Service Providers Posing as Angel Investors

There are certain common courtesies and etiquette guidelines that I wish were more respected in the Silicon Valley startup community. I’ve written previously about entrepreneur-to-entrepreneur etiquette but more recently service providers posing as angel investors has really been bugging me.

At the various startup events I attend the audience tends to be a mix of approximately 60% entrepreneurs, 10% investors and 30% service providers. The service providers are looking to sell something to the entrepreneurs (and sometimes the investors also) and they generally fall into these categories, PR, legal services, investment agents, recruitment or outsourced/consulting functional roles of marketing, sales strategy (but usually not sales), bizdev or software development (often offshore).

Some entrepreneurs and investors find the service providers to be annoying and at least one of the major startup events organizers takes steps to reduce their presence. I think this is a little bit unfair as many of the service providers do have valuable knowledge to share specifically because they’ve worked with many startups and/or investors. One great example is Chuck Boggs, who is a well respected investment agent that is based out of San Francisco. Mr. Boggs has a lot of experience with startups and whether or not an entrepreneur decides to work with him, I believe that most could benefit from meeting with him. Mr. Boggs also has mastered the art of letting entrepreneurs know that he’d like to work with them without being pushy. I guess it helps when you don’t have a shortage of startups that want to work with you. I agree that some service providers are annoying or too pushy, but then again there are also a number of crazy, obnoxious or self-deluding entrepreneurs who detract from the events by asking questions that are too company specific or attempting to monopolize discussions. However, I believe that weeding out certain people is a very slippery slope and that these events should be open to everyone.

Thad said, I do feel a little bit differently about service providers that pose as angel investors. Some service providers do occasionally make angel investments, which of course is great, but many have every intention of sucking cash the other direction and really are using prospective angel investment as a tool to set sales meetings. I think this practice is disgraceful and a serious waste of everyone’s time. If I’m looking to raise capital, I probably can’t pay $200 per hour consulting fees or $25K finders fee to a recruiter, nor is it worth giving away any significant equity for strategy or “strategic advisors” when what I need is execution to hit milestones. But obviously there are enough entrepreneurs who feel differently, which continues to makes it worth many service providers time prospecting at these events, which is fine, so long as the entrepreneurs understand that they are buying services and not investment. Practically speaking, it would be virtually impossible to accurately enforce, but I sure wouldn’t mind if these characters were excluded from participating in startup best practice events.