A coaching moment

Back in my corporate days, we used to call situations like this 'coaching moments', or 'teachable moments'.  

I need your help.

As I have mentioned previously, at the beginning of June, we announced Plains Angels, an angel group of Midwest investors who were interested in seeing and potentially investing in more Midwest startups in information technology, biotechnology, and manufacturing (as well as rare 'other' opportunities as decided by a subset of the group affectionally named 'the screening committee' which determines if applications are in/out of scope of the group's interest).  The group has grown from 50 to over 90 accredited investors since June, and now meets monthly to review startup applications that have been passed by the screening committee.  Of the four applicants who have presented, one received investment within nine days, and the other three are in some form of (potentially pre-investment) diligence.  

It is customary for me to send out a note to companies that have begun the application process but not yet completed it to remind them that they need to get their application in by a certain date, to give the screening committee time to do a high level review, and then us to work with them to make sure they have the proper information prepared for the group in the right formats (what we call 'pre-diligence').  After last night's second successful startup-presentation meeting, I sent a message out to the 'in progress' applicants at 9:31am this morning to let them know about the deadline the group has to give them appropriate time to review the inbound applications.

What follows is a redacted and anonymized exchange from 9:31 this morning to around 6:30p this evening.  If you all have some feedback on how I could have handled it better, please please please comment on the blogpost as I would love to hear of ways I can refine my feedback.

1. Christian, sending on behalf of Plains Angels, 9:31am

"Greetings,

This is just a quick note to inform you that any applications to Plains Angels that wish to be considered to present at the September 10th meeting must be completed/submitted by August 24th.  This will give the Screening Committee time to properly review the application, interact with the applicants, and then the pre-presentation diligence to be conducted.

For your reference, the process for application is described at: http://plainsangels.com/for-startups/

We look forward to seeing your application to Plains Angels.

Best regards, Christian" (with appropriate email signatures with contact information)

2. Reply from in-progress applicant at 9:35am whom we shall henceforth call "Hugo"

"It is my policy, not to pay fees. If you have real interest in my project, you will have to accept my no fee policy." (no signature) 

(Side note: The group chose to implement an application fee for companies applying to the group.  Although this is customary in some markets, in other (more mature) markets the Angel investors themselves cover the costs of operations.  We debated long and hard about this with Plains Angels, as we have no indigenous angel culture in Central Iowa to draw upon, so in our efforts to grow this group locally, we temporarily shifted the onus of expense to fund the group to the applying companies instead of angels.  This has not been without complaint from the companies/applicants, however if you look above, the group is for real and not wasting startups' time with arbitrary hoops but rather deeply investing in the community.)(Note: This is important in what follows)

3. Christian, sending on behalf of Plains Angels, 9:37am

"Understood.  Like yourself, we have a policy to apply to our group that a fee is charged to cover the costs of the time spent to prepare the opportunity to the angels and to cover the costs of the meetings.  

It appears we are at an impasse.  Should you choose to reconsider your policy, please feel free to apply in the future.

Best, Christian"

4. Reply from Hugo at 9:41am

"Please provide a list of 5 recipients of your investments"

(Note: We are prohibited by SEC rules and also private company confidentiality agreements from disclosing in-process or consummated deals unless the company offering is 'closed'.  As we were only formed in June, none of the companies that have applied and presented have offerings that are closed as yet.  It is not possible, therefore, to list five public companies that have recieved investment from the group for the aforementioned reasons.)

5. Christian, sending on behalf of Plains Angels, 9:37am

"We do not disclose invested companies for SEC and private reasons, as many of these companies have active offerings that this would impact the offering window of."

6. Reply from Hugo at 9:47am

" "The Plains Angels are a group of over 80 angel investors."

Who are your 80 angel investors?"

(Note: This is a fair question.  If you cannot provide your reference list of invested companies, what about the list of investor to prove your bonafides?  Unfortunately, the reason the group became a group was that they wanted a veneer of anonymity to insulate them from random companies soliciting them for investment.  I receive 2-3 requests per day for funding, and I am not a declared angel investor.)

7. Christian, sending on behalf of Plains Angels, 10:36am

"The list is 92 angels as of today.  Again, this is a private list as the angels prefer to not have their names publicized as this often causes them being spammed by individuals looking for investment.  Therefore, the group came together to provide a mechanism to structure deal flow and pre-diligence."

8. Reply by Hugo, 10:39, where he changed the subject line of the email to "Are you crooks?"

"It looks like you have nothing, you are most likely FEE COLLECTORS. Are you crooks?"

9. Christian, sending on behalf of Plains Angels, 10:52am

"The group deployed $(redacted)k within it's first nine days of our first startup presentation.  We are not crooks.

Thank you for your interest in the group.  I will assume we have a philosophical difference of opinion and do not need to correspond further.

Christian"

 10. Reply by Hugo, 11:02am

"You talk like them, you write like them, you behave like them, you must be one of them

ALL YOU WANT IS A FEE, AND YOU CANNOT PROVE THAT YOU ARE INVESTORS, I WILL PUT YOU IN THE LIST IN A WEBSITE ABOUT FEE COLLECTORS"

11. At this point (12:51pm), Hugo sent a message to the Angel Capital Association to report Plains Angels as a Fee Collector organization:

"Dear ACA,

Are you sure Plains Angels are investors or are they FEE COLLECTORS?
There are lots of these people who play with our dreams and suck little funds we have for their bottomless pockets.

(Anonymized)"

12. The ACA representative, at 5:39pm, responded as follows:

"(Anonymized)–

Plains Angels is a new, but real angel group that makes angel investments. They have clear ties and foundation with economic development leaders in their community.  While they charge a larger application fees than ACA recommends, they are transparent about these fees, which is important in communicating with entrepreneurs.

When entrepreneurs review angel group Web sites, it is important to thoroughly review their Web site to understand investment criteria as much as possible to determine if they fit you and your company.  In the case of Plains Angels, they note that they invest in Midwest companies in Technology, Agriculture, and Manufacturing.  It appears that your company is outside of their criteria  based on the location of the business (it is assumed it is in (Redacted)).  The large majority of angel groups look to invest in companies located within a few hours of them.  With that background, you may have your best luck by networking in (Redacted) or nearby countries.  We are aware of developing business angel networks in (Redacted) and Latin  America, which you may be able to locate through Gust and/or Googling “business angel”.

Best wishes to you,

Angel Capital Association"

---------------------------------------

And that, as they say, is Yahtzee.

So, dear reader, how could I have handled this better?

Comments

[Jameseliason]

Hey Christian,

First, I think you handled this incredibly well.

If Hugo isn't willing to pay a $750 fee, I am pretty sure that Hugo won't be able to stand and present his company to 90+ qualified investors who more than likely will rip the business into shreds. Thats why he doesn't want to pay the fee - because there is a 99% chance that it will fail.

And Hugo if you are reading this..use it as a motivator to step up your game and realize that Plains Angels isn't a bunch of crooks. I mean, in the words of ESPN football analysts "Come on man"

[Cfgurney]

Seems to me like the fee worked as intended.

[Akirpalani]

Christian,

I think you handled this well within the policies that have been established by Plains Angels. I think most of us in the community understand the nature of the group, some of those involved, and why the group is charging a fee.

However, from a Devil's Advocate point of view, if PA is charging a fee where other groups may not, perhaps it behooves the group to look at ways to show potential investments some good faith. If you look at this from "Hugo's" point of view (excluding that you provided 2 opportunities to amicably part ways), you ask him for 750 dollars and cannot give him a list of companies invested in, nor a list of investors, at first glance it might appear to be just throwing money into the abyss.

Bottom line: You handled the exchange well, but perhaps Plains Angels needs to review the information it can provide to potential applicants.

[Jameseliason]

$750 is about one plane ticket to Chicago from Des Moines + dinner with a angel/vc + a few Starbucks.

$750 gets you access to 90+ angels in your home state, with a group that is trying to better the region.

I don't know..maybe I'm missing something here.

[Akirpalani]

You're dead on James, there's value and we (being the local community) know it.

My point is that the uninitiated (like "Hugo") might benefit from a little more information if it is possible to provide it.