Venture Capital

Is private equity deal making really dead?

Jim Kim — Wed, 03 Sep 2008 17:27:03 -0400

Merger volume is down, but not dead. And those who aren't afraid to adjust to the new reality will be the winners. In TheDeal.com, a Jones Day partner argues that some private equity firms aren't sitting around waiting for the heavy leverage halcyon days to return. Instead, they are embracing a new model. Lots of money is still being raised and it is being put to work in different ways, going to "where North America has enormous capital needs--sectors like infrastructure and alternative energy that require huge amounts of equity." This is riskier in a sense, smacking of venture capital. Of course, you have to wonder if there are enough of these kinds of deals to go around. I doubt it. But it does reflect some new thinking that's out there in deal land. Jones Day expects activity by volume of deal transactions to outpace expectations. "We have so much in the pipeline right now that we expect the back half of 2008 to be more active than the first half of last year."

For more:
- here's the column

The end of venture capital?

Jim Kim — Tue, 08 Jul 2008 13:57:26 -0400

The headlines have been chock full of negative stories about the private equity industry--the busted deals, illiquid loans, the lack of financing and so on. The one corner of the private equity industry that may be hurting the most, however, is not leveraged buyouts, but rather venture capital. There's been talk for a while that perhaps the VC industry needs a new model. Breakingviews reports the litany of bad news: a dearth of deals, a surfeit of cash, negative returns, and so on--and suggests it's time for top VC firms to start returning money to investors. It used to be a joke among start-up types that accepting VC money was akin to selling your soul. More souls will be sold in the next boom, but that may far in the future.

For more:
- here's the Breakingviews article

Not surprising private equity returns slow

Mon, 04 Feb 2008 06:59:55 -0500

No one should be all that surprised that private equity returns slowed a bit toward the end of the year. In the third quarter, the slowdown was spread across all classes, buyout, venture capital, mezzanine and distressed debt buyouts, notes Financial News Online. It cited data from the State Street Private Equity Index, which calculates the internal rate of return. Venture capital had the biggest decline, dropping from 13.23 percent to 12.42 percent. Buyout returns, mezzanine, and distressed buyout returns were more modest. This is a blip in the big picture. But you have to wonder if a trend is in the making. A slower economy could really hurt. As could a narrower range of exit opportunities. One bright spot: due to the dollar, returns on overseas deals rose a bit.

For more:
- here's the Financial News Online article

Reality setting in for private equity funds?

Wed, 19 Dec 2007 06:59:57 -0500

There are two ways to look at the fact most private equity executives expect lower returns in the next year, according to a new survey by Financial News Online. On the one hand, they would know, and it makes all the people ponying up for more funds look a bit less than savvy. This could lead to severe investor angst. On the other hand, the new commitments could be seen as a multi-year bet. People are willing to live with a down 2008 as long as 2009 and beyond returns to expectations. I'm not sure what to believe. It seems premature to say the era of huge buyouts is over. We'll see some deals, but the financing isn't there for a whole lot of them. Venture capital may see some renewed interest in all this.

For more:
- here's a Financial News Online article

Related articles:
- Whither the VC industry?
- Crashing the private equity club?
- When will institutions give up on private equity?

Angel VC firms making it work?

Thu, 11 Oct 2007 06:59:55 -0400

There has been a lot of talk recently about the venture capital industry and how it has changed dramatically. The sense is that the mainstream firms really need a new model. Many responded by emphasizing angel-like investments, which required a whole new mindset. Angel-only firms seem to be a distinct breed. Case in point: First Round Capital, which according to Fortune, is one of the most successful angels out there. So successful in fact that it is now moving up the food chain. It wants to invest larger amounts and raise its first venture capital fund backed by $75 million to $100 million in institutional money. So this seems to confirm the theory that firms are better off with lots of little investments spread across the economic landscape rather than a few targeted bets.

For more:
- here's the Fortune article

Related articles:
- Whither the VC industry?
- Venture capitalists looking for earlier investments

Some good news for a change: PE-backed IPOs soar

Thu, 26 Jul 2007 06:59:55 -0400

The news has been uniformly bad for the private equity industry recently. But, hey, to brighten your day: Private equity-backed-listings have been faring really well, according to Financial News Online. Over the last 4 years, these issues have averaged a gain of 56 percent, compared with 44 percent for non-private equity-backed issues. That figure includes venture capital backed deals. So for the average deals anyway, the IPO exits have really paid off. There have been some big winners and big losers along the way obviously. Who has fared the best? Goldman Sachs Capital Partners tops most people's list. It shrewdly played both sides of the Atlantic, and its companies put up some great numbers. In the U.S., it really shined; it listed seven companies over the last four years, which gained 120 percent on average. This isn't going to make people feel that much better, and it seems a future glut is likely.

For more:
- here's the article from Financial News Online

Whither the VC industry?

Tue, 17 Jul 2007 20:01:35 -0400

Remember back during the tech startup era when everyone wanted to work for a venture capital firm. How times have changed. Fortune offers an interesting piece on whether the industry will exist in a decade. The model has really changed. For one thing, the competition is intense, and that is forcing more firms to act like angels, taking smaller bets on a lot more companies--a huge change. On the exit side, well it's getting harder. You can't sell initial shares unless you've got a great story to tell, meaning profits and soaring revenue growth. And in a way, VC firms are competing for startups with the big investors like Google and Microsoft. On top of all this, there's the proposal to boost taxes on partnerships. No wonder the cachet is gone.

For more:
- here's the article from Fortune
- more venture capital news

VC-backed IPOs wane a bit

Mon, 09 Jul 2007 20:01:34 -0400

We've noted that the initial public offering market has been much stronger than people anticipated. Most people assumed, wrongly, that Sarbanes-Oxley would continue to depress offerings. One especially bright spot recently was the uptick in venture-backed offerings. But that has fallen off a bit. June was a slow month, somewhat surprisingly given the previously torrid pace. The reason seems to be the giant Blackstone offering. It may be that a lot of institutional buyers wanted to pause and see how the market digested that issue. Not very well, it is turning out. There could be some frothiness to work through. In the last week of June, there was a spate of withdrawn offerings--the highest number since 2004--that claimed the likes of Everquest Financial. I'd like to see a comparison with private equity backed IPOs, which seem to be faring not quite as well.

For more:
- here's an article from Financial News

Update on the Dow Jones-Murdoch situation

Sun, 08 Jul 2007 20:01:34 -0400

Does News Corp. have a deal to buy Dow Jones? Well, maybe. The Business, a U.K. publication, has posted an article on its website saying that a deal has been agreed to and that a formal announcement is expected next week. But not so fast. Dow Jones has disavowed the story. And there is some skepticism about it, according to the New York Times. Indeed, there are also reports that the Dow Jones board is scheduled to meet with Ron Burkle today, apparently continuing its quest for another bidder. Which seems less and less likely. Frankly, it seems like the Bancroft family is torn. My take is that a Rupert Murdoch-friendly family member leaked news of a deal and perhaps painted it as done so as to pressure other family members who would like another bidder to emerge. It seems like there is a search on to keep Murdoch at the gate. We'll see.

Read the rest:
- here at The Business

VCs want separation from buyout funds

Thu, 17 May 2007 20:01:34 -0400

I think it's fair to say that buyout funds and venture capital funds can both be lumped under the rubric of private equity firms, which can in turn be lumped under alternative investments. But VC funds these days would like a little separation from their siblings. The issue has to do with the Senate's idea (not yet a firm proposal) to tax the carry of private equity firms as income not capital gains. That would really cut into profits. To hear the VC guys tell it, they are completely different animals, with different goals and business models. Would it be unfair to change taxes for one and not the other? Good question. This is the challenge facing the lawmakers. Very tricky to say the least.

For more:
- here's the Fortune article