I've written about the practice of charging entrepreneurs in earlier blog posts and it is not something we would ever do at SHA. However, the individual above was adamant that we should have a PR campaign to let the entrepreneurial community know that we don't participate or support this practice. I laughed and said that our web site made this clear and we may have even put a brief posting to this effect on our twitter feed. I'm also a strong believer that your track record and reputation are your most valuable assets in the venture community. This is not something that can happen overnight by putting a press release on the wire.
However, this is a great question to ask at the front of the process. I have put together a list of questions to ask your angel investor group contact:
- Do you charge any fees to present or during the due diligence process?
- How many investments have you made this year? Last year? Average size?
- How many of those investments are initial investments? Follow-on?
- In how many of those were you a lead investor?
- How many do you have a board seat?
- What percentage of your members have made an investment in the past 12 months?
- What percentage of your members are not active angel investors (i.e. service providers)?
- Do you invest as a fund, single purpose entity or as individuals?
For those who do charge, should you avoid them like the plague or burn at the stake? I wouldn't go that far, but certainly fair to determine what you are getting for your limited amount of cash. Here is a list of questions I'd ask:
- How much is the fee?
- When are we obligated to pay?
- What do we get?
- Are you a broker-dealer? (Note: Finders fees are illegal in California for non broker-dealers, not sure about other states)
- Do you have any service provider members? Do you charge them a fee?
- If you do charge, why are you you charging me for the privilege of being added to a telemarketing list? Shouldn't you be paying me?
- How many companies have paid fees in the last year?
- How many of these have received investment for your group?