Great comment. With LP's demanding fewer losses and money back sooner, VC's are pushing later stage, looking for cash flow (which the efficient social/web start-ups are hitting earlier) and relying more on funding founder liquidity versus growth capital. With a lot of players doing this, later stage valuations (and even mid-stage ones) are going stratospheric. So, firms are also rolling out more aggressive small ($100k type) seed programs to spray across the landscape and cover their bases. Very bi-polar. Will be interesting to see how this impacts IRR's.
Matt
Matthew B. McCall
Partner
New World Ventures
111 South Wacker
Suite 4000
Chicago, IL 60606
From: IntenseDebate Notifications
Reply-To: IntenseDebate Notifications
Matt
Matthew B. McCall
Partner
New World Ventures
111 South Wacker
Suite 4000
Chicago, IL 60606
I agree that for a given deal, there is little visibility around ROI or return. However, when you aggregate up to the industry level, you end up with general bands of liquidity that fluctuate around tighter norms. So, across 250 acquisitions in a year, there may be a huge win but also a lot of smaller hits. When averaged out, for any given year, average annual acquisition value fluctuate in the $60-120m. The number of acquisitions bounces, usually, between 250-350. So, relative to the massive distribution differences on a given deal, the industry liquidity levels are smoothed out and sit in a much tighter band. So, if the overall exit liquidity doesn't support more than say $15B in invested capital, then the huge Black Swan(s) that you refer to above will be counter-balanced by a number of smaller wins. The LP with 30 or 60 fund investments, will end up with one or two funds with huge performance and a bunch with average or so-so returns. In other words, I'd contend, the dynamics have to work at the industry level or life is tough for VC's & LP's.
Best regards,
Matt
________________________________
From: IntenseDebate Notifications
Reply-To: IntenseDebate Notifications
There is also a lot of discussion around needing to pay bonuses and such to keep the best on board to turn things around. Unfortunately, I think most people on Wall Street are not looking to save the country right now. It's human nature--they are either trying to save their jobs or finding a way to arbitrage the situation to make more money off of it. It's not unique to or a knock on them as any of us would be doing the same thing. However, paying bonuses & large comp is not going to change the behavior and save the day. My friends on the Street are saying that the really talented guys are simply taking the bonuses and leaving to start their own firms. They are leaving primarily because the parent entity is so wounded and debt laddened (no mystery how it got that way) that they want to start with a clean slate and leave the taxpayers to pick up the old mess. Unfortunately, it's an asymmetrical risk profile.
Matt
Number of M&A deals has held up but the avg sale price has been dropping.
Matt
Matthew B McCall
Managing Director
Draper Fisher Jurvetson Portage
847-305-1970
Pardon my typos but big thumbs and a small iPhone.
Unfortunately, bear markets (1930's, 1970's, etc) usually end around a 7-8 P/E ratio. We only got back to around the mean versus the tail of the P/E curve. We still have another 20-25% to go until we hit there. The tech IPO's are the last to get liquidity and the first to lose it during the market swings. Lot of things wrong with the public markets, especially for tech IPO's but not enough room to go into here...
Regards,
Matt
Matthew B. McCall
Managing Director
DFJ PORTAGE Venture Partners
(w) 847-305-1970
mccall@dfjportage.com
Click here for blog:
<p style="margin-top: 10px; margin-bottom: 0px; padding-bottom: 0px; text-align: left; line-height: 0; ">
While I agree on the merits of bootstrapping, I disagree on "if it's legal, it's okay". There are ethical people (VC and Entrepreneur) and there are unethical ones. Since the entire business of entrepreneurship & venture capital us based on trust, once you violate that trust and go back on your word, the whole system unravels. Both the VC and yhe Entrepreneur have leverage at different times. Learning how to operate without relying on that leverage is the only way to go. Reputation can take a lifetime to build and minute to ruin...
Matt
Great point. As the credit crisis shows, the whole financial system, especially VC, relies on trust. When that breaks down at the very beginning, you have a very poor foundation for a future relationship.
Matt
Matthew B McCall
Managing Director
Draper Fisher Jurvetson Portage
847-305-1970
Pardon my typos but big thumbs and a small iPhone.
The issues are not with new deals. This is one of the best "buyers" markets that we have seen in seven years. It is with legacy companies. Follow-on financings are very difficult in venture and shrinking bank facilities, combined a recessionary environment, are impacting the buyout guys. The question is how many casualtieswill there be and how manageable will this downturn be.
Matt
Joe, the market clearly can't make up it's mind right now. Personally, I don't think we are on the edge of the abyss. However, I don't think this ends until we ratchet down over the coming year or so to 6,500-7,000 on the Dow. Bear markets don't end until people have sworn off the asset class for a bit and we are not there. We have a lot more bad news coming thru. That said, there are always amazing opportunities when everything goes down together. Oil stocks are one of those in my mind as are commodities and China stocks (but I'm a VC forecasting the public market so take it all with a grain of sand :-)
Matt
![[Avatar]](/images/avatar26.png){kind=avatar}
Medley