When I embarked on writing a book about venture capital and entrepreneurship, I struggled with one question: how do I produce a 250 page document that is professionally edited, packaged and distributed, yet communicate the information consistent with the spirit of the blogosphere – open and free. Desipte the best efforts of many, the publishing […]
There are really three general asset classes in private equity: buyouts, growth equity and venture capital. So why is growth equity the best risk/reward among the three in my estimation? 1. The downside protection of leveraged buyouts is exaggerated. The lure is that LBO firms are buying highly profitable companies with consistent cash flows, levering […]
In investor parlance, there is an oft-expressed and colorful turn-of-phrase called "hair on the deal," which immediately signals the kiss of death for a company's investment prospects. There are, of course, grammatical and regional variations on this expression but the implication and import are always one and the same: that the company in question will not get funded. Among investors discussing a deal, the mere whiff of this hirsute quality will often suffice to end a discussion of the company's merits and shortcomings. In this post, however, I intend to delve into exactly what the range of characteristics exhibited by a company and/or its founders are that embody this dreaded state of 'hairiness.'
As an eternal optimist, I wake most days with a bright perspective. Today, I woke in a particularly good mood and before heading out for an early-morning workout, I sat down at my computer with a cup of french-pressed to scan the morning’s stories. One thing I came across was a blog post by Ben Horowitz, a tremendously successful entrepreneur who recently became a venture capitalist, partnering with Mark Andreessen to form Andreessen Horowitz. Now by all accounts, Ben’s a terrific guy who is passionate about building great businesses and I think it’s fantastic that guys like Mark and Ben have chosen to use their vast experience to help a whole new generation of entrepreneurs build their companies. However, as I read through Ben’s post, my sunny mood went downhill. I read it twice and I grew ticked off that Ben chose to rant about things that VCs do that he doesn’t like. I chalked it up to the fact that Ben probably had a bad experience with a VC yesterday and decided to vent a little bit. I jumped on the bike and began to pedal. As the miles went by, I couldn’t get Ben’s comments out of my mind. It bothered me that a prominent guy like Ben, after only nine months as a VC, took time on his bully pulpit to rant about the behavior of his colleagues.
Forgot the news about the increase in retail earnings that suggest the American consumer is back. Forget the fact that the Dow Jones closed on Friday right at 11,000 – the highest it has been in 18 months. Want to know the really good news? The US technology industry has never been in better shape, […]
There is an axiom in the venture industry that investor syndicates provide more stability for a young company, by avoiding a single point of failure. While this is true most of the time, it does not mean that from time to time, an investor within a syndicate may not develop a problem (catch a cold) that could create major challenges for an entrepreneurial company. Today, these “colds” come in the form of sponsoring partner departures (no champion remaining in the partnership) to a shortage of capital reserves for follow-on investing and/or a combination of the two. For the entrepreneur, a single investor failure in a syndicate can quickly become a financing crisis or “pneumonia." In many cases, the remaining investors – facing their own reserve limitations – may not be able to cover the pro-rata capital expected from their under reserved compatriot. And if the sponsoring partner leaves, who will be at the table, when the tough decisions are being made to speak on the entrepreneur’s behalf? If the entrepreneur is not represented in this critical discussion, chances are he/she will end up at the bottom of the allocation priority list.
I don't watch alot of TV, so I'm usually a late adopter when it comes to great television shows. Mad Men is no exception. Although the show is entering its fourth season, I'm just getting around to watching Season 1 and I am falling in love with the show. It reminds me of the Sopranos - flawed characters that you at times root for, at times despise, interlocked in an entertaining drama that centers on the fundamental search for happiness and respect. So while I'm in the midst of enjoying Mad Men, it was with great amusement that I hosted a dinner with a dozen or so CEOs of advertising agencies and advertising technology start-ups the other night. Last year, I blogged about how Madison Avenue was going tech ("Revenge of the Nerds", I called it). At the time, I thought there was hope that the big ad agencies would evolve to become techno-savvy nerds and help lead the innovation charge. This year, it's a foregone conclusion in my mind that Madison Ave's Mad Men are doomed.
So, there I was hanging out in Denver airport again, reading the back-and-forth between Ben Horowitz and Fred Wilson on fat versus thin startups. They’re both cats that I respect and I think they both make carefully reasoned, nuanced arguments that have far more depth than a quick summary can articulate. But all this talk of heft got me thinking about the Body Mass Index. Those hip to the BMI calculation know that it's a measure of weight relative to height. Doctors tend to be fans because it's a decent indicator of body fat which correlates with increased risk of morbidity and mortality. And BMI tends to work pretty well, except when it doesn't. For example, serious athletes tend to have more muscle per unit of height than the rest of us and thus have unusually high BMIs: Arnold Schwarzenegger's BMI clocks in at 33 (the "ideal weight range" runs from 18.5 to 24.9). Even George Clooney clocks in at 29, just shy of the "obese" cutoff of 29.9. The beauty of muscle, though, is that it's so much more metabolically active than fat. That's why one can be heavy, but fit; the two are not mutually exclusive. And neither, necessarily, are capital efficiency and cash abundance in the startup world. Indeed, while I do find myself more firmly in Fred's "lean" camp, I am sympathetic to the notion that sometimes a company with a lot of dollars on hand can pivot more quickly as business conditions change, or scale faster to discourage new entrants or build competitive advantages that give them a leg up on existing rivals. Companies can be well-funded but hungry. I get it.
M&A deals look a lot different today than they did 10 to 20 years ago. For most of the 1990s, a typical sale of a venture-backed private company involved a small-to-mid cap public company acquirer, in which the merger consideration was the acquirer’s stock and the deal was structured as a tax-free, pooling-of-interests merger. Fast-forward a decade and the structure has changed dramatically. The typical deal today involves a large public acquirer that is paying cash but is holding back some portion of the payment until after the deal officially closes to account for possible working capital adjustments, earnouts or other unforeseen issues.
I think that this bill, without analyzing every line on every page, will have some positive effect on healthcare investing and finance. 1. The removal of uncertainty is good. Now that there is at least some idea of what the new rules will be, investors, and strategic participants in the business can react. Some of the investment press has already suggested that healthcare will be a good place to be - the WSJ had a pretty good article this morning about winners and losers. Hopefully some of the prospective buyers and sellers of healthcare businesses who have been on the sidelines for awhile will now be back in the game. 2. Healthcare investing, both public and private, has historically been compared to a swinging pendulum. Time the swing right, and you make money. This phenomenon has been reinforced by healthcare entrepreneurs, particularly on the services side, who have a knack for sorting out government regulation and other business impediments. When the government changes the rules, they scramble and figure out how to make money in the new game, and when they pendulum swings, they win. Of course after the commercial interests have mastered the new rules, the government takes notice of all the money being made, and changes the rules again. The game starts over. Entrepreneurs will look at the new rules and go to work.