I am going off topic from the usual fare on this blog to address a controversial practice in the start-up world. I read an interesting, if overly passionate, post regarding the morality of VC’s and angel networks charging entrepreneurs to pitch to them. Suffice it to say, the author took a dim view on this practice, but there is definitely more to the story.

Being a founder of a start-up firm and having participated in these pitch events, I can tell you that these are not the best venues for many entrepreneurs. To put this practice into perspective, it is important to understand perception versus need.

Every entrepreneur should ask themselves why they need to seek outside capital. Many start-ups overestimate their initial capital needs and believe they need to go for big money early on. Most VC’s are not enthusiastic about investing in early stage companies, and most Angels turn out to be difficult partners. This makes the search for funds extremely challenging for entrepreneurs if they have neither the network nor credibility to be heard.

Paid pitching events provide a tempting alternative route for many entrepreneurs. The issue is that these events leave the impression in the minds of entrepreneurs that access to funds is guaranteed. While these events can foster introductions and build important relationships in the industry, few actually come away with solid funding prospects. Given the cost of attending these events (some of which are truly predatory), to not come away with anything more than a “nice pitch” comment is difficult to swallow.

So here is my advice to entrepreneurs: focus on creating your product, building up a customer base, growing revenues, and generating a sustainable business.  If you need cash, whittle down expenses, bootstrap what’s required, and gather funds from friends & family to supplement near-term cash needs. If more cash is required, take time to network with relevant VC’s directly before considering a pay-to-pitch event, and realize that raising capital is a full-time job.

My advice to VC’s and angel networks: be more transparent in your charges and be vigilant against making any implicit guarantees. Make the charges reasonable to cover the costs of hosting the event, and consider subsidizing the bulk of those costs. Entrepreneurs are coming to you because they need cash, not because they are made of cash.

And lastly, while there are a few charlatan investor groups, there are many more reputable organizations that are providing a valuable service in connecting entrepreneurs to funding sources. These pitch events are only one means of reaching investors however; the key is for entrepreneurs to know whether it makes sense for their startup.