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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