Jason Calacanis’ Homework Assignment #2
The article below is a “required reading” homework assignment for Mr. Calacanis, as part of our custom lecture series desired to re-educated the boy, entitled “Jason’s Homework”.
After studying this article by Ron Weiner, Jason might gain an inkling towards a better understand what the Keiretsu Forum Angel investing network (the largest, most successful, and most active Angel investment group in the world) is, and how it works. He should have checked his facts, before launching his campaign “to destroy the Keiretsu Forum”, to borrow his own words.
So, with credit to Mr. Weiner… here’s his honorable response to Jason Calacanis’ reckless, baseless “Jihad” to destroy the Keiretsu Forum:
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Ron Weiner on “Jason’s Jihad”:
“Calacanis is ignoring the pure market dynamics here. There are companies that do have tremendous success pitching at these angel groups that charge fees, and that’s why these groups continue to thrive. I’ve founded six companies over 21 years in three cities including Silicon Valley and have had my fill of one-on-one angel pitches or meeting with small groups who charge little or no fees. While I always raised my rounds, in the end the effort was so time consuming as to debilitate the company while our exec team drove and flew all over the place to solicit investors.
In utter frustration I finally tried Keiretsu three years ago – the biggest skeptic they ever had walk in the door – and to my absolute amazement it worked extremely well. We raised a total of nearly $9M, first in a convertible note round, then a Series A on pari pasu terms with a leading VC fund, and later in a bridge round – all over a span of two years. I also joined Keiretsu as an investor member because I enjoyed the due diligence process, sitting on the screening committee, and finding good investment opportunities. and perhaps mostly because I enjoyed the tremendous association of so many seasoned, successful entrepreneurs who make up the majority of the investor membership. We complement each other’s skill sets and experiences, which ultimately leads to better due diligence, higher success rate and ROI, and a greater ability to assist the companies we invest in, which ultimately helps all parties.
For the privilege of getting in front of 50-130 quality investors at a time it was worth the $1500 per chapter that Keiretsu charged me (although admittedly I shirked violently at the price before going through the process). Over the years I’ve had many broker/dealer types offer me their assistance for 10% plus a retainer fee. I’ve wasted countless months fund-raising from angels the “old fashioned” way. So I knew my alternatives and decided that it would be worth a few thousand bucks to find out if this method would actually work better.
So here’s how the math worked out for me at Keiretsu: I raised $9M for an all-in cost including flights, lodging and presentation fees of less than $70K. Not even 1%. I know several other CEOs who claim to have achieved a 2% efficiency in rising capital through Keiretsu and similar groups. That’s stellar performance in my book and it demonstrates the value of these organizations that compete against “free” and low-cost venues. My investors are the ones who are most pleased with the capital efficiency and time efficiency of the path we took to raise our capital, because it allowed us to focus on growing the business instead of endless and tiresome fund-raising.
Having used all the approaches commonly available for raising angel capital, had I to do it again for another startup (as am surely likely to) my first choice would be Keiretsu as well as some other smaller groups that demonstrated the same kind of incredible time and capital efficiency for us. And here’s the subtle but significant difference that I have observed between the groups that are effective and the groups that just take your money. When you pitch at keiretsu you get documented feedback from the “mind share” session that occurs between the members after you leave the room. You get a roster of names with contact info and an indication of whether they are interested in investing, helping out on the due diligence committee for your deal, or just have some resources for you (e.g. a sales lead). Every other group I’ve presented to over the years lets you grovel for business cards in the 10 seconds between when your pitch is over and they put their fork down. With a real prospect list you can efficiently identify who is interested in what, and be able to reliably reach them. What an incredible difference this makes in following through on actually collecting checks.
Where I can find some common ground with Jason is with groups that charge to pitch and then show you the door but do nothing to actually connect potentially interested investors with the company, or the ones who charge a % of the monies raised. The latter are in some cases playing with fire, hypertechnically violated securities regulations as unlicensed broker/dealers. Definitely stay away from those!
Lastly, Keiretsu stands far apart from the other groups Jason listed in that they have a strong philanthropic and community bent that goes beyond just investing in startups. Their Keiretsu Foundation has donated impressive sums to all sorts of needy causes all over the world (there are Keiretsu chapters in Europe and China as well). I admire the way they weave at least one philanthropic cause into every meeting. We in the tech world are prone to forgetting to give back, so it is just refreshing to have this monthly reminder that there are other things to devote our attention and money to than our startups or our investments.”
Comment by Ron – October 21, 2009 @ 10:12
<http://calacanis.com/2009/10/09/why-startups-shouldnt-have-to-pay-to-pitch-
angel-investors/#comment-14174> pm
