Denver snags Keiretsu Forum chapter

The rapidly expanding Keiretsu Forum, the nation’s largest group of so-called “angel” and venture capital investors, is about to launch its newest chapter in the Mile High City.

The 6-year-old group, which now includes 12 chapters and more than 500 accredited investor members, has scheduled its first meeting March 27th at the offices of Exclusive Resorts in downtown Denver. Attendance is by invitation only. Interested parties should contact Steve Murchie at (Tel: 720-506-4454, or smurchie@keiretsuforum.com.

Since its 2000 launch in San Francisco, the Keiretsu Forum has expanded into Los Angeles, San Diego, the Pacific Northwest and Boise, Idaho. In November it launched its first international chapter, in Beijing, China. Forum members have invested more than $100 million in 135 companies in technology, healthcare/life sciences, consumer products, real estate and other high growth industries.

Not to be mistaken for the apparently dormant Colorado Internet Kieretsu — a once-thriving organization of Colorado Internet entrepreneurs — the San Francisco-based Keiretsu Forum brings budding entrepreneurs together with potential investors at monthly meetings with the goal of providing early-stage funding for promising startups.

The Keiretsu Forum is far from alone these days. Other West Coast-based angel investing groups have emerged in recent years, including Silicon Valley Angels, Life Science Angels and the Band of Angels.

Last March, John Dilts, formerly the president of the Keiretsu Forum’s Los Angeles chapter, launched another new group, Maverick Angels. That Los Angeles-based group has since expanded into Silicon Valley.

So what does the proliferation of angel investing groups tell us? Is a new cooperative VC business model emerging? Or could it be that the world’s awash in excess capital looking potential investments? Should we be concerned that the VC industry is once again getting a bit frothy and over-enthusiastic?

I’d love to hear from a few early-stage entrepreneurs about whether things are getting easier for Colorado tech startups. Is there ample VC capital out there these days for quality business plans? Will the Kieretsu Forum’s arrival make a positive difference?

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3 responses to “Denver snags Keiretsu Forum chapter

  1. Steve Murchie

    Hi Russ – thanks for the blurb. Good questions about what the rise in visible angel activity might indicate. There are many others who have been around the professional investing space longer than I have, but my sense is that the growth in angel organizations is not an indication of “excessive exuberance.” Rather, I think it reflects the limitations that the venture capital marketplace faces, and a natural evolution of the angel investor environment.

    Most VCs will tell you that they are not risk takers. If you’re the custodian of $100M of someone else’s money (for example), you tend to be pretty careful about the investments you make. As a result, they see many more deals than they invest in, and tend to bet bigger on the companies they select. There’s also some basic math that drives the size of the investments. Let’s say there are four VC partners managing that hypothetical $100M – that means they each have roughly $25M to worry about. Subtract time out for screening opportunities, dealing with the LPs, and skiing at Beaver Creek [j/k – I was there, too!], then divide by the amount of time each investment requires for board duties and management issues, and you probably end up able to manage around $5M per deal on average. And bigger funds don’t necessarily lead to more investing partners to spread the love; instead, they may just invest later stage with bigger amounts. Nothing wrong with any of that: it’s all necessary to the funding ecosystem.

    Angels, however, tend to invest as individuals with their own money, and for the most part make smaller but riskier bets. The numbers add up, though. If you look back to 2005 (last year that I have data for), VCs in the US alone invested about $22B in roughly 3,000 deals, for an average of around $7M per deal. Note that 2005 was distinctly post-bubble, and the amount invested is in line with pre-bubble numbers. Incredibly, during the same year angels invested an equivalent amount — $22B, but in more than 50,000 deals (that’s 5-0 thousand), for an average of around $450K per deal. The median is actually much lower – closer to $250K. So even in a recovering capital market, angel investing has been keeping pace with venture capital.

    What is changing is organization. Most angels find their own deals, do their own diligence, and make decisions alone about whether to invest (spousal oversight notwithstanding). I have been around the angel space long enough to confirm that this often does not turn out well. It’s hard for an individual who is not a professional investor to be coldly rational about opportunities presented by their brother-in-law, best friend or golf partner, or which seem irresistibly ‘cool’. So we learn as we go, but often don’t learn fast enough. Indeed, as the saying goes: “good decisions come from experience, and the best experience comes from making bad decisions.”

    Enter the power of groups. An angel who can call upon colleagues to review deals together has the combined knowledge and experience of the group, and will approach an opportunity more rationally. Likewise, an active group can attract more (and better) opportunities to invest, increasing the likelihood of success. Finally, angels tend to invest more than just money in their portfolio – they invest their time. And with a bigger group, there is almost always someone with a contact, a referral, a skill or an idea that can help the entrepreneur, and that amplifies the investment significantly.

  2. Russ Arensman

    Thanks Steve — great comments!

    Fascinating to learn that there’s so many angel investors out there (50,000 U.S. deals in 2005 alone!)

    So I guess what you’re saying is, both novice and experienced investors can really benefit from participating in groups like the Keiretsu Forum.

    Anything that gets more entrepreneurs together with more investors is probably good for the region’s tech economy. We’ll have to wait to see, though, whether this leads to an actual increase in funds for Colorado startups.

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