Opinion

As the Obama administration starts to talk about propping up small businesses with the next phase of the bailout, I’ve begun hearing noise from some venture capitalists and angel investors that the government should provide financial support to startups, early-stage venture capitalists and angel investors. All I can say to this is “vomit.”

What’s the difference between strategy and tactics? Age-old question. Usually, strategy is what you said was your plan after you blundered and lucked your way to a win. I was never more aware of this truism than at the recent IPO for A123 Systems, a new-age battery company that a few of us backed seven-and-a-half […]

Much has been written recently about whether venture capital and/or private equity funds should be regulated. The general idea behind proposed regulation is that any entity that could pose a risk to the nation’s financial network should be regulated to try to ensure that we avoid the messes that got us into this current recession. So the question then is, “Who presents a possible threat?” The arguments coming out of the VC world are essentially “Not us for a bunch of reasons.” Congress seems to agree. The proposed regulations have new language that would exempt venture capitalists. It says:

I find the preponderance of males in VC an annoying and stubborn phenomenon. When I first entered the start-up game as an entrepreneur in the mid 1990s, I didn’t think much of the “VC gender gap” as there were plenty of women executives around. In fact, between one third and one half of the executive […]

Only six weeks ago, many of us were wringing our hands about America’s faltering innovation engine. Investments in VC-backed startups had been plummeting for more than a year and American corporations had been slashing internal longer-term R&D spending for decades. Even the federal government has been investing markedly less on basic science and technical research […]

I have been fielding these same questions from my GP, LP and other industry colleagues: “What do you think about the ILPA Principles?” (soft voice) “How do you think it will affect my business?” (worried voice) “They don’t matter – we go through this every ten years when LPs try to get the upper hand.” (with bravado) Others are either more certain in their opinion or not so sanguine and believe that this effort will have a long term (and dependent on your perspective) positive or deleterious impact on the industry. A few LPs, smaller ones and non-ILPA members are even cowed by the impact feeling that the “big dogs” are dictating their ability to enter into funding opportunities. I’ve been most surprised by the few on the record comments by industry members and in particular the lack of specific statements by GPs. It’s pretty hard to disagree with common sense. I see nothing offensively troubling in the document. In fact, it has offered a kind of first hand self-review opportunity for the industry. I know. I know. We GPs are supposed to rebel instinctively against any proposal by an LP that governs or restricts our ability to do business. Bull! We appeal to Pension Funds, endowments, banks and other institutions for fund capital and want as few restrictions as possible. After all, this is capitalism, no? Atlas will not shrug his great burden but rather heave the world as we know it if these socalled Principles become ubiquitous. Hardly.

[Ed note: This paper is the first formal “policy perspective” published by healthcare VC firm Psilos Group, where Al Waxman is senior managing member] It’s been a long hot summer of debate and, dare we say it, discontent. Over the past six months, Americans have watched with anticipation and increased trepidation as healthcare reform details slowly emerge. President Obama has appropriately led the charge to alert Americans about the crisis and the need for change. At this point we all know our current healthcare “system” does not work and we have all seen plenty of evidence detailing the symptoms and root causes of healthcare’s failure. It’s now time to develop a *realistic* plan for change. We need to understand that we are attempting to fix an extraordinarily complex problem and it will require the best of all parties to accomplish that. Creativity and quality ideas are the essence to build a lasting solution. Reckless expedience, in this case, may serve a political purpose but is unlikely to serve the public interest. Thoughtful deliberations do not mean we do not move forward, but rather, that we move forward with good ideas on a reasonable and achievable time schedule.

In a recent DealBook column by Andrew Ross Sorkin, Guy Hands of buyout firm Terra Firma provides an unvarnished appraisal of the buyout industry’s bubble-era mistakes and its post-bubble outlook. It will surprise no one if the large majority of buyout deals completed during the credit bubble of 2006 to 2008 turn out to be bad deals. If that was the only issue facing buyout funds, everyone could just take their lumps and move on in a couple of years. The core problem is much more fundamental. The buyout industry has sized itself based on management fees drawn not only on the record amount of capital invested during the bubble years, but also on the record amount of committed capital for investments yet to be made. The pressure to maintain high management fees and the large amount of undrawn capital commitments conspire to create an environment in which even the deals that get completed after the credit bubble (i.e. from 2009 to 2012) are also likely to produce poor returns in the aggregate. Unless the industry reforms itself, the net returns for vintage year 2006 to 2010 buyout funds are likely to be worse than even Mr. Hands predicts.

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.