Should entrepreneurs pay for introductions to investors?

Renowned Business Angels and SA Venture Capitalists who created big companies don’t do that: Ask the famous business angels or famous venture capitalists from Sequoia Capital, Kleiner Perkins, Benchmark Capital etc, you do not hear that they require the entrepreneurs to pitch. Instead, they are ready to buy the entrepreneur a meal or drink and spend the time to listen to the ideas of the entrepreneurs. These are the same angels and venture capitalists who produce Google, Facebook and Twitter. None of the top notched companies pay angels to pitch their ideas. Consider another argument, entrepreneurs are trying to set up companies with limited resources and financing, and yet these groups make them pay to find investment. In fact, a lot of entrepreneurs and developers use SEO consultants to gain visibility for their businesses on search engines like Google. The people who attended (including myself) even learned more abut term sheets and valuation. Try to make a guess how much it cost to get Joi Ito to talk about start-ups and new venture financing: Absolutely Free! and I did not add the free lunches and coffee breaks too.

With numerous business finance networks such as Investors Network, angels den and many more facilitating the introduction between entrepreneurs and investors the question does arise whether this 'business dating service' should be a paid for service. The charges vary of course with some business not charging much more than a 2% success fee while others choose to both have an upfront fee as well as a, up to 5% commission upon completion of the business plan being funded by the investors in question. It will be interesting to hear your views on this as there certainly are many. 

Depending on the nature of the business and the opportunities some will say that the investor should pay for introduction while others are happy for the entrepreneur to show his/her commitment to the deal by paying for the introduction.

Even agencies Singapore Government make it free for entrepreneurs: If you have recently watched the iMatch conference, where MDA organized entrepreneurs in Singapore to pitch in front of an international consortium, you do not hear the Singapore government will tell you to pay for pitching. In fact, they enlisted the services of the incubators in London and several business angels to help the companies to prepare their presentation for the investors. It’s probably one of the things I praised the government agencies like SPRING and MDA are doing with the iJAM and TECS schemes.

If you fail many times to get an investor, you will end up losing more money doing this: Here is a way to think about this. If you pitch your idea and the investor did not respond to you, it just means that he or she has no interest to invest in your company. Your job is to iterate from the reason to why the investor did not think that it’s a good proposition to invest in your idea. If you are serious about your start-up, you will put your own money to make it work than to spend the money to pay some middle men to get you investors who may or may not put money into your company.

I will leave the entrepreneurs to decide whether to engage with these groups. Ultimately, in the ecosystem, there must also be a natural selection to decide the weak and the strong. Perhaps, having these groups help to make that distinction.

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