Todd Dean of Keiretsu Forum on Northwest Angel Investing Strategy
The Keiretsu Forum is the world’s largest angel community, with 750-plus accredited members across 18 chapters from Barcelona to Bellevue. Since 2000, its members have invested more than $180 million in 200 companies spanning technology, healthcare, consumer products, real estate, and other sectors.
So it’s high time I caught up with Todd Dean, the president of Keiretsu Forum Seattle/Northwest, to hear his perspective on local angel investing in the current economic climate. Dean is originally from Montana and built his career at American Income Life Insurance before catching the startup bug in 2002. Dean has recently been an advisor and helped raise funding for Seattle-area companies like NodeLogic Networks, BioPassword (now AdmitOne Security), PayScale, and LINQware.
Members of Dean’s local chapter of Keiretsu Forum have invested more than $47 million in 74 Northwest companies, as of January 2009. He says the size of deals has tended to be $500,000 to $3 million per company in a typical Series A round (although those were almost certainly before the recession hit). In terms of investment philosophy, he says members shoot for a hit rate of 6 or 7 out of 10 companies getting a 2-5X return. The main goal of the forum is to bring a structured approach to angel investing, which Dean says is often thought of as a big, mysterious thing. “We act as a group even though we all invest,” he says. “The majority of investors are serial entrepreneurs.”
Just last week, Keiretsu Forum Northwest announced some prominent new members, including David Anastasi, the former CEO of Bellevue, WA-based Captaris (now part of Open Text); Bryce Fisher, former defensive end for the Seattle Seahawks, now into commercial real estate; and Steve Gahler, a vice president and station manager at KSTW-TV.
Dean says his chapter sees 50 to 100 inquiries a month, which get narrowed down to two to four companies that are then screened at investor forums. There is a $6,000 fee to present. The companies that apply tend to break down into about 50 percent tech, 26 percent consumer goods and retail, 6 to 8 percent sustainability and cleantech, and 12 percent real estate (with the rest miscellaneous).
As for his take on investing in the Northwest, Dean says, “We’ve never lacked entrepreneurs, and never lacked capital. But there’s a huge disconnect between the two.” He points out that Keiretsu has been successful in the Northwest in part “because of pulling deals from the Bay Area” and working together with other Seattle-area investors. For example, he points to Seattle-based Earth Class Mail, which raised a large Series A round ($13.3 million) in early 2008 from Keiretsu Forum members and Bellevue-based Ignition Partners.
But there’s no question the recession has hit angel investing particularly hard. “Last summer, we thought we’d have lots of members not renew,” says Dean. But that didn’t turn out to be the case. The number of deals Keiretsu looks at did decline between August and March, but Dean says he has seen an uptick in the last 90 days, and also an uptick in Keiretsu’s membership—it’s now up to about 250 members in the Northwest, counting Washington, Oregon, and Idaho.
Dean has no illusions about the prospects of a broader economic recovery, however. “Between now and September will be the telltale sign of what happens,” he says. “I think this fall will be fine.” As for capital liquidity and exits, he says, “I don’t see it happening for 12 to 18 months.”
I pressed him a bit about the tendency for local investors to become more conservative in the current climate. Asked what’s really at stake here, Dean says, “Angel investing is as high a risk as possible, but it is the future. We’re all investing for a big return. That will only happen if people are thinking big.”