By guest authors Irina Patterson and Candice Arnold
Irina: What level of experience do you require entrepreneurs to have? Is that important?
Randy: Yes, we really do like experience, as I alluded to earlier. We like the management team to have past experience. Generally, if they have revenue associated with their company when they come to us, they obviously have relationships with customers. And typically, if that’s the case, then they have some type of success or some other background that we can draw upon that brought them to this position of taking this company toward monetization and/or an exit, that we win and they win. So, to answer your question, yes management needs to have a rich track record of building companies and exiting; that’s critical to us.
Irina: So if somebody comes out of school with no skill or experience, will you look at them?
Randy: That’s a great question. Absolutely, we’ll look, but we also have to have that person know that he or she may need possibly to replace himself or herself when moving up the food chain toward exit. And some of the worst investments I made – in the 1990s, before Keiretsu Forum – were companies with great ideas, and they said they were going to get out of the way and replace themselves, but they didn’t, and they exited and the multiples weren’t that strong. I mean, I still broke even or even made money, [and] their vision was fantastic. But generally, a smart and wise individual needs to replace himself or herself. In accord, he or she may have wonderful founder tools, but to truly scale a company, that person may have to bring in a COO or a CEO and then move to chief evangelist or another role in the company . . . and not necessarily dilute himself or herself very much. But if the company scales, everybody wins and that’s a perfect opportunity for us.
Irina: You told me you look in every sector where your members have experience, right?
Randy: Yes. At the end of June, early July, our new website will be up, and it will also track all our new investments over the past year or two, so please, look at that.
Irina: What is your preferred investment type? Preferred shares? Common shares?
Randy: That’s a tough question. We do it all; 5% of our membership is venture capitalists and corporate investors who protect us because they know that we put our capital in, risk our money, but they also know that we can help a company grow. A typical Keiretsu Forum member not only puts in capital, but they also give their Rolodexes, their resources to help a company grow. A lot of our VCs who take a company to the next level, they rely on those resources to help a company grow because when a company grows with our resources, everybody wins, including, obviously, the exit partner.
Irina: Do you invest in deals that give dividends?
Randy: Well, typically, we shy away from that model because we want the company to scale and dividends are a great platform, if you want to go that route, but we really don’t need the company to give us anything until exit. And we like to have everything plowed back in for growth so that we can exit and hopefully enjoy seven to ten extra in turnover money.
Irina: Do you do debt financing?
Irina: You said you like to stay invested in a company for about five to six years before you exit, right?
Randy: Obviously, we’d like it to be less than that, but that’s a realistic expectation.
Irina: Do you have a preferred exit strategy?