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Tuesday, Jul 5, 2022

New Angel Investors Look To Seize the High Ground

Local Internet entrepreneur Jason Calacanis has launched an angel investment group that he claims will put a rival organization out of business.

Calacanis, chief executive and founder of Santa Monica startup Mahalo.com, told the Business Journal that he would launch his Open Angel Fund in the first quarter of next year in Los Angeles.

Calacanis said he expects two other prominent local entrepreneurs – Sky Dayton, who founded Earthlink Inc., and Matt Coffin, who founded LowerMyBills.com – to join him.

Open Angel Forum is Calacanis’ latest move in a campaign against so-called pay-to-pitch angel investment groups such as Lafayette-based Keiretsu Forum. Such for-profit organizations charge entrepreneurs fees of up to $1,500 to pitch roomfuls of investors.

Most angel groups operate as non-profits and do not charge entrepreneurs fees, but the number of pay to pitch groups has been increasing.

For-profit angel group officials say the fees cover the cost of putting on events and screening companies. But Calacanis counters that the groups prey on entrepreneurs desperate to raise cash.

Known in the tech community for his strong opinions, Calacanis has waged an Internet campaign urging entrepreneurs to boycott pay-to-pitch groups. He singled out Keiretsu, which is one of the world’s largest for-profit angel groups with 850 members in 18 chapters.

Last month, Calacanis said that if Keiretsu did not stop charging fees, he would create a competing angel group that would steal its business.

In an e-mail interview, Calacanis said Open Angel Forum would not charge entrepreneurs or members any fees. Instead, he said he would pay all the expenses out of pocket and personally invest in the most promising five or 10 companies that pitch his group each year.

“After five years and 25 to 50 angel investments, I’m sure I’ll be in the black,” he said. “If I wind up losing some money buying everyone breakfast or dinner, well, no big deal.”

A representative of Keiretsu didn’t seem threatened by Calacanis’ plans for Open Angel Forum.

“Keiretsu Forum believes Jason is doing is a great service to entrepreneurs and we support and welcome his new organization,” said Judith Iglehart, Keiretsu’s vice president for international chapter development.

Oversee Sued

A past problem at one of its subsidiaries is still causing headaches for downtown L.A.-based Oversee.net.

Earlier this month, Oversee dropped a bombshell when it revealed an employee at SnapNames.com Inc., a Portland, Ore., subsidiary that auctions off Internet domain names, had engaged in shill bidding – inflating the price of domain names up for auction. The shill bidding occurred over a period of four years and began before Oversee acquired SnapNames in 2007.

Oversee has since fired the employee and offered refunds to people who were affected. But now, both Oversee and SnapNames have been hit with a class-action lawsuit from a user who bid against the employee in at least one auction and is seeking damages.

SnapNames allows users to bid on available Internet addresses, or domain names. Owners of valuable domain names, such as Books.com, can sell them for up to millions of dollars, much like virtual real estate.

A SnapNames employee violated Oversee policy when he created a fictitious account and bid on domain names from 2005 through the third quarter of 2009. The employee’s bids helped drive up the price of certain domain names. In instances where the employee won the auction, he would secretly arrange for SnapNames to refund him some of the money he paid on the purchase.

Oversee executives declined to name the employee and said they have put policies in place to prevent shill bidding from happening again.

In his lawsuit against Oversee and SnapNames, Carlos A. Cueto alleges that the shill bidding falsely inflated the purchase price of at least one domain name on which he bid, leading to greater profits for the companies at his expense and other bidders.

Mason Cole, a spokesman for Oversee and SnapNames, said Oversee was reviewing the suit.

The lawsuit was filed Nov. 9 in Miami-Dade County court in Florida, where Cueto lives. Cueto is represented his twin brother, Santiago Cueto.

Play Money

Six Degrees Games Inc., a Marina del Rey-based company that makes online video games and virtual worlds for children, raised $7 million in financing, executives said last week.

Six Degrees’ main product is ActionAllStars.com, a site aimed at children 6 to 14. Users can log on to the site to play sports games, such as baseball, basketball and football, against other users.

The recent fundraising round was led by Time Warner Inc. Other investors were Clearstone Venture Partners and Prism VentureWorks.

Six Degrees plans to use the money to develop more games, hire additional workers and add marketing partners, said Timothy DaRosa, a company spokesman.

Staff reporter Charles Proctor can be reached at cproctor@labusinessjournal.com or at (323) 549-5225 ext. 230.

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