A couple of months ago, I wrote a story entitled "From Skeptic to Evangelist on Keiretsu Forum".  As promised, I am now reporting back to you the result of my experience with Keiretsu.  Unfortunately, I am back to being skeptic.

After having been screened (no fee at this stage), the officials at Keiretsu gave me the good news that Clupedia was selected to pitch at all four chapters of Northern California region.  At that stage, I had to pay $1,500 per chapter for a total of $6,000 to pitch at all four chapters. I decided to proceed considering that there are 300 to 400 active angels in those chapters, their good reputation, and their track record of funding startups. 

The funding events in all four chapters were very professionally run.  In particular, Randy Williams who is the founder & CEO of Keiretsu is a very charismatic leader who knows how to work a crowd (a la Hollywood way).  He managed to rally the troops, create enthusiasm, and keep the agenda on schedule, all done with precision and style.  The venues were impressive.  The staff was very cooperative and helpful.  The angels were attentive, engaging, and very cordial with the exception of one particular angel who apparently has the habit of being not just obnoxious, arrogant, and condescending, but even insulting at times.  Fortunately, with my experience as a public speaker, I was able to not just neutralize him but win him over as potential investor.  This is all to say that it went very well, and I managed to convince 33 angels to consider investing in Clupedia, which is a respectable number.  Thus, I was quite pleased and hopeful that I will be able to raise some money.

A week later, I followed Keiretsu's instructions and advice by creating a secured website for the potential investors where I posted answers to their questions, responses to their concerns, due diligence documents, articles, etc.  I regularly sent messages to all interested angels keeping them informed about the latest news about Clupedia, yet I didn't get any single response.  I even set up three conference calls, which was attended by just one angel.  So, after the funding events, it was a total "black hole".  Of course, we can blame it on me, Clupedia, the economy, the timing, or the weather for that matter.  No matter who's to be blamed, the end result is just the same - nothing but a "black hole".

By then, I spent $4,000 to pitch in Southern California region, and another $6,000 to pitch in Northern California for a total of $10,000 to get absolutely nothing.  This reminds me of advertising: marketers know that half of their advertising budget goes down the drain but they don't know which half. 

While the great majority of angel networks are "Not-For-Profit" organizations, it is reasonable and understandable that some, such as Keiretsu, are "For-Profit.  However, regardless, especially if it is "For-Profit", an angel network must deliver the value proposition to its constituents: a good ROI to its members and funding to entrepreneurs.  Anything else is secondary.  For instance, claiming that entrepreneurs gain exposure and advices from angels during the process is not a justification for the fee because, like ideas, advices are dime a dozen.  Entrepreneurs should not, cannot, and must not spend money on getting advices.  Whatever little money they have, entrepreneurs are well-advised to spend it on creating their product and not on getting advices.  I am certainly not saying that entrepreneurs should ignore advices - they must not.  But that does not mean that they should pay for them - they shouldn't. 

I am actually scared to think about what would be next: VCs charging entrepreneurs to pitch under the pretext that VCs should charge for their valuable time, their counsel, and their effort in educating entrepreneurs, while in fact it is the VCs who are, more often than not, getting educated about the latest and the greatest from entrepreneurs?!!! So to my good VC friends, I say: please don't get any ideas. 

Entrepreneurs can easily get caught in their hopes of getting funded, and be persuaded to pay a fee.  The argument that once selected, there is a high probability of getting funded, and therefore recouping the fee, is actually flawed.  As it turned out, only an average of 10% of those who get selected end up being funded.  In fact, this percentage is even lower (i.e. 7%) in smaller angel networks like US Angels Investors (USAI) who charges their selected entrepreneurs $840 to become member of their network before granting them the opportunity to pitch.  Of course, I expect the operators of those services to challenge those percentages but it would be a self-serving prophecy.

In conclusion, even though Keiretsu is a respectable organization with a charismatic leader, great staff, and worthy angels, and even though some startups do get funded by them, I am now reversing my opinion about their fee.  Angel networks should charge a fee to their members and not to entrepreneurs.  In the event that an angel network insists on charging a fee to entrepreneurs, then it must be contingent on funding. 

And that's what's fair and right.