Private Equity
What follows is the prepared text of a speech given today by John Castle, chairman and CEO of private equity firm Castle Harlan, to the the New York Chamber of Commerce. It is a pleasure to address an audience so knowledgeable and concerned about our current economic situation. I think we can all agree that the economic meltdown of the past two years has been the worst since the Great Depression. Locally, nationally, internationally – everywhere we look, the economic wreckage is piled up. The causes of all this are many and often rehashed – the real estate bubble, excessive and unrealistic mortgage lending, derivatives whose risks were only dimly perceived. And all this is now compounded by consumers tightening their spending, businesses declining to invest, and banks refusing to lend. In addition, the mess has been global, affecting literally every corner of the world, even the Middle East. In the 1970’s, the Middle East Oil countries did extraordinarily well even as the rest of the world collapsed. But even this region has been adversely impacted this time as oil prices skidded from their peak of $150 before moving back up to $70. In this recession, virtually no region in the world did well.
10 min read · 23 September 2009
6 min read · 22 September 2009
3 min read · 18 September 2009
Most people seem to have a favorite Saturday Night Live skit. One of my favorites is, "Ruining It For Everybody," a 1993 masterwork that features John Malkovich and some cast members discussing how they did something to ruin things for everyone else. The Adam Sandler character, for example, explains why many restaurant bathrooms are now, ahem, "for customers only." Of course, finance is full of people who ruin things for everybody, too (thanks for the SarbOx, Enron!) But the most insidious wreckers are those companies that go public and then miss their numbers within a few quarters (what's up, Rosetta Stone?!?) It's those flubs that have a chilling effect on the market for emerging growth companies. And as the IPO backlog builds, I hope the bankers take out only those companies that can keep the momentum going, not just those that will pay enough fees to help them get out of
2 min read · 16 September 2009
1 min read · 10 September 2009
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
