Opinion

I met a prospective client last week to discuss a search they need to fill for an important position. In the course of discussing the job and what they had done to fill it, the CEO told me that he had posted the listing on a social networking site and received over 800 responses! He went on to tell me that he had to hire two contract recruiters to go through the responses and they still weren’t sure if they had any candidates, which is why he called me. On the ride home I got to thinking about what has happened in the last 20 years...

“Don’t waste a good crisis,” the new mantra goes. So let me ask this: Why aren't we using this epic downturn to fundamentally re-frame the relationship between GPs and LPs? Instead, people are battling along the same lines across which LPs and GPs have been skirmishing for years. It's like World War I: fierce battling yields a few acres of pockmarked muddiness. But what if it doesn't actually matter if the fee offset is two-thirds or three-quarters? What if it really doesn't make a difference whether the no-fault is triggered by 66% or 80% in interest? Maybe the the LP-friendly/GP-favorable axis needs to be discarded in favor of some entirely new, orthogonal continuum that re-thinks how interests are aligned? Let me put a finer point on it: Currently, LPs worry that the carry system grants GPs a free option in times of frothy markets; LPs ask: "Why pay an incentive to people who simply capture beta?" GPs on the other hand bellyache about how long-dated carry payouts can be; after all, those wacky hedgies get paid every year (watch those high watermarks, boys).

It's not often that we hear about an event that could have crippled a venture capital fund, wiping out years of success and severely impacting the fund’s operations, returns and ability to raise future capital. We recently did, however, and we wanted to report on it so that other investors would gain a deeper understanding of the risks and responsibilities that are thrust upon the individual or firm that takes on the role of a shareholder representative following the closing of an M&A transaction. The following is based on a true story, but the names and other details have been changed to protect reputations. Be assured, the thrust of the story and its implications are completely true.

This week, one of my favorite customers of all time passed away: Neal Page. Neal had been fighting Acute Myeloid Leukemia, and a good friend of mine sent me news that he succumbed to it this past Monday – I hadn’t talked to Neal in a few years, so I was unaware of all of this. You can read about Neal here. As I reflected on him, it got me to thinking about a situation that happened to me a few years ago. When we were raising our most recent fund, a prospective investor was finalizing his due diligence process on us, as we were being presented to his management for approval. He had taken interest in our somewhat unique approach to apply our deep sales and marketing backgrounds to the venture side of things, and as a final step of his due diligence process, he asked to speak to 50 former customers that either my partner Brian or I served from our past.

While the FDIC is well known for providing deposit insurance, another of its principal roles is that of receiver for failed depository institutions (i.e., banks and thrifts). In connection with this activity, the FDIC engages in the post-failure sale of the assets of these institutions in order to recover the maximum amount possible to settle the claims of the institution's creditors, including the FDIC. The FDIC's Division of Resolutions and Receiverships, located in the FDIC's Washington, D.C. and Dallas offices, coordinates the sale of these assets, which, while numerous and varied (including furniture, art and other miscellaneous items), are comprised primarily of performing and non-performing loans held by failed institutions. Although the FDIC has great latitude in how it structures its loan sales programs, it must comply with its statutory obligation to dispose of a failed institution's assets in a way that is least costly to the FDIC's Deposit Insurance Fund. While these efforts have typically involved the direct sales

It is no secret that media has long been a very popular sector among private equity investors. Its popularity was shared among lenders, who were willing to lend to media companies at much higher multiples than they would to other industries because of the underlying franchise or license value. The bad news for media investors and lenders is that the 2007 to 2009 period is no normal cyclical downturn, and the oligopolistic franchise value no longer exists. The advertising revenue base and valuation multiples for radio and magazine companies have experienced a permanent structural decline. The bulk of the decline has been driven by the loss of pricing power for radio and print advertising due to the emergence of the internet. There is also potential for further decline as consumer spending, and thus advertising, becomes a smaller share of the US economy. The good news is that there is light at the end of the tunnel for radio and magazines. Surviving the current downturn will be a victory for any media investor, yet there are opportunities for new investors to enter the industry.

Somebody recently asked us if we expected to be appointed the post-closing representative for the former Data Domain shareholders, regardless of who bought them (the company is currently “in play” with both EMC and Netapp making bids). After all, many of Data Domain’s major shareholders are VCs (including Greylock Partners, New Enterprise Associates and Sutter […]

With July 4th approaching, the unofficial summer is about to begin. In almost every board meeting with portfolio companies and other entrepreneurs who are raising money, I’m hearing the same refrain: “My VCs are about to shut down for the summer.” Phone calls and emails won’t get returned, partners meetings won’t be held, and you […]

The debate is heating up about the impending regulations from the government applied to Private Equity (PE) and its sub-class Venture Capital (VC), fought by the National Venture Capital Association (NVCA) and reluctantly supported by the Private Equity Council (PEC). The latter stating that private equity does not represent a systemic risk. Perhaps not, if […]