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Trends in private equity_ venture capital and angel investing

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					TRENDS IN PRIVATE EQUITY,
VENTURE CAPITAL AND ANGEL
INVESTING


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
    flow positive

   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.
CURRENT TRENDS
   Private Equity
       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”
        sales.
       Many PE firms have raised VC funds
       Strategic buyers have a huge advantage in acquiring assets
        now
       Most active categories are healthcare, IT, energy and
        banking/finance.
       Software, media, electronics and telecom is starting to pick up
        again
       Obama Cap tax laws providing incentive to sell this year
CURRENT TRENDS
   Venture Capital
       High unemployment has increased entrepreneurial activity
       Funds have become very hard to raise after the economic
        collapse
       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
CURRENT TRENDS
   Angel Investors
       Most common way to finance an early stage business
       Cash available on more agreeable terms for the
        entrepreneur
       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
 Intellectual property
 Barriers to entry for competition
 A clear customer need/challenge to be solved
 Recurring revenue
 Scalability
 Obvious exits
 Opportunities to disrupt markets
 Executional ease
 Strong management teams
 Clear metrics for success
 And Ultimately………ROI
THINGS TO CONSIDER WHEN SEEKING
FINANCING

 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
  helpful
 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
  VC firms
 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
QUESTIONS?

				
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