Keiretsu Forum unveils a dazzling array of the year's most promising deal flow opportunities see more
Ending the year on a high note, Keiretsu Forum Northwest and Rockies will present the ‘best of the best’ investment opportunities and member awards to its investor community on December 6th
Seattle, WA, November 22, 2023 –– Keiretsu Forum Northwest and Rockies is excited to announce the Best of Keiretsu Forum Virtual Investment Showcase –– a unique event featuring the best investment opportunities and awards that will highlight the amazing accomplishments of its members this year. On Wednesday, December 6th, 12:30 PM - 4:00 PM PT, the virtual gathering will bring together over 250 investors and family offices from across the Northwest, Rockies, North American, and global network for an amazing crescendo to 2023.
Keiretsu Forum Northwest and Rockies consistently offers investors quality deal flow at all its events. Taking the screening process one step further, the Best of Keiretsu Forum Virtual Investment Showcase will host the best of deal flow investment opportunities from an already enterprising group. Attendees can look forward to a one-of-a-kind program comprising exceptional keynote speakers recapping 2023 and outlook for the year ahead.
The showcase promises a captivating experience centered on diverse deal flow. Each presenting company, chosen across sectors, will showcase their innovative technology and market opportunity. Investors can watch them and engage with founders in the Q&A sessions. The event will feature distinguished keynote speakers who will share their expertise and provide valuable insights into the investment landscape.
In addition to the main event, the showcase will also include robust breakout sessions the following day. These sessions will provide a platform for deeper discussions, networking, and exploration of specific investments. Attendees can look forward to connecting with like-minded investors, sharing ideas, and exploring potential collaborations.
Keiretsu Forum is committed to fostering innovation and supporting early-stage and late-stage growth companies. The Best of Keiretsu Forum Virtual Investment Showcase, a fitting finale to the year, is a manifestation of this commitment.
To secure your place at this exclusive event, please visit our website: https://www.k4northwest.com/events/keiretsu-forum-virtual-investor-summit. Registration is open to both Keiretsu Forum members and investor guests.
About Keiretsu Forum Northwest & Rockies
Keiretsu Forum Northwest & Rockies is a region within the global Keiretsu Forum angel investment. It includes chapters in Vancouver (Canada), Denver/Boulder, Bellevue, Seattle, Salt Lake City/Boise, and Portland. Keiretsu Forum Northwest & Rockies has more than 400 members and has invested over $500 million since its founding in 2005. For more information, visit www.k4northwest.com
Delve into personal perspectives on angel investing see more
Fund manager extraordinaire Peter Lynch’s near-mythologized adage says ‘invest in what you know’. However, the acquisition of knowledge almost always leads to an awareness of one’s limits. The more you know, the more there is to know. Entrepreneur and early-stage investor Bill Powell believes the key to successful angel investing includes the humility to listen to experts sitting across the table. That’s not all, though. We present his perspective, highlights from his investing philosophy and all of Bill’s mantras for better outcomes as an investor.
Starting From Scratch
It is important to know what kind of investor you are based on your expertise and the value-add you can provide. The filtering of deals and risk tolerance depends on these factors. Bill spent time pondering this question and found his niche in early-stage investments – where things are often in disarray and everyone is striving to make sense of the landscape. Every investor must make this decision for themselves and find the sweet spot to operate out of.
Success, it turns out, takes tons of hard work and a good dose of humility. Aged 22 at Wall Street, Bill was on the buy side, trying to make sense of pitches he knew little about, and he knew the next step in his journey had to be research, reading, and soaking up knowledge. Going through tomes of annual reports was one of Bill’s early lessons. Years later, working with founders and exciting new companies brought with it a whole new set of findings. Networking is another way to achieve better domain expertise, and angel investing also boils down to the people you associate with. It’s about learning from and building a network of experts.
Quantifying Investments & People
“Venture capital is the qualitative side of finance. I'm sure a lot of people here in this room are really good at math. But this is about people.”
Understanding people's value systems in the early stages of investment is a puzzle that investors need to grapple with. It's a crucial filter, yet there's no one-size-fits-all solution. Bill says he constantly works on making sense of this – and it's a continuous journey. It's crucial to listen, ask the right questions, and use tools and prompts effectively. But the core of it is emotional intelligence: understanding the individuals you're investing in. Bill encourages founders to share their stories and acquaints himself with their value systems. Early-stage investing is fraught with unknowns and knowing what drives your potential partners (along with sourcing deals with the help of experts in their network) is a way to derisk the process.
He also vouches for consistent allocation sizes and the need for reassessment with each funding round. When you decide how much to invest, know your boundaries and consider how your commitment will evolve. Are you putting in $10,000 in a pre-seed round? If so, think about whether that investment will grow to $100,000 through pro-rata rights and other investment-worthy milestones by the time it’s Series A. The cornerstone of this approach is consistency in your investments, even if you're not the biggest check in the room. When a company is transparent (about its mistakes as well), its KPIs are on track, and when it achieves pre-defined goals, the size of the checks may double. Bill adds, “We're going to invest regularly because we never know which vintage years are the best ones. We have a strong opinion on the economic outlook.. ..and so for the last 23 years or so I've been focusing on regular size allocations that fit with my portfolio.”
As an investor, another fundamental decision is whether to be passive or active. Taking the passive route involves investing in funds and keeping tabs on underlying companies. It's a way to wade into the waters one slow step at a time. Choosing an active role means going all in. It's not limited to financial support; it's about active involvement. This could mean securing options or warrants in the companies, bringing in deal flow, and extending a helping hand when things get tough. Active engagement gives you a favorable status.
Investment decisions revolve around a set of common but pivotal criteria that many may be familiar with. Each of these factors needs its own set of analyses and rigorous vetting.
- Team Dynamics
- Market Potential
- Navigating Competition
- Proven Traction
- Uniqueness and ROI
Depending on how the company is set up, it also doesn’t hurt to ask what's the relationship between non-dilutive equity grant funding and grant funding. Injecting strategic equity capital can be a game-changer, and it's vital to assess the potential return on investment. Setting realistic expectations is crucial and maintaining a reserve ratio ensures there's enough capital for follow-on investments. As Bill says, “What's the difference between a seed stage investment return and a series C? It depends. I've seen the seed stage receive 235 or 239 times the money and the series C receive 7.5x!”
Creating personal gating criteria is also something Bill advises. It involves assessing factors like the team's expertise, their values, and how they leverage exponential technology. Equally important is evaluating whether the technology helps society. Geography also plays a role as different regions offer unique advantages and challenges.
Understanding when to shift from an active investor to a more passive role is equally important. This transition often involves expanding your network, diving deeper into due diligence, and seeking input from third-party domain experts and advisors. As Bill puts it, “In summary, it's really just lifelong learning, engaging your network, going deep and frequent at a measurable pace.”
About the Speaker
Bill Powell is a seasoned investor and entrepreneur, currently the Co-Founder and Managing Partner of Anthropy Partners Fund. Anthropy invests in convergent technologies that improve human physiology, mental acuity, community & environment. He has previously held roles at Black Lab X and Stadia Ventures as the Managing Director. Previously, he was Director of International Private Equity at AMG National Trust Bank with responsibility for the management of international private equity and renewable energy funds.
Before that, he was active in several technology startups in Stockholm, Sweden. and Stadia Ventures, and was involved in several tech startups in Stockholm, Sweden. He started his career at Deutsche Bank North America in 1993. Powell also serves as an Executive in Residence for the University of Denver and an adjunct professor at the Daniels College of Business. In his free time, he enjoys outdoor activities and volunteering on nonprofit boards.
Watch Bill’s entire keynote here: https://keiretsuforum.tv/key-insights-for-successful-investing/
Key focus areas that drive good due diligence see more
Angel investing is not for the faint-hearted. It is also not as swift and glamorous as reality shows like Shark Tank would have us believe. In fact, angels often spare few efforts to ensure their time and resources create lasting value for themselves and the market. Much of this effort goes into due diligence — a term that makes startup founders queasy and remains a daunting prospect for angels themselves. How much due diligence is too much?
Angel investor and entrepreneur Rob Neville shed light on this topic in his Keiretsu Forum keynote. As MD of Springbok Ventures, a firm that backs early-stage startups, Rob has worked with countless founders, refining their business plans and ensuring they are well-equipped for growth. Let’s dive into the key diligence insights he brought to the table.
An Active Relationship
Rob’s due diligence philosophy goes beyond creating checklists and confirming facts. A company’s claims aren’t simply verified. Instead, his method is a lot more collaborative. It involves taking an active role in guiding the company, getting to know the team, and judging the team’s ability to execute the plan.
“We don't see that diligence ends when you're done with the diligence report. [It is] an opportunity to shape the company into a viable and investable entity,” says Rob in his keynote address. In other words, the process is a lot more immersive and symbiotic. Angel involvement can also mean making tweaks to the business model or the pitch to ensure the company is better placed to succeed. According to Rob, understanding why startups fail underpins a high-level diligence process. He narrows down 3 ways in which early-stage firms crash:
—Poor capitalization: Failure to raise enough funds
—Bad product fit: Flawed business model or getting outcompeted
—Inefficient team: Lack of credibility; disharmony with board
Let’s look at Rob’s advice on making interventions in each of these cases.
Startups often fail because they do not raise the money they need to take off or sustain operations. And nothing puts investors off quite like the lack of a good story. When the story does not live up to the product, Rob suggests working tirelessly to shape the CEO into a great storyteller. This is done to ensure investors can also believe in the founder’s (well-defined) vision and pledge their dollars. Primary risks need to be addressed early as well. His team helps companies by going through their GANTT charts along with their use of financials and proceeds to ensure they line up. It takes multiple rounds of vetting to refine a financial model. It doesn’t hurt for investors to even reach out to vendors and verify that the company will be able to scale and fulfill its promises.
Last but not least is refining the terms of security or collateral to manage the risk undertaken by angel investors. Rob summarizes his view, “We want to make sure the company is raising the right amount of money for the right security and that they're going to be able to get to where they need to get to with that money.”
Investors must confirm whether the startup’s product will serve the market’s needs. To this end, every single claim the company makes has to be tested against a credible source. For example, if a med-tech founder says that 20 million patients across America are diagnosed with a certain illness each year, Rob might ask for a peer-reviewed article that verifies the facts. His team also creates its own Total Available Market, Serviceable Available Market, and Serviceable Obtainable Market (TAM, SAM & SOM) reports, vetting them from various perspectives. Realistic assumptions guide these forecasts — sometimes leading to adjustments in the business model.
While validating a product is easier when it is in the market, there are ways to do this with products yet to be launched. Building surveys and doing on-ground research helps pinpoint the ideal customer persona and their thinking process. Lastly, rigorous competitor analysis is a more obvious stage of the process — one that can involve communication with competitors themselves.
Team Dynamics & Personality
Hundreds of business plans delivered to Silicon Valley VCs don’t see the light of day because the people pitching them don’t appear credible or warm enough. So how does one build a good level of credibility and connection? Angel investors need to spend considerable time with the founders and the team to forge a human connection. This can take many forms. Rob often takes CEOs and their wives to dinner and recalls how he even found a running partner in one founder!
Rob also advises conducting second-degree reference checks to make sure a founder with a dubious history does not take the investors for a ride. Commitment to the team also needs to be gauged and any wild claims made by the company is always good reason to raise doubts.
The angel investor life cycle is one of continuous research, judgment and instinct. A high-level due diligence process asks the right questions and takes active steps to shape the answers as best as possible. Drawing from valuable years of experience, Rob Neville has laid bare the intricacies that lie behind the veil of efficient angel investing, suggesting that due diligence is more than just ticking all the boxes. In the end, it’s about nurturing a relationship and going that extra mile to remove as many uncertainties as one can before the cheque is signed.
About the speaker
Rob Neville is an angel investor, serial entrepreneur, and member of Keiretsu Forum. Currently, he serves as Managing Director of Springbok Ventures and is also the President and CEO of non-profit employment generator Goodwill Central Texas. As a repeat judge and past winner of the Ernst & Young Entrepreneur of the Year Award, he has analyzed hundreds of successful companies.
To watch his entire keynote address click here: https://keiretsuforum.tv/three-key-focus-area-while-conducting-due-diligence-before-writing-a-check/
Valuations can be tricky but are a crucial step for startups and investors see more
Valuation is not just about numbers. It is a fundamental aspect of building trust, aligning interests, exits, and forming lasting partnerships. Valuation is at the heart of every startup journey, dictating investor decisions and shaping a startup's path towards growth and success. Without it, founders and investors will be in the dark. As Chair of Keiretsu Forum Northwest and Managing Partner and CEO of Keiretsu Capital, Nathan McDonald has worked with hundreds of investors and startups, conducting deals worth millions of dollars. In this blog, we will explore essential concepts and methods from Nathan’s keynote to help you navigate the complex landscape of startup valuation.
Detecting a Startup’s True Worth
Valuation is a critical factor in evaluating a company's potential and plays a pivotal role in raising funds. Deciding upon a valuation for a pre-sales, early-stage company is always tricky. That's because valuations aren't static; they're a dynamic concept that evolves as a startup progresses and reaches milestones. However, the real world is full of challenges, especially around funding, which can influence the valuation.
Every stakeholder in a startup has a unique perspective on valuation. Founders, advisory boards, early-stage and late-stage investors, and the broader market all bring different views. Understanding and harmonizing these diverse perspectives helps make the decision-making process easier. Often, disagreements arise among founders and investors regarding the former’s contributions. “Two-thirds of businesses fail because founders don’t have the mechanism to agree on what their contributions are worth,” says Nathan. To avoid this common pitfall, founders must accurately assess their contributions. This, in turn, enables advisory boards and investors to form their valuation perspectives based on the founders' input.
Early-stage and late-stage investors have varying focuses. Early investors place a strong emphasis on the team's capabilities, while later investors prioritize growth opportunities and financial metrics. Recognizing these differences is key to securing the right investors at the right stage of your startup's development. Founders may be the ones who drive a startup but they eventually need to bring in executive talent and management to chart new waters. Managing the cap table, ensuring transparency, and effectively explaining options to employees are essential aspects of creating long-term upside. Failing to value stock options adequately can lead to talent attrition.
Valuation varies based on the type of financing offered. Bankers and different types of buyers (financial, strategic, and emotional) assess valuation differently. Public markets also influence liquidity, but going public too early can have consequences. Convincing investors to buy into your startup is crucial. You must essentially convert “unwilling buyers” into willing buyers. To attract investors, offer a deal that is just right — neither too hot nor too cold. Finding the right balance in your valuation is essential for building trust and securing investors. Nathan adds, “Less than 3% of those with a high net worth enough to do angel investing make one $10,000 investment a year.” As the statistics show, convincing investors is hard! It is essential to set a realistic valuation because investors are competitive and astute. There may be a lot of capital out there, but investors are more careful than ever about where they put their money.
Getting to the Nitty Gritty
The Berkus Method, developed by seasoned angel investor and Keiretsu guest Dave Berkus, evaluates pre-seed startup risk across five key dimensions: Sound Idea, Quality Management Team, Prototype, Strategic Relationships, and Product Rollout or Sales. This method helps investors assess a startup's potential success and identify areas of concern. A Discounted Cash Flow DCF analysis involves projecting future cash flows, usually at a 10% discount rate, though a 50% discount rate may be more appropriate according to Nathan. Evaluating exit costs and ensuring alignment between the capital and business plans are critical. It's also essential to assess future funding requirements, a significant risk factor for angel investors. Maintaining the right balance between capital and efficiency is essential for momentum.
Valuing a startup based on specific criteria organized in a scorecard format is another effective approach. These criteria include:
Scorecard Approach to Decide Valuation
- Team Strength
- Profit Potential
- Competitive Advantages
- Intellectual Property Portfolio
- Investment terms
- Composition of the Capitalization Table
Maintaining momentum by having 80% of the cap table allocated for future growth is crucial. On the other hand, a top-down valuation approach, keeping in mind public markets, suggests that valuations should double every 18 to 24 months to achieve a 10x return in five years. The magnitude of potential upside significantly influences startup valuations. However, it's essential to recognize and adjust valuations when only a modest exit is expected.
Pre-money is the sum of all the cash, sweat equity, and ideas that have gone into the company before the investment round. It is crucial to understand the pre-money value because it determines the price per share. Post-money value, on the other hand, includes all the new financing that has gone into the company plus all the newly issued shares. It is vital to understand the post-money value because it determines the investor's equity in the company. It is also essential to be aware of convertible instruments and options that may not be taken into account in the fully diluted valuation.
Term sheets play a significant role in startup valuation. Different classes of stock have varying rights and preferences. Understanding these differences is crucial, particularly when it comes to preferred stock, which has liquidation preferences, preemptive rights, governance rights, and more. Maintaining integrity within the cap table is crucial. All classes of stock should align with the same principles, and there should be transparency in the ownership structure. The control features, such as the board composition, need to ensure fairness and alignment.
Convertible notes provide a flexible way to bridge valuation gaps. These notes offer a percentage discount based on future milestone events, helping investors get the value for their investment.
A key principle in follow-on investments is maintaining existing investor participation. A rule of thumb that Nathan advises is not to increase the valuation from one round to the next by more than 40%. Maintaining alignment and trust with existing investors is vital for long-term success. The goal is to incentivize early investors to enter the fray. To maintain alignment of interests among stakeholders, it's essential to consider valuation across your capital plan. Giving away chunks of stock without a clear rationale is not the way. Seek sound investor counsel and legal advice. Your legal counsel should be well-versed in structuring deals, and understanding restricted stock agreements, option plans, and convertible notes. Remember, lawyers don't determine your company's worth – the investors and the market do.
Cash is King
The amount of cash in your startup's bank account plays a pivotal role in valuation. In today's landscape, with fundraising becoming more challenging, investors sometimes want to see at least 18 months' worth of cash in the bank. However, just a year or two ago, six months of runway sufficed. Valuing your startup based on future cash that you haven't raised is a risky move. Your valuation should reflect your cash position, and it becomes more substantial once you secure the necessary funds. To put it bluntly, don't inflate your valuation without the cash to back it up. Existing investors are vital because they have in-depth knowledge of your company and should trust in its growth. If you overinflate the valuation, it can deter existing investors from participating. The goal is to keep it at a level where existing investors can reasonably increase their ownership and participation. Keep in mind that more informed investors are more likely to invest!
Startups may be notoriously hard to value, yet there are numerous ways to arrive at a number that both investors and founders can work with. Exploring diverse perspectives, growth opportunities, current talent, cash flow analysis, investment rounds, runway, and more are all valuable tools in the valuation arsenal. Once these tools have been utilized to make sure the price is right, the “unwilling buyer” may have no choice but to change their decision.
About the Speaker
Nathan McDonald is a Managing Partner and CEO of Keiretsu Capital and currently manages over $24M across four funds with over 200 investors and 165 investments to date. Keiretsu Forum is a worldwide investment community of capital, resources, and deal flow with over 50 chapters on 3 continents comprised of accredited private equity angel investors, venture capitalists, and corporate/institutional investors. Keiretsu Forum members invest in high-quality, diverse investment opportunities. Keiretsu Forum and Keiretsu Capital (the exclusive worldwide fund partner of Keiretsu Forum) are ranked as the most active venture investors in the USA according to PitchBook.
To watch Nathan’s full keynote visit: https://keiretsuforum.tv/10-valuation-tips-that-build-investor-trust-buyin-and-momentum/