By guest authors Irina Patterson and Candice Arnold
Irina: Do you have any advice for angel-backed companies? What should they do to increase their chances of success?
Randy: Number one, they need to truly integrate and meet the members of the forums that they may be going to and in their markets they know of.
And, I think that they need to find champions within their sectors to help guide them through the labyrinth of angel investing. So, for instance, I encourage companies . . . if you’re a software company, you need to know who’s on the software committee at Keiretsu Forum locally and throughout our chapter system.
You need to know because you need to build a relationship early on and [find] a champion who will help you, guide you through the process, but also guide you through due diligence, because if you don’t have a champion who really gets it, then it’s going to be hard for you to track other members. So, a champion is very important.
Also, when you get involved in the back end of an angel group, make sure that you help. Don’t rely on the fact that the members are going to do all the due diligence. You, as a CEO, and your team from your company, you really need to be very organized. Have your books ready before you come to an organized angel group.
What kills deals is surprises; mistakes don’t. But if you don’t have information that surprises an investor such as, for instance, if we ask for cap tables and you’re unclear what that means, or we ask for a valuation number and you don’t know the market comps.
What kills us is when a company comes with a valuation of $7 million or $8 million and they can’t defend it. It’s okay to be a $7 million to $8 million valuation, but if you can’t defend it, then we start wondering that if they don’t even know their company’s worth, how will they know how to build their company and move toward exit? So, companies need to be very organized in the due diligence.
Irina: What about angels? What could angels do to be more successful?
Randy: Well, that’s why we, for the past ten years, have had an educational platform for angels. Everybody’s busy, especially in this day and age, but we have online due diligence booklets, we tape all of our Keiretsu Academies, and so there’s a constant education that we want to create for our membership.
But, getting back the wisdom of crowds, the whole spirit of Keiretsu Forum is when you have a robust community, we help each other. We’re all trying to help each other, and we’re also trying to help the companies because when they win, we win.
But when you do make an investment, you make a direct investment to an entrepreneur; it doesn’t flow back to Keiretsu Forum. As I said earlier, we do not take anything, warrants or commissions, if you invest, and so we’re all here sincerely to help you as an investor or member of Keiretsu Forum to do well, be smarter more efficient investors.
That’s why . . . we just don’t want companies to spend any money. As I said, our presentation fees are $1,500 to present to a chapter, but we don’t want them to spend any money if they’re not going to make it. So, we have so many companies – out of 50, only four or five make it. But when they do make it, historically, there’s a good shot they could receive capital. And there’s still a good shot. Now as we move into the end of 2010, we’re seeing more and more companies funded, and so I want to give hope to entrepreneurs. So first, come to Keiretsu, see if it resonates with you second, find a champion and then go through the process.