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Seed Capital From Angel Investors: Larry Chaityn, Keiretsu Forum, New York Tri-State Chapters President (Part 3)

Posted on Sunday, Sep 5th 2010

By guest authors Irina Patterson and Candice Arnold

Irina: Tell us more about your advisory board. Is it an outside board?

Larry: Yes, it’s an outside board that I put together and these are people whom I highly respect in the community. One is G.S. Schwartz , a PR firm. Reid Smith attends, Citrin Cooperman, and there’s a company called the Calyx Group, they’re a strategy firm. And then there is another company, Laitmon & Associates. Peter Laitmon does branding. Peter was responsible for bringing Vespa, the motor-scooter, into the United States.

Everyone on our board is qualified to help entrepreneurs with their presentations and help them grow. You know, it’s not just us internally. You know, we want to make sure that we are looking at all of the best companies.

What’s really critical is the legal: Do they have intellectual property and the financials are where Citrin Cooperman really asks the hard financial questions.

It really helps the entrepreneurs understand what is required of them and what the investors are looking for. And every entrepreneur who has attended the CEO prep meeting has said, “Wow! It really is a good thing we attended this.”

Irina: I know you have a fee structure; could you talk about the fee structure?

Larry: There’s no fee to apply. There’s no fee to attend the CEO preparation meeting. There’s no fee to attend the deal screening. There’s a fee if one is selected to present at the forum.

It’s $1,500, if they are selected after deal screening, to come back the following week. Not everyone is selected. Out of fifty, about four are usually selected. They come back to present.

If it resonates with our investors and they’re looking for more funding, we always refer them on to other chapters, and if they would like, they’re able to present to other chapters. We send the other chapters all of our due diligence notes, and all of our investor feedback goes to our other chapters in preparation for at least the initial phone call.

Irina: Would that be a separate fee for them?

Larry: Right. It’s another group of about 100 investors.

Irina: How often do they go to other chapters?

Larry: We’ve probably had eight to ten entrepreneurs go to other chapters.

Irina: So, when you look closer at the company and you consider investing, what factors do you give the most weight?

Larry: The management team comes number one. So, the strength of the management team, have they done this before and do we believe they can do it again? Then it’s the product or service. Is there a large, expandable addressable market?

Irina: How do you usually conduct your due diligence; who does it?

Larry: It’s the investor. After a company comes to the forum and investors decide that these are the companies that they’re thinking of investing in, we’ll put together a due diligence conference call with the investors and the entrepreneur. We’ll then select a due diligence lead amongst the investors.

They’ll self select a lead. We have a due diligence checklist and pretty detailed workbook and then the due diligence process will begin.

Each investor takes a piece of the due diligence process. There’ll be an investor who looks at the financials, one who looks at the marketing, one who looks at existing customers, one who looks at the intellectual property and so on.

Irina: Since your chapter inception in March 2009, how many investments have you made?

Larry: We’ve made seven investments for probably $3 million in total.

Irina: What was the dollar amount on each, approximately?

Larry: The highest was $1.5 million, but that was pretty big. It ranges from $50,000 to $200,000 per investor. That’s typical.

Irina: Your investors invest individually, right?

Larry: Right, individually. And depending on the deal, it could be two or could be five or more investors on a deal.

Irina: How long does it take for a company to receive funding?

Larry: Due diligence takes anywhere from thirty to sixty days depending on how quickly the entrepreneurs respond to due diligence questions.

Irina: Do you think in terms of valuation of a company when you consider investing?

Larry: Certainly the valuation comes into play, because that’s really going to dictate the return on your investment. We do look at valuation along with the management team. The most important thing is can the management team execute the strategy? We will take an A-team and a B-product any day because an A-team will always execute, do well and then have a good, solid exit.

This segment is part 3 in the series : Seed Capital From Angel Investors: Larry Chaityn, Keiretsu Forum, New York Tri-State Chapters President
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