Private Equity
1999 vintage Venture Capital funds are infamous for being some of the worst performing private investment funds of recent memory with the average 1999 Venture Capital fund returning only about $0.95 on the dollar through 6/30/08. The poor returns of these 1999 funds are a result of two main factors: These funds were raised at or near the height of the tech bubble. These funds were often fully invested within 12 months of closing. The result was a ton of money invested very quickly at very high valuations. During the 3 year market correction that followed the tech bubble, venture capital lost favor with many institutional investors. Many of these same investors instead plowed their investment dollars into private equity funds. These funds enjoyed huge returns early
3 min read · 21 October 2008
5 min read · 21 October 2008
4 min read · 21 October 2008
2 min read · 15 October 2008
Every start-up board is having the same conversation these last few weeks: How will this economic crisis affect us and what should we do in our own business? We had our annual investor meeting this week and warned our investors that it was going to get ugly over the next year or two (surprisingly, they indicated that some of their other VC investors had sounded positively pollyanna during this annual season). For all the reasons I described in my recent blog, "Short-Term Bear, Long-Term Bull," we remain a fan of the start-up economy in the long run. That said, CEOs need to take swift action to make sure they survive to see the long run. For as economist John Maynard Keynes observed, "In the long run, we are all dead." My partner, David Aronoff
1 min read · 10 October 2008
At a recent private equity conference, Stephen Schwarzman was asked why he thinks Blackstone’s share price has fared better than those of the investment banks (see Erin Griffith’s summary here). Schwarzman attributed Blackstone’s relative resilience to the fact that it has long-term capital and is not subject to the daily money-market pressures required to support trading operations. Indeed, a key benefit of the private equity business model is that you can afford to be patient with your portfolio companies. However, the long-term nature of private equity capital is often overstated. Private equity funds have commitments from investors to call capital as needed to make investments. Most funds hold just minimal cash or other assets that could be considered actual long-term capital. While skeptics may wish to dismiss as semantics the distinction between commitments for and actual long-term capital, in periods of economic stress this difference can be highly problematic. Individual investors are often the first to default on capital calls. In the Internet boom, many of the founders and early employees of recently IPOed startups made commitments to venture capital funds with ten-year partnerships. When the market value of their stock options collapsed, many of these investors were unable to meet their capital calls—so much for long-term capital.
4 min read · 08 October 2008
3 min read · 07 October 2008
5 min read · 03 October 2008
2 min read · 01 October 2008
2 min read · 01 October 2008
