In the last couple of days, the Startup North group blog has posted some blogs that are critical of the operating practices of First Angel Network (FAN) that describes it's mission as follows:

First Angel Network is a not-for-profit organization formed to bridge the capital gap for companies with extraordinary potential in Atlantic Canada. Created by angel investors for angel investors, FAN provides entrepreneurs and investors with a confidential, disciplined, high-quality private equity investment experience. FAN also delivers education and networking opportunities in the areas of investment readiness, angel investing and commercialization.

The First Angel Network is funded by government but that does not stop them from charging entrepreneurs $3000 to participate, and 8% of any closing fees. You can read some of the details here:

• Atlantic Canadian Founders Deserve Better Than FAN (First Angel Network) (Feb 19, 2013)
• If not an Angel Network, then what? (Feb 20, 2013)

I am in agreement with David Crow and Jevon MacDonald on many of the points raised in these blogs, but the idea that entrepreneurs should never have to pay to pitch is dubious because it doesn't address the reality of where investment network funding comes from.

I understand that entrepreneurs are often cash strapped and consequently charging them $3000 for consulting fees and 8% of your company is way over the top, especially, if the organization is supposed to be a non-profit getting over $250 thousand a year through government sources to run the show.

Contrast this with our service where entrepreneurs can in fact anonymously pitch their idea for free; however, if they generate investor interest, they are required to pay our referral fee of $149 for the contact details of all the investors who expressed interest in their proposal. If no investor expresses interest, then no money lost. The basic $149 fee we charge entrepreneurs for investors contact details is comparable to the fees a person might pay on a dating site to be introduced to potential mates. These hookups may or may not work out for a variety of reasons. Sometimes a hookup does work out and that is what we ultimately strive for even though we we are only an introduction service and generally don't know if our hookups have been fruitful or not.

We have never solicited or been awarded government money to develop or maintain the dealflow sites. The fees entrepreneurs pay are used to pay hosting fees and my time to review all proposals and all investors applying to join the site. It is not a simple matter to screen potential investors and this is a time consuming part of the work involved in running a site like this. There are also marketing costs.

That being said, we agree that it would be good if investors bore more of the burden of funding hookups. We have offered a number of services to investors that never really took of. We are working on a new service and we'll see if that works; but it will only work if investors perceive value in the service and to date we have not found the right service to offer. Perhaps this time it will be different.

Even if investors are not funding the hookups, our investors are providing a valuable service to entrepreneurs. They are reviewing proposals when they could be doing something else with their time and if they are interested in a proposal and contact the entrepreneur, it is an opportunity for an entrepreneur to dance with an investor for awhile to see if they are compatible. Often the investor will be a better dancer and the entrepreneur will trip over their feet a few times; but this is part of becoming a better dancer. Our site does not promise that you will find a permanent dance partner, only that we can hook you up, you can dance for awhile, and after that decide if you want to dance some more or find new dance partners. If you do not become permanent dance partners, then you should at least have learned some moves from a more experienced dancer that you can try on future dance partners. The cost of the dance ($149) should not break the bank for entrepreneurs.

Hard to say whether this story will continue to have legs. It was picked up by the Halifax Chronicle Herald (largest circulation in the Maritimes) and I expect the First Angel Network to publish a rebuttal in that paper. My initial thoughts, however, are that it might be the beginning of increased scrutiny into other government-funded Angel Investment organizations in Canada. The manner in which these organizations operate, and why they need funding in the first place, needs more scrutiny which Start Up North has helpfully begun to shine a light on.