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Fees and Manipulation

Keiretsu Forum

Early on in 2011 when i was first starting my company i was approached by a Keiretsu member who claimed he was interested in investing in our first round (we had several rounds and then a very successful public exit afterwards) He suggested I fly out to SF from the east coast and I met with him in person at my expense after several phone calls. He tried to first pitch me on a "virtual incubator" where he would provide advice and consulting and a 3-5k "stipend" for 15% of my company. This was before i had raised any money but even as a first time entrepreneur with limited experience this seemed ridiculous. This was all over the phone but then I invited him to participate in my round and thats what precipitated the meeting in SF. At the meeting he informed me that I had a "lot of work" to do in order to get the necessary materials together for due diligence in front of his "investor colleagues" at the Keiretsu Forum. Of course he offered to "help" with this in exchange for "sweat equity" that he would provide in lieu of an actual funding amount. Only once he had gotten equity for his 'sweat' would he then actually consider investing. I balked at this and challenged him to invest as others began to commit to the round - he refused and told me that I would never be able to build a company as I lacked the business saavy to build a great company. Well its 4 years later and we just exited after building a fantastic company - had he invested in the round he would be somewhere between 8 and 10x depending on his timing. These guys are complete scammers - oh and had I actually taken him up on his multiple offers to swindle equity i would have then had to PAY to get in front of his Keiretsu brethren. These guys are complete frauds and just like the idea of being investors. They are playing a role they either cant afford or are too afraid to commit to. The fees they collect are literally the only thing that is keeping them going and they eat and drink those fees at their showcase shams every month RUN AWAy from these guys - if there were more regulations around angel group investing these guys would be in jail for fraud.

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We were offered terms and rejected them. We had another meeting in NYC the same day or would not have met with them. I went through the steps to do diligence on GHV to determine whether it was a legitimate opportunity to raise money for our company and determined that it was not.

We rejected GHV terms because:

-They were asking us for money.
-They agreed to provide references, but would never provide them when pressed.
-They were not engaged enough to understand our forecasting leading us to think that they didn't care.
-They would not commit to a valuation. Their contract placed valuation at the discretion of a third party allegedly paid by GHV.
-They refused to put dates and process around the diligence process.
-I could find no record of their ownership of any of the companies they identify as portfolio companies.
-They meet in shared space in the Chrysler building. Not in itself an issue, but they have absolutely no footprint. The space appears to be rented temporarily as needed.

My gut was that Manny's real business is skimming around 15K from start-ups in a "diligence" process that never happens. I was able to confirm with the associate who made our initial contact and is no longer with the firm that in two years of working there he had seen no closed investments and thought that something illegal was happening. I reported the details of our interaction with GHV to the SEC enforcement division.

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descriptive enough.

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