Keiretsu Forum founder Randy Williams plans to nearly double the scope of the angel group that he launched in the East Bay back in September 2000.
Today there are four Bay Area chapters and 22 chapters more across the U.S., China, Europe and, most recently, in Istanbul, Turkey. But Williams’ goal is to grow that number to 50, including the first chapters in India, in the next two years.
I caught up with him for an interview, excerpted here, after a recent Silicon Valley chapter meeting at the Palo Alto headquarters of law firm Wilson Sonsini Goodrich and Rosati. He told me about Keiretsu's hits, its misses and why he should have listened to his wife on one pitch.
Why do people in other parts of the world want to launch Keiretsu chapters?
It’s because of the innovation and market knowledge and market strength of our wonderful Silicon Valley and Northern California marketplace. The world is watching us. A week doesn’t go by that some delegation isn’t visiting Keiretsu Forum to check in.
What they are really checking in on is, what is our DNA? Why do failures, if they have learned from their mistakes, get funded again? I just love that DNA in Silicon Valley.
What is the impact of your expansion of Keiretsu?
We have great deal flow here and we are seeing great deal flow all around the world. Our expansion also supports local companies. Take our launch in Istanbul, Turkey, which has been in operation for six months and has 40 new members, for example. They have already funded three companies in Silicon Valley from Istanbul.
(Pharmaceutical startup) Savara traveled there with me to the launch. They raised money from that trip and now they are over $6 million raised through Keiretsu Forum in 16 of our chapters.
Historically, a company 10 years ago only had a couple of places to go for funding. Even if they were meeting their milestones, they may have run out of capital. A great thing about our network now is that there is always capital and resources there.
We are 26 chapters today but we could easily be 50 chapters in the next two years.
Why it’s growing? I’m not smart enough to tell you that. How it’s grown is organically. People hear about it but they really want to bring Silicon Valley back to our region of the world.
Anyplace in particular you are looking to expand?
Well, actually, it’s more that they are looking at us. There are outreaches from many parts of the world. I can’t say exact locations in the world because we are interviewing candidates right now. But let me tell you the regions: Middle East, Europe and India.
Have you had anything in Asia besides China?
We are in Shanghai, Beijing and Singapore. I have given a speech over in Kuala Lampur. They have invited me over there again. We are looking at other parts of Indonesia. It’s really amazing how many people are reaching out to create jobs in their communities and to bring innovation. They have the capital. They just don’t know how to create efficiency and that is what we do. We are a facilitator. We are a membership community. We bring companies together to meet with our members and magic happens.
Where are your most active chapters outside of Silicon Valley?
Most active domestically is our Northwest chapter in Seattle, which has close to 300 members.
The Northwest chapter I am very proud of because we are sharing companies back and forth. Over 125 companies have gone back and forth between the Northwest and Northern California region, for both resources and capital. I’m very proud of that.
I would say that outside of the U.S., it is a toss-up between Vancouver, which has more than 35 members, and Istanbul in terms of growth of membership and funding track record over the past six months.
Does getting approved to pitch for funds in on region automatically mean you can pitch to other regions?
No. You can’t just come and say that because I raised a million dollars in Seattle I’m coming down here. You have to go through the same arduous process, you have to go through the committee system, you have to go to deal screening, you have to get voted in. We haven’t changed that in 13 years. We get between 50 to 100 applications a month and only four or five make it.
In today’s session, five companies made the forum. If you do the math, in the last five years, there has been over a 50 percent chance for funding be companies that make it through the process.
Besides the chapter in Turkey, what was the big news at Keiretsu from last year?
We had two great liquidity events just this past six months. One of them is Clarisonic, which was sold to L’Oreal, and was a 13X return on investment for us. One of our other companies, Lucky Litter, was a 3X to us.
We are putting up a new website with recent liquidity events for our members and other people where they can look at our liquidity events.
Locally in Northern California we had 29 direct investments and our chapters are still reporting. Worldwide we are at 75 and growing.
Are there any discernible trends, in terms of sectors or locations, of the companies that make it through the process?
There are no trends I know of. For example, we have done $80 million in real estate investments and 25 percent of our portfolio is brick and mortar. But we haven’t seen real estate in six months. We’re always looking out for great real estate. Next time you come you may see a real estate company. Next time you come you may see 100 percent of the companies pitching will be from the valley. We never know.
You charge startups to pitch at Keiretsu What does that pay for? What do they get for that?
We charge an administrative fee that pays our overhead. They only pay the $1,500 if they make it through the process. Here in Northern California that is $1,500 times four because they pitch to four chapters. But 50 apply and only four make it.
If they have a pushback about this administration fee, we invite them to come watch the process. Once they come look, 95 percent want to proceed.
We don’t take fees. We’re not a fund. We focus on community and we focus on the entrepreneur.
If we really wanted to capitalize, we would let 50 companies present. But we don’t. We let the members select and if they select one, they select one. But usually the math is four or five get chosen to pitch.
We are taking a little piece, an administrative fee, to pay our employees and do what we do so that they can get resources and capital. I’m very proud of our model and we’re not changing it.
What is the investment that you as an investor personally are most excited about right now?
The way I like to invest is safe harbor. So I like real estate. It’s something I can understand, a fully tenanted office building or a multi-family project with 94 or 97 percent occupancy and no collection issues, with an average return of between 10 percent and 20 percent.
I also sometimes roll the dice, where something is risky but it’s also a big opportunity. Savara, for example, is going through the FDA approval process, which can be very dangerous. But there can be powerful opportunity there. The person behind that company returned 40X with his last one. At our meeting I asked how many of the investors in that previous company are coming in to invest and he said, all of them. I like that validation.
What’s one you wish you had invested in?
My wife chastises me because we have this company’s product all over our house, between my daughter and her using it. It was a 13X return on investment to Keiretsu members last year. It was bought by L’Oreal and the company is called Clarisonic. I missed it.
Most angels groups have less than 10 percent women but Keiretsu is around 20 percent. My wife and other great women investors show up in the room and they will guide us on these investments. That’s one where my wife was in the room. She still chastises me for it because she says we should have invested in it.
Cromwell Schubarth is the Senior Technology Reporter at the Business Journal. His phone number is 408.299.1823.
By Cromwell Schubarth, Senior Technology Reporter-Silicon Valley Business Journal