By guest authors Irina Patterson and Candice Arnold
Randy: Speaking of exits, one of the reasons why we’re growing internationally is because we really want to look at other indexes. We want to look at other exits past, above, and beyond NASDAQ and our indexes here. For instance, we went on a small IPO at £30 million in AIM several years ago, in a pharmaceutical company.
I’m very curious about what’s going on in Asia. We need to use the Shanghai index, we need to use some of the other platforms to help our companies exit. And a lot of our exits through M&A in real estate is through sales. But as the markets improve over the next five to ten years, a lot our international companies aren’t going to be coming to America to exit, they’re going to exit locally, and we need to have and build relationships with those exit partners now.
Irina: And who usually conducts your due diligence?
Randy: Members. We’re very proud that we’ve been working for ten years, always fine-tuning our due diligence. We’ve created a wonderful book for and by the members that’s about advanced due diligence. And this is for the members who join the Keiretsu Forum. We also have a published booklet on our returns from 2007, and that’s all available to members.
Irina: How many investments, by chapter, have you made in the past 12 months?
Randy: Locally, we had 16 direct fundings last year – in 2009 –and we also had a myriad of follow-on investments that we don’t put in our numbers.
Irina: When you invest, what is an average dollar amount?
Randy: The average amount per member is approximately $75,000. That might seem high because our real estate tracks over $100,000 and our technology tracks $50,000. So it’s $50,000 for technology and usually, $100,000 for real estate, and so our average is $75,000.
And so the average rounds, we’ll go as low as $250,000 up to $2.5 million per round, but what’s so powerful about our network is when a company receives capital and they’re meeting their milestones, then they will be coming back for additional capital . . . if they’ve met their milestones. If they haven’t, we’re not going to invest with them. But we have companies that have tracked between $6 million and $12 million over the years – these are technology companies – because we keep funding them because they’re making their milestones and moving toward a path of exit and profitability.
Irina: How long does it take for companies to receive funding from your group?
Randy: The process can take, probably at the shortest, six weeks after they present to forum or as long as four months, but typically, the funding for a round is generally 60–90 days to fund their round.
Irina: What is the typical valuation of a company that you invest in?
Randy: Well, it’s fallen this year – and I think valuations are something we care deeply about. And I’ve always said it over the [ast ten years, they have to win – entrepreneurs have to win, but we have to win, too. We really want to know the [multiples] they put and the [comps] they put against their company.
But they’re usually anywhere from 25% to 50% high, and so we have discussions. But when we fund a company, they have to win and we have to win.
So, to answer your question, pres and posts to follow-on, the typical companies come to us are usually between $2 million and $6 million pre-money valuation.