections. Most of which rarely actually help them build a business.

If someone in your position really wants to help entrepreneurs, I think you'd be better off promoting more realistic expectations amongst entrepreneurs rather than perpetuating the dangerous myths surrounding startup investment.

almost 9 years ago


Judith Iglehart

Thank you for your reasoned approach.  I am the VP International for Keiretsu Forum, and I see start-ups on three continents.   Many are terrific companies.  Many are not.  Many  fail, regardless of the amount of money invested by angels because they cannot protect IP, forge market share, or move the Founder into a consulting relationship.  Many angels who invested in the start-ups intrigued by an idea or wanting to mentor a new company watch their investments diluted by VCs during subsequent rounds.   Start ups, business angels, VCs and service providers inhabit a delicate ecosystem and along the path to riches most new companies encounter mountains and valleys.   Only a few startups will reach success and return funding to the initial founding and angel investors. 

almost 9 years ago

Patricio Robles

Patricio Robles, Tech Reporter at Econsultancy

Great post, Alec. I especially agree with the part, "The sad truth is that if the banks or your friends won't give you any money and you can't make the business pay on its own, you're probably better off not doing it." A lot of people would save themselves a lot of time and money if they simply asked the question, "Why isn't anybody I know willing to invest in my business?" There's usually a good, if inconvenient, answer.

almost 9 years ago



Microsoft didnt raise its first VC round until it had over $30 million in revenues.  The best companies use their CUSTOMERS as their VCs.   Too many entrepreneurs think their number one job is to write a clever business plan, convince investors of their genius and raise funding.  Then they wonder why they go bust!   They would be much better served finding a way to profitably serve their customers right out of the gate.  And for those who think this line of thinking is backwards and will claim the likes of Amazon, Google and now Twitter as counterexamples, you are only fooling yourself if you think you will be next the Bezos or Brin.  You might as well go hit the craps table in Vegas.

almost 9 years ago

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