Private Equity
2 min read · 31 August 2009
This post was co-authored by Ian Charles and Barry Griffiths, both of Landmark Partners. In the wake of nearly a decade of less-than-outstanding performance, many investors are re-assessing their expectations of venture capital investments. In the late 1980s and early 1990s, VC was viewed as a small, exotic and risky opportunity. During the tech boom of the late 1990s, VC was widely viewed as a surefire ticket to riches. Now, two stock-market crashes later, many investors are concerned about the anemic returns they have received from their VC investments over the past 10 years – Venture’s Lost Decade. Is venture capital likely to continue its recent record of underperformance?
2 min read · 29 August 2009
Can you still make money in venture capital? The answer is definitely, yes. There will be fewer venture firms, but those that succeed will do so by returning to the proven investment principles that served the industry well up to the emergence of the dotcom bubble. Specifically, successful venture firms will regain their focus on specific industry sectors and cultivate relevant industry expertise. They will invest in startups with a clear path to profitability within a five-year time frame and invest only in companies that have a proven concept and viable business model—companies at an earlier stage than this are generally better funded by angels and old-fashioned bootstrapping. The best venture firms will have a lofty goal – zero failures -- that will help insure relentless attention and focus. This is a strong contrast to the now accepted concept of a “portfolio” approach, where it is generally accepted that 2-3 exits can make up for the failures of the rest of the portfolio.
4 min read · 14 August 2009
Paul Kedrosky recently had a post about the decline of the number of entrepreneurs. It generated a ton of comments, with a pervasive theme being that there would be more entrepreneurs if it weren’t so risky. This raises something that I’ve thought for sometime is a misconception. Yes, being an entrepreneur is risky, but is it that much riskier than the alternatives? I’ve been an entrepreneur now for several years and have started a couple companies. I remember a conversation with my wife a few years ago in which I suggested that it must be hard to be married to me given all the risk and financial uncertainty associated with my career. She immediately said, “I don’t know that it’s so risky. Is it any riskier than going to work for a big company that can fire you anytime for any reason, many of which have nothing to do with you? At least you’re controlling your own destiny rather than relying on some else to not screw it up.”
3 min read · 13 August 2009
Hey, finance professionals: We've got a problem. Really we do. In case you haven't noticed, the Great Recession of 2008/9 has a Villain (with a capital V) and it's you and me. I know, I know, we did nothing wrong; we're generally decent, hard working, well-intentioned souls who humbly ply our trade in a peculiar, esoteric and well-paying corner of the economy. But we don't actually produce anything tangible, which makes us an easy target when a lot of people who do actually manufacture real "stuff" are out of work. And, indeed, the demagogues swirl like turkey vultures seeking carrion. Who is blameworthy for the sad state of affairs in this country? The cry rises from the frenzied mob: Banks! Private Equity Firms! Mortgage brokers! Investment banks! Venture Capitalists! Money Managers! MBAs! (Barney Frank busies himself handing out torches and pitchforks while Timmy G and the Treasury crew ready the shackles.)
4 min read · 11 August 2009
Tombed: @biz says 'we don't have a PR person at @Twitter. We don't need to pitch stories to media' (July 23rd, 4:57pm, #brainstormtech) I love Twitter. Its transformation from a status-updating system to what might become the world’s communication platform has impacted millions of people. Yet ironically, as spelled out by recent TechCrunch and Wall Street Journal episodes, Twitter’s own communications strategy leaves much to be desired. Twitter does not see how public relations could help build its business and convey key brand-building messaging. And while I certainly don’t believe short-term prospects are even moderately threatened, Twitter’s long-term success just might be.
4 min read · 07 August 2009
There is a saying that the road to hell is paved with good intentions. If that’s the case, the federal government’s current assault on innovation in America must signal Washington's determined effort to seek canonization for its technocrats. At a time when our economy is in desperate need of re-invention, the federal government is putting American innovation at enormous systemic risk. Sure, rhetoric calling for innovation is common in many speeches about re-invigorating our economy. Unfortunately, through a series of policy decisions – decisions either already enacted or likely to be enacted – the United States is rapidly becoming a much less attractive host for the twin pillars of innovation -- talent and capital.
4 min read · 06 August 2009
There’s a great line in the movie Wall Street when Gordon Gecko first meets Bud Fox. Gecko says to Fox: “This is the kid, calls me 59 days in a row, wants to be a player. There might be a picture of you in the dictionary under “persistence” kid. So tell me ‘Why should I be listening to YOU?’”
6 min read · 05 August 2009
One of the things I continue to struggle with as a VC is the unfortunate fact that I am in the business of saying "no" all the time. Saying "no" in the context of how you invest your time is one thing - fellow VC blogger Brad Feld did a good blog post on this topic in the context of time management a few weeks ago as did Y-Combinator's Paul Graham. But I really struggle with saying "no" to entrepreneurs. Entrepreneurs pour their hearts, souls and dreams into their start-up ventures and to summarily dismiss them remains the hardest thing about the job. One of my entrepreneur buddies asks me whenever I see him: "So - did you crush any entrepreneurs' dreams today?" Very funny. Ha ha.
3 min read · 04 August 2009
A recent case from the Delaware Chancery Court, Stockman v. Heartland Industrial Partners, L.P. decided important issues relating to the indemnification of private equity and venture capital professionals by their affiliated funds, in connection with their service as directors and officers of the funds’ portfolio companies. The decision was largely in favor of the investment professionals and will likely result in their prevailing on claims to be indemnified by the fund. Like any of the cases involving the critical issue of indemnification, this one both provides new guidance and confirms the importance of carefully applying existing rules of the road when crafting investment partnership agreements. The case arose from a failed investment by Heartland Industrial Partners in Collins & Aikman Corp., a manufacturer of automotive interior components. David Stockman, a co-founder of Heartland, and Michael Stepp, a Heartland managing director, served as officers and directors of Collins & Aikman. After exhausting all available insurance policies, they sued Heartland when the firm refused to advance funds for their legal defense expenses in various civil and criminal cases related to Collins & Aikman.
5 min read · 03 August 2009
