Imagine going to a bank or Venture Capital firm and receiving a bill for a few thousand dollars for your first meeting. Imagine also that the requests for payment only get worse the further into their funding process you go. By now you’ve probably figured out that I’m making this up. However, there are Angel groups that operate in a somewhat similar manner.
Here on the west coast there are angel groups that charge $3000+ for the ‘opportunity’ to present your company to them. These organizations are sometimes based on a franchise model and try to extract money from entrepreneurs any way they can. I’ve heard all the excuses from these groups, including that they have to charge entrepreneurs to cover their management expenses. Reputable Angel organizations typically cover their management expenses out of their own pockets and don’t ask struggling company founders to shoulder that burden. In reality the best Angels make money the old fashioned way—working with entrepreneurs to generate investment returns upon exit.
There are a couple of exceptions to this that are worth mentioning. Some reputable Angel organizations charge a nominal fee (~$50-100) to submit a funding application. The intent here is not to use this as a money making opportunity, but to provide a filter or sincerity test for the entrepreneur and to reduce the number of poor and incomplete business plans (aka junk) that get submitted. Secondly—and this applies to the vast majority of Angel groups and VCs—companies receiving funding (and only when that happens) will be asked to cover the investor’s legal expenses (~$15-20k) with the proceeds at the time of closing.
The Angel Capital Association (ACA) has some good guidelines about this on their website. They also “recommend that angel groups charge entrepreneurs no more than nominal fees for applying for and/or making presentations for angel capital and that all fees are fully disclosed, ideally appearing on the group’s Web site.” Since starting in 2000, the Pasadena Angels has never charged companies fees for anything short of closing on a round of financing (applying, presenting, mentoring, etc.).