The Three… Two… One-Legged Stool

The previous few posts established the environment in which organized angel activities operate: a need for revenue to support increasingly professional operations and hired management, combined with limited means of assessing fees to participants in any transaction. The result today is that angel groups and events predominantly function on the basis of flat fees collected from investors, entrepreneurs, or sponsors. Charging each of these audiences has issues.

Investors are usually seen as the best source of fees to run angel activities: after all, they are the ones with the money and stand to make the most from the deal, right? Well… if you put yourself in their shoes, it’s not so simple: there is a limit to how much anyone will pay for what effectively boils down to a club membership or trade show attendance. For angel groups, I have heard investor memberships across the country ranging from $1000 to $5000 annually. Any less, and there isn’t enough income to support a manager; any more, and the investor expects the manager to provide a lot more service: such as screening deals independently, conducting due diligence, and negotiating terms. Those activities, of course, are viewed by the SEC as streng verboten, so most groups keep the amounts in line with value delivered. The same is true for events: investors are willing to pay a few hundred to a few thousand dollars, depending on the lavishness of the venue, headline acts, and extra-curricular activities.

Sponsors can be either public or private, though service providers like law and accounting firms, investment banks, valuation companies and the like are the most common targets. They make the big bucks, so they must have a lot of money to spread around, right? Well… as anyone who produces events can tell you, there are two problems with this assumption: there isn’t as much sponsorship money as there used to be, and sponsors have an annoying habit of expecting value for their contributions. Over time, sponsors start filling more of the seats in the audience, appearing in signage on every visible surface, and showing up on the agenda for “brief” welcomes, thank-yous, and overviews.

Finally, we come to the touchiest constituency: the companies seeking financing. There is enough debate in this topic for a separate – and upcoming – post, but suffice it to say this revenue channel has challenges. Whether couched as application fees, presentation fees, coaching fees, boot camps, or any combination, most entrepreneurs view these costs skeptically – often for good reason. Still, these fees persist, and aren’t necessarily indicative of some deep-seated class warfare against struggling entrepreneurs.

So, for better or worse, the organized angel sector today depends on these three revenue sources. Take away any one, and it becomes a balancing act to keep a group going. And more than likely, at some point you’ll lean back and land on your ass, wondering what the heck happened.

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