The subprime investment tactics by venture capitalists have had a damaging impact on the returns provided to limited partners, and on the technology asset class as a whole. We predict that as a result — and within 2 years, when the gestation period of the post-911 VC funds has expired — LPs will dramatically reduce the inflow of […]
To paraphrase Warren Buffett: As prices fall, a huge amount of financial folly is exposed. You only learn who’s been swimming naked when the tide goes out — and the financial shrinkage we’re witnessing is uglier than George Constanza’s worst nightmare. It was in 2007 that adjustable-rate, subprime mortgages issued during the boom years began […]
I dodged the snowflakes and made the trek out to Sin City for this year’s Consumer Electronics Show (CES). Although attendence is down, it’s still an insanely large audience of 130,000 attendees and 2,700 companies. CEA head Gary Shapiro reported in his keynote that industy sales were up over 5% and that 2009 will be flat […]
Subprime venture capital, as I described in an earlier post, is easily recognizable Here are some of my metrics. Run for the hills whenever an investor...: 1. Seems more interested in how it is built rather than what the disruptive business proposition is. Innovation becomes successful when it marries macro-economic value with micro-economic (technology) execution. Technology risk is the least of our worries in Silicon Valley, yet fundamental disruption is crucial and should take up the majority of the discussion. 2. Seems more worried about cost of development than cost of greenfield customer acquisition. Capital efficiency is a buzz-word investors love to throw around. In most cases they want you to be as cheap as possible. But capital efficiency is relative to the cost and value of customer acquisition. Not all venture capital deals start with a seed round below $250K -- more disruptive innovation usually
For a group priding itself on identifying, nurturing and commercializing innovation, it’s ironic that the venture capital industry resides in the relative backcountry of financial innovation. Considering all of modern finance’s experimentation and ingenuity (for better and worse), today’s basic VC model has remained untouched for over a quarter century. It’s as if 18th century […]
Erin Griffith lists 49 PE deals that went Chapter 11 in 2008, up from just two in 2007. Wow! But, not one technology deal made the list. (Wow again?) Leveraged buyouts in the technology sector are not new, as firms like Welsh Carson, TA Associates, GA and Warburg Pincus have been at it for over 25 years. But when the tech bubble burst and the IPO market became terminally ill back in 2000, these old-line firms were joined by a rush of overfed VCs (Battery, NorthBridge, Insight), generalist buyout shops and several new tech-focused PE firms – all of whom went on a remarkable fund-raising and shopping spree. The new breed of tech-focused PE firms were lead by names like Silver Lake, Francisco, Golden Gate, Vista and Vector. Many of these firms were built on tech banking talent that spent the 1990’s taking companies public. With the public markets dominated by hedge funds, day traders and regulators – these PE firms focused taking their old banking clients private. Like all LBO activity – the velocity and amplitude to tech buyout deals were dramatically enhanced by free credit and peaked in Q2 of 2007, when Kronos was taken private by Hellman and JMI for $1.8b, or 17x EBITDA.
Among my holiday readings this year was Alan Greenspan’s biography cum economic analysis, “The Age of Turbulence.” In retrospect, the book’s publishing date of mid-2007 preceded almost precisely the unraveling of the housing market in mid-2007 that eventually led to 2008 becoming the year of the largest market crash since the Great Depression. The book […]
Last week I wrote about capital market participants being overwhelmed by technology innovation and winding up totally stupid about valuation. Understanding the fundamentals of valuation theory helps us see how we got off the rails on value again – houses, stocks, etc – and how to think about value in the environment we are likely […]
Most days my colleagues and I start and end our days talking with candidates about their careers and, indirectly, their lives. Of late, our days have been filled with a mix of conversations with candidates who have either been hit with layoffs, are worried about it or are otherwise looking to make a career move. […]
I have a degree in systems engineering and am a huge fan of technology – BUT the computer and the internet have unraveled our financial markets and made us really stupid. In fact, our unbridled adoption of these technologies has caused our markets to regress back to the days of the great Dutch tulip bubble […]