Entrepreneurs often hope to catch the eye of Keiretsu Forum, one of the world’s largest networks of angel investors, so they can pitch their companies to roomfuls of investors.
But one L.A. tech leader has caught Keiretsu’s attention for a different reason: He’s vowed to destroy it.
The entrepreneur is Jason Calacanis, chief executive of Santa Monica-based Mahalo.com, and widely regarded as one of the most influential and outspoken figures in the local tech community. He despises Keiretsu’s “pay-to-pitch” policy.
In recent weeks, Calacanis has launched a campaign – he calls it “Jason’s Jihad” – against Keiretsu, urging people to boycott events put on by the organization, which is based in Lafayette in the Bay Area. Although his focus so far has been mainly on Keiretsu, more recently he’s attacked several other investment groups that operate with a similar business model, including two based in Los Angeles.
At least one Keiretsu member has threatened to sue Calacanis over his attacks. The organization claims it only charges companies that can afford its services and as such dismisses Calacanis’ criticism as ill-informed.
Calacanis is blasting Keiretsu because the organization uses a pay-to-pitch model. Traditionally, angel groups have functioned as non-profits that hear entrepreneurs’ pitches for free; angels covered the expenses themselves, through membership dues and sponsorships. But it’s becoming more common for investment organizations to make entrepreneurs pay to pitch.
Entrepreneurs who make 20-minute presentations at events organized by Keiretsu – Japanese for a tight-knit network of businesses – pay a fee as high as $1,500. Keiretsu executives said the fee helps cover the cost of putting on the meetings.
But Calacanis argues that charging entrepreneurs to pitch is an abuse of power. Wealthy angel investors, he said, shouldn’t take money from entrepreneurs who might be cutting back their own salaries to keep their companies afloat.
Slamming Keiretsu and similar organizations as “low-class, inappropriate and predatory,” he said such groups should pay their expenses like other non-profit angel groups – with sponsorships and member dues. After all, the entrepreneurs aren’t guaranteed that the angels will invest in their companies. And if they angels do invest, they stand to profit.
Calacanis hopes to destroy Keiretsu, or at least its pay-to-pitch practice, by convincing entrepreneurs to boycott it and similar organizations and groups. If he’s successful, he would blacken the eye of a system that’s been gaining in popularity.
Calacanis believes he has a duty to protect budding business people.
“I started at the bottom, and I’ve got to take care of people coming up,” said Calacanis, who declined to discuss the matter by phone but provided answers to questions via e-mail. “Investors taking money from startups is like modeling agencies scamming aspiring models into paying them.”
Judith Iglehart, Keiretsu’s vice president for international chapter development, declined to respond directly to Calacanis’ comments. She said Keiretsu, which has more than 850 members in 18 chapters around the world, provides access to investors that entrepreneurs might not otherwise have. She also said if entrepreneurs don’t want to pay the fees, they can always go elsewhere.
More than 200 companies that have pitched at Keiretsu events raised more than $200 million from investors at those meetings, Iglehart said.
“We know the things that Jason’s been saying. But we also know he’s not a spokesman for the industry, and he doesn’t understand every model of the business angel community,” Iglehart said.
She said Keiretsu usually targets later-stage companies that can afford its fees. Next year, it plans for the first time to hold a free event for entrepreneurs at early stage companies. Iglehart said the move was planned before Calacanis launched his campaign.
A native of a blue-color Brooklyn neighborhood who sold Weblogs Inc. to America Online in 2005 for $30 million, Calacanis is respected or reviled for his opinions. The baby-faced, fast-talking executive is a regular speaker at tech conferences around the world, and he arrives at local tech events in his bright orange Tesla Roadster.
He is known for being vocal and occasionally over the top, and his campaign against Keiretsu is no exception. Playing on his declared “jihad,” Calacanis has posted a picture of an Al Qaeda meeting on his blog with his head photoshopped over that of Osama bin Laden’s. And when Calacanis interviewed a Keiretsu investor on his weekly Internet show “This Week in Startups,” he brandished what looked like a model of an assault rifle. Referring to the threat of lawsuits, he said: “Bring it on.” He then joked that he would sell his Roadster to pay his legal bills.
Keiretsu isn’t the only group that Calacanis has targeted. He’s posted on his blog the names of other investor organizations that charge fees and urged people to boycott them. Among the groups listed are Tech Supper Club, an L.A.-based network of investors, and Maverick Angels LLP, an angel network based in Westlake Village.
Tech Supper Club arranges for entrepreneurs to pitch a small group of investors in private meetings that are scheduled several times a year in Los Angeles. Zahava Stroud, Supper Club’s founder, said entrepreneurs are rigorously screened and carefully matched with potential investors. She charges each entrepreneur $300 to $600 to cover her administrative costs.
“I’m an entrepreneur who has to earn a living,” Stroud said. “If I wasn’t going to charge for this service, I wouldn’t do it because I can’t do it for free. And if I didn’t do it, all these entrepreneurs wouldn’t have access to these events.”
Maverick Angels charges entrepreneurs $1,000 to pitch to its Westlake Village chapter, and $250 to pitch its smaller chapters in Palos Verdes and Santa Barbara. It also requires entrepreneurs to take a $495 “boot camp” taught by Maverick Angeles staff and investors that explains how to pitch their companies most effectively.
John Dilts, founder and president of Maverick Angels, said his organization gives investors and entrepreneurs access to services that they don’t get with other groups. He noted that feedback from entrepreneurs who went though the Maverick Angels process was overwhelmingly positive.
“We’re not trying to make money off entrepreneurs,” he said. “We’re strictly trying to orient them toward the best way to do things, and to pay for the structure to even have these events.”
Calacanis is targeting a concept – pay to pitch – that isn’t new among angel groups, or rare. A survey by the Angel Capital Association in 2005 found that 14 out of 47 respondents charged some sort of fee to entrepreneurs, ranging from $250 to $1,000.
But is it a practice that has become more common, and as a result it has drawn more attention, said Bob Foster, a professor of entrepreneurship at the UCLA Anderson School of Management, and a member of Tech Coast Angels and Pasadena Angels.
Angel groups that charge fees typically say they do so to cover cost and to weed out less serious entrepreneurs. They also reason that if they are providing a service– advising entrepreneurs on their pitch, for instance, or helping them with their business plans – they should be paid for it.
But not everyone in the angel community approves of the practice. When angel groups are run for profit, it raises the possibility of exploitation, said Joe Platnick, a director at Pasadena Angels who has written online articles critical of the pay-to-pitch practice.
“For-profit angel groups are trying to make money whether they’re making investments or not, which is really the wrong way to go because their interests are not aligned with entrepreneurs,” Platnick said.
Some tech bloggers have pointed out that TechCrunch, a prominent Silicon Valley conference co-produced by Calacanis, has an entry fee of $1,500.
But Calacanis and others argue there’s a difference: While most tech conferences bring investors and entrepreneurs together, they also offer other attractions for attendees such as the opportunity to network with other entrepreneurs and journalists, and to hear keynote speakers.
“While someone might go to a conference to meet investors, the investors are not taking the money from them,” Calacanis said. “They just happen to be there.”
There are entrepreneurs who secure investment from Keiretsu angels and enjoy success afterward. The group has a large portfolio of investments that include medical technology companies, a manufacturer of air purifiers and a supplier of bungee jump equipment.
But some entrepreneurs have had bad experiences at Keiretsu events. One angel investor, who asked to remain anonymous, said an entrepreneur complained to him that he had paid to pitch to what he thought was a roomful of Keiretsu investors, but later found out they were mostly contractors and consultants. The entrepreneur was approached by one of the consultants, who offered to help him find angel investors. The entrepreneur paid the consultant more than $10,000, but no investors contacted him.
Calacanis has collected other similar anecdotes and posted them on his blog. He said when he heard such stories, “my blood started to boil.”
Iglehart said Keiretsu does not allow consultants or its members to solicit entrepreneurs for business, but couldn’t address specific charges without more detailed information.
She said the organization is transparent and welcomes guests to sit in on meetings – even people who have criticized the group. “We’d love to have Mr. Calacanis come and attend one of our events.”
To which Calacanis retorted: “Not until they stop charging companies. Then I’ll sing their praises.”
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