TRENDS IN PRIVATE EQUITY,
VENTURE CAPITAL AND ANGEL
Presented by Tom Beusse
FairCo TEEM Meet up—10/27/10
TRADITIONAL FINANCING SOLUTIONS
Private Equity--focusing on investments in cash
flow positive companies
Venture Capital--focusing on early stage start
ups that may be revenue positive but not cash
Angel investors—high net worth individuals who
like to invest in early stage businesses
Note: All smart investors are considering exit
before deciding to enter.
Credit markets were tight but are loosening up again. Can’t
get as many turns of leverage but can borrow at 3-4%
25-40% of firms shut down as a result of shakeout
Remaining PE firms sitting on piles of cash and waiting to hit
the bottom (PWC says $850 Billion in unused capital)
Multiples have come way down so sellers aren’t selling unless
they have to.
Debt heavy balance sheets are creating “distressed asset”
Many PE firms have raised VC funds
Strategic buyers have a huge advantage in acquiring assets
Most active categories are healthcare, IT, energy and
Software, media, electronics and telecom is starting to pick up
Obama Cap tax laws providing incentive to sell this year
High unemployment has increased entrepreneurial activity
Funds have become very hard to raise after the economic
Limited partners are cash strapped
Still placing bets on Management and ideas
“A round” financing is harder and harder to raise and cost
of capital is increasing
“institutional venture capital” comes with aggressive terms
attached to it.
Many small/early stage companies are seeking earlier
exits. Less “b and c rounds” are taking place.
Multiples/valuations have come way down reducing the
upside for investors and entrepreneurs
Investors looking for clear indications of traction
Most common way to finance an early stage business
Cash available on more agreeable terms for the
Some days it feels like 1999 all over again. Investors
placing lots of “small bets” hoping for a few wins
Cash often comes with expertise
Vanity investments are common
Arrival of the “Super Angel”
THINGS INVESTORS ARE LOOKING FOR
Barriers to entry for competition
A clear customer need/challenge to be solved
Opportunities to disrupt markets
Strong management teams
Clear metrics for success
THINGS TO CONSIDER WHEN SEEKING
Sector expertise of the investor
“patience” of the capital
Age of the fund
“growth equity” or not?
Operationally oriented or not?
Attitude toward management
Strategic portfolio investments that might be
How much money do you really “need”?
Do I like these people?
THINGS LEARNED ALONG THE WAY
West Coast VC firms are extremely reluctant to
invest in East Coast start ups
There is a strong and growing group of East coast
media and tech VCs (Boston/DC/NY)
There is a growing number of CT based PE and
Strategic investors can complicate exits
Working with PE firms is like working with the
mob. If you say you will have $5oo by Monday,
don’t show up with $300 on Tuesday.
20% of something is better than 80% of nothing