Angel investors may indeed be all around us, but I’m beginning to wonder if these wealthy investors have enough time to belong to all of the groups that want them as members.
That thought occurred to me last week as I watched the inaugural meeting unfold of the Philadelphia chapter of the Keiretsu Forum, an international angel network based in San Francisco.
After months of work, due-diligence expert Howard Lubert and financial adviser Vincent Leusner have brought the 21st chapter of the Keiretsu Forum to Philadelphia. Lubert, who is the brother of prominent local investor Ira Lubert, has been an angel investor with other groups over the years, but said he was impressed by how Keiretsu Forum’s process works.
According to the Pennsylvania Angel Network, there are about 250 individual members in the eight angel groups in the Philadelphia area. Two of them have formed within the last 18 months.
What’s prompting such groups to proliferate? In part, the decline in the number of venture funds focused on seed and early-stage investing. Angel investors have always had a role in investing at the earliest stages of companies’ development. They seem more conspicuous by the absence of the venture funds.
For example, Compliance Assurance Corp., a Pittsburgh-based financial-software company, raised $1.25 million last month from several groups, including West Philadelphia’s Robin Hood Ventures, an angel group that led the round. Delaware Crossing Investor Group, of Doylestown, and Mid-Atlantic Angel Group, of South Philadelphia, also participated.
Members of Robin Hood invest as a group, putting $250,000 to $500,000 into a $1 million to $2 million round of investment. Since 1999, the group has invested $12.7 million in 33 companies.
Keiretsu Forum does not operate a fund. The 850 investors who are members through its chapters invest as individuals. Investment rounds range from $250,000 to $2 million. Randy Williams, who founded the group in San Francisco in 2000, said members had invested more than $285 million in 265 companies worldwide.
Another recent West Coast transplant to the Philadelphia angel community is Investors’ Circle Philadelphia, which now has about a dozen members, according to Tom Balderston, a Radnor investor. While Keiretsu will examine all sorts of industry sectors, including real estate, Investors’ Circle is focused on companies addressing social and environmental issues.
Lubert said he hoped to sign up 40 “accredited” investors for the Philadelphia chapter within a year. Balderston, who has been a member of Investors’ Circle for many years, said he hoped to build Philadelphia membership to between 20 and 25. (To be accredited, an investor typically must have a net worth of $1 million and/or individual annual income of more than $200,000.)
Organizers of Keiretsu Forum Philadelphia and Investors’ Circle Philadelphia say they see plenty of room for all the groups to coexist. In part, that’s because these more formal groups professionalize what had been an ad hoc exercise by individual investors who wanted to encourage and profit from new growth companies by committing several thousand dollars as well as their experience and contacts.
The arrival of Keiretsu Forum also brings to town a debate that has divided California’s tech community: Should entrepreneurs have to pay to pitch their business plans and if so, how much?
Entrepreneurs aren’t charged to submit an application or present at a deal-screening meeting, if they’re invited. But those selected to present at a member meeting must pay an administrative fee of $1,500.
When I told Randy Williams, who’d traveled to Philadelphia for the launch, that the fee sounded steep, he defended the charges as necessary to provide a high level of expertise and service to members as well as presenting companies. “You get what you pay for,” Williams said.
However, some angels and entrepreneurs object to the “pay-to-present” model. The Open Angel Forum (again from the West Coast) sprang up in response to the fees being charged by groups to put investors and entrepreneurs together.
Philadelphia Internet entrepreneur Gabriel Weinberg and IT consultant Antonio Tedesco held the first fee-free Open Angel Forum Philadelphia on March 16. Out of 80 applications, they picked six tech companies to demonstrate their products. They hope to hold another forum in September.
Jeff Snellenburg, chairman of the Pennsylvania Angel Network, said he believed there were enough deals to keep all of the groups and angels busy.
Plus, while Snellenburg certainly hopes to profit from the investments he’s made since selling his business in 2004, what he enjoys is the challenge of mentoring, advising, and interacting with promising young companies. “There’s more to it than just return,” he said. “You’re building a community.”