I had lunch recently with Steve Murchie who is the President of the newly formed Denver chapter of a national angel network called the Keiretsu Forum. There are 9 chapters in the US, whose members have invested more than $70M in a diverse set of real estate, technology, life sciences, and software companies to date. One advantage of a network like this is the ability to syndicate deals between chapters.
“Given that we’re a large and diverse organization, I can’t say that there’s any particular industry or type of deal we prefer. But if I look at our portfolio, I would say that we lean toward serial entrepreneurs and management teams with depth and experience, and a business model that is straightforward. So I haven’t seen many bets on technologies that don’t have a demonstrable path to monetization. We will step forward and help teams fill gaps through hands-on help, contacts and connections, though; we consider that an important value-add.” – Steve Murchie – Denver Chapter President
The first meeting of the Denver chapter of investors is March 27th. If you’d like to present your company, check out the application process or contact Steve Murchie directly. I believe there is no cost to go through the application process but once a company is selected to pitch at a meeting they are required to pay a fee.
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I always grimace when I see organizations charging entrepreneurs to pitch to investors, but it seems that most of the angel networks including CTEK still do this to cover their costs. In my mind this cost should somehow be borne by the investors, who are the recipients of the (theoretically valuable) dealflow. If they don’t find value in the dealflow, then something is wrong and the fallback seems to be to charge the entrepreneur. To be fair, Keiretsu and CTEK both have “membership fees” paid by their angel investors that help to defray these costs, but I guess these fees are not enough on their own to cover operations, and thus the “success fees” are an unfortunate fact of life. The solution, obviously, is to charge a higher membership fee and provide enough value to make it worth the money to the investors. It’s just easier to charge the entrepreneurs and it can be intelligently argued that they receive value from the process. That doesn’t mean I have to like it though. As an investor, I prefer to think of much of what I do as giving back and helping my community. I’m willing to bear the actual costs associated with my dealflow (which, by the way, are very close to zero).
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One thing that Steve told me about is how Keiretsu seeks to involve VCs in their process and meetings, providing a few complimentary memberships for this purpose. They’re not necessarily there as investors but as coaches to the angels and presenting companies. I think this is a very smart move. More than a few companies have been jacked up by inexperienced angel investors who overvalue the company early on or who don’t set things up correctly when venture investment is a future possibility. Involving a few professional VCs is synergistic for a variety of reasons.
Steve says that the March 27 meeting is close to capacity already, with about 70 investors attending. If you’d like to attend as an investor, contact Steve quickly.
From the sound of things Keiretsu is off to a good start so far in Denver, and it’s nice to know there is another seed stage funding source for the area with the ability to quickly syndicate our best opportunities.
Hey David, you almost have to look at the charging of fees to pitching companies from another lens as well: to wade through the yahoo’s and something for nothing wannabes. What’s the saying? “You can’t get something for nothing”?
And this goes both to both sides as I am sure the investors in this club (via their dues/fees) do bear a substantial proportion of the cost of facilitating meetings. Without knowing what the actual application fee is, it’s hard to determine whether or not a profit motive exists, though without knowing the amount, if it were exorbitant to the entrepreneur, I’d err on the side of staying away from that particular angel network/group.
Correct, I’m sure the vast majority of the costs are paid by the dues/fees as you suggest. I believe the cost to the entrepreneur to pitch is $1000 but I was not sure so I didn’t say that in the post. Perhaps Steve will clarify. Also, I don’t think it’s “profiteering” at all – they are providing a valuable service. I just personally think charging the presenters should be avoided. The goodwill that they’d receive in exchange would be enormous. I suppose the money also provides a screening process – those that can’t/won’t pay are perhaps not serious enough. Just something that rubs me the wrong way, but as I said in the post it could be intelligently argued that it’s the right way to go. Just not the way I would choose to go.
Hi David —
It was good to chat with you finally. I think you make a good point about the fee structures, but one also has to look at the value received.
Across our organization, the presentation fees scale with the number of investors active in each chapter so a chapter with 150 members will charge more than one with 25. This achieves a couple of things: 1) a large membership will generally see bigger and higher-quality deals; and 2) the entrepreneurs costs will reflect their access to active angel capital. Yes, this does tend to winnow out very-early stage startups, but weve always said that we lean toward more mature teams with some funding already behind them. When you consider that the gap in available startup capital spans $250K to $5M (i.e., between friends-and-family and the VC tier), I think we fill a critical niche.
Its also very important to us that we provide value to the entrepreneur at every stage of their application: pre-screening, in-person screening, Forum presentation, due diligence, and post-funding. Many of our applicants walk away with advice and assistance but no funding, only to come back later and receive the funding they need. In a company I ran recently, I applied to a number of angel organizations and the norm was to pay a fee prior to screening only to receive a thanks but no thanks form mail with no feedback. To their credit, Keiretsu Forum members didnt give me any funding either, but the feedback and insights were invaluable to rethinking our strategy. Ive heard this a lot from prior applicants, and my job here is to make sure that all the participants angel and entrepreneur receive the same value for their time and money invested.
Steve