The scarcity of capital for early stage companies in recent years has lead to the creation of literally thousands of businesses focused on helping entrepreneurs raise money for their start-ups. At North, this subject is close to our hearts, as we’ve made it our mission to make the entire process for fostering, filtering, and funding entrepreneurial innovation more efficient.
While some individuals and companies are taking strides to optimize entrepreneurship and inspire innovation, others unfortunately seem to be falling into the all too familiar trap of playing “follower,” when today’s economy desperately needs leaders. While there’s certainly value to extract from a few of these businesses, many unfortunately are coming up short of industry expectations, launching the exact same set of features and functionality as those that came before them.
“They have taken their cue from the Gold Rush when the truly crafty business-people made money not from prospecting but by selling shovels to the prospectors. Likewise, today’s money-raising services have found a low risk means to separate the cash-starved entrepreneur from any money he or she may have left.” – Antiventurecapital.com
In this section, we highlight a few of the emerging ideas, ventures, and individual brand names that either have or are in the midst of trying to bring much-needed efficiency to the early stage venture market. Are any the long-awaited silver bullet that is going to help accelerate economic growth when now we need to create innovation faster than ever before?
You be the judge. Let’s take a closer look at the Pitch Farms.
We’ve already spoken at length about the recent proliferation of the “Pitch Farms,” those online destinations that promise to connect start-ups with the investor community. If you’re an entrepreneur, you’re probably very familiar with the usual suspects that offer up their virtual cork board for some type of fee (usually a recurring monthly one): FundingPost, FundingUniverse, EFactor, and GoBigNetwork to name just a few.
David Rose, Founder and CEO of Angelsoft, considered one of the “smarter” pitch farms, outlines both the opportunity and the shortcomings of these destinations when he said, “…there are many, many web sites out there which purport to connect, or ‘match’, entrepreneurs seeking funding with potential investors. By our own count, there are probably three or four dozen, and that’s without looking very hard. The reason there are so many is that it’s like shooting fish in a barrel: how many starving entrepreneurs wouldn’t want to come to a web site that promises them cash?!”
Mr. Rose originally launched Angelsoft to Angel groups software that enabled submissions, file management, and group communication tools. It was a lot of the infrastructure that traditional Angels needed to scale and to update their current submission processes and makes them more “new economy ready.” However, Angelsoft has since morphed into another massive deal farm for the start-up community. Perhaps pleasing their engineers on staff, they now offer up a dizzying array of features and software updates. So many in fact, it makes an average Angel investor feel as though they’re playing around on their kid’s Facebook page.
Even with the questionable, confusing, and clearly off-target features, it’s not hard to tell that Mr. Rose has his sights on consolidating the entire early stage venture market. With 442 Angel groups, over 14,000 investors, and a staggering 2,000 new venture applications per month, they now have an Open Deal pitch for $250 a pop that allows an entrepreneur to get their plan in front of all 14,000 investors with the click of a mouse (if those investors were actually logged on and could even find their way to the Open Deal room…).
“The sad reality, however, is that while it is extremely easy to get hungry entrepreneurs to list their plans, it is well-nigh IMPOSSIBLE to get investors to show up on the other side of the curtain…for the simple reason that (a) the ratio of investors to entrepreneurs is about 1:1000, and (b) investors are so deluged with opportunities that they simply don’t go out LOOKING for plans; plans come to them!” says Mr. Rose who in his own words admits he’s got an efficiency problem on his hands.
Recently Angelsoft started to actually push deals onto the unsuspecting investors of all the third party Angel groups that use their software. This pushy intrusion comes in the form of a bi-weekly unsolicited email filled with recent venture submissions. Angel groups that signed up for Angelsoft to help manage their Angel group now find themselves competing for their own investor members attention with the unrequested (and often unwanted) deal flow being shoveled onto their members by an Angelsoft email server that seems to have its dial stuck on “spam.”
“With Angelsoft, all of the personal aspects of Angel investing seem to be removed from the equation. My materials are submitted through Angelsoft forms, and then disappear into some system that encourages a group of busy angels to evaluate the opportunity in a black box. Do they like it? Do they hate it? Do they even read it? I have no idea, since I have never heard anything!” comments a disappointed entrepreneur.
For all the aggressive email action and striking numbers on this site, one has to wonder, is it really delivering on quality deal flow or just polluting the Internet with more “not ready for prime time” quantity? As of this writing, Angelsoft reports that just 1.32 percent of start-ups on their site have been funded, and that the average number of “views” for each submission is only 5.3 (Which means an average submission is viewed by only 1 of every 3,000 investors that Angelsoft claims to represent). For entrepreneurs and investors, the verdict is still out on whether this site is more “soft” than true “Angel.”
The following excerpt is taken from Breaking Through The Broken: The Transparent Guide To Overcoming The Inefficiencies In Early Stage Venture Capital.
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