Keiretsu Forum MidAtlantic: an inside look at the local angel group that has invested $3.4M in two years

The Keiretsu Forum MidAtlantic is looking to invest, and it’s got the track record to show for it.

Founded in the spring of 2011, the local branch of the world’s largest angel network has invested $3.4 million in American and international companies, said president Howard Lubert. Compare that to Robin Hood Ventures — “the 800-lb. gorilla in the angel community,” as Lubert put it, who has invested $13 million in its 14 years of existence. Quick to say he meant no disrespect to one of the best-known angel groups in the area, Lubert wanted to underscore the fact that Keiretsu gets big deals done, and quickly.

Technically Philly attended the latest Keiretsu this week for an inside look at the angel pitch and investment community.

The group gathered yesterday morning for its monthly pitch session in a board room at Center City law firm Blank Rome. Roughly 15 investors, by our count, attended — primarily men, though there were two women present. A handful of Drexel law students called “Due Diligence Fellows” also attended the meeting. They help research prospective companies before forum members invest.

The MidAtlantic branch extends to Pittsburgh and Washington, D.C., with a total of 35 members, said forum Vice President Vince Leusner. In order to be a member, you must be an accredited investor (meaning, you have a net worth of $1 million, among other qualifications, according to the SEC). Guests are allowed at meetings, but  they, too, should be accredited investors, according to the pamphlet handed out at the forum.

As for entrepreneurs curious about the process, they’re more than welcome to come, Lubert said. Request an invite here.

Yesterday, the format of the meeting went like this: breakfast and networking, five roughly 20-minute pitches with a Q&A that followed, then a discussion or “mindshare,” as Lubert called it, amongst members on the merits of each company.

Lubert, who seems to know most of the investors, calling on them by name when they have a question, leads the meeting. He offers his commentary to the group after each pitch.

For example, after one pitch, during which the CEO of Israel-based gated community security company Sela Security Consulting promised to double investment in one year, Lubert told the group, “We don’t see deals with this quick of an ROI. Just something to think about.”

Later, during the group discussion session, Lubert told the group that he expected one of the companies to be acquired for $35-40 million in 12-18 months, worst case scenario.

“We could own 35 percent of that,” he said.

Former Governor Ed Rendell also stopped by to talk about his thoughts on the upcoming election, though Lubert said he invited him to actually talk about experiences in his new book that related to the investment community.

Lubert says the network actively looks for companies to pitch and also gets applications from companies that find Keiretsu online. The five companies that presented were:

• BizSlate – New York City
• Sela Security Consulting – Tel Aviv, Israel, with an office in New York City
• Defense Holdings – Manassas Park, Va.
• Suspension Orthopaedic Solutions – Arnold, Md.
• Akimbo Financial – Austin, Tx.

Here’s what a typical Keiretsu deal looks like:

• Often American companies, though Philly representation hasn’t been that strong. No Philly companies pitched out of the five that did yesterday, though Lubert says he would like to see more local companies present. Keiretsu invests about 80 percent in American companies and 20 percent in international companies, Lubert said. One company that pitched yesterday was from Israel, a place where the network has a growing interest. Lubert said the forum would start holding quarterly meetings focused on Israeli companies, as well as quarterly meetings focused on life-sciences.
• Series A or B round. Companies that present at Keiretsu are usually transitioning from R&D to sales and marketing, he said. They are not usually asking for money to develop their product.
• $250,000 to $3 million. That’s the sweet spot, Lubert said, though the forum doesn’t usually see many deals on the $250,000 side and will sometimes do bigger deals than $3 million.
• Not exclusive to Keiretsu. “We actively solicit other angels,” he said. The forum’s number one goal is to get an entrepreneur funded. “If the guy gets in front of this room,” Lubert said, “we want to get him funded.”
• Rigorous screening of the companies, before and after the pitches, coupled with training from Keiretsu on how to present. When one entrepreneur stumbled on his pitch, Lubert later told the group that he must have been nervous. Lubert said he had been through this entrepreneur’s presentation before and had seen him present much more smoothly.
• Entrepreneurs pay to pitch. If a company makes it past initial screenings and is invited to present to the whole network, it must pay $1,500. In a previous Q&A of ours with Lubert, he called it “a modest fee” and said that “somebody has to pay for the venue in which they pitch in.” Open Angel Forum, which took place this month and charges entrepreneurs no fee to pitch, was created in direct response to this practice.