Alan Blinder (former vice chairman of the Federal Reserve) is one of my favorite economists. His book, Hard Heads, Soft Hearts, outlines a compelling philosophy in economic policy – whereby a tough-minded, analytical approach is applied to solve difficult social issues. Thus, I read his recent NY Sunday Times article on the central role that […]
The first time I saw a swan we were on a class trip to Central Park (Look, kids! Nature!) White and fluffy and graceful, that swan was nothing like the flying rats we had back in Brooklyn. I remember, too, that our teacher said a pair nested every September over at the 79th Street Boat […]
Earlier this year, I wrote a blog about how to prepare for the financing process, focusing in particular on follow-on financings. Some readers have pointed out to me that I left out a very key element of the due diligence process: What the process itself reveals about the nature of the entrepreneur to the VC. Many entrepreneurs I […]
1999 vintage Venture Capital funds are infamous for being some of the worst performing private investment funds of recent memory with the average 1999 Venture Capital fund returning only about $0.95 on the dollar through 6/30/08. The poor returns of these 1999 funds are a result of two main factors: These funds were raised at or near the height of the tech bubble.
These funds were often fully invested within 12 months of closing. The result was a ton of money invested very quickly at very high valuations. During the 3 year market correction that followed the tech bubble, venture capital lost favor with many institutional investors. Many of these same investors instead plowed their investment dollars into private equity funds. These funds enjoyed huge returns early
In his speech at the Democratic National Convention in Denver, former President Bill Clinton correctly said that the two most important issues in this election are the future of the U.S. economy and America’s standing in the world. On the future of the U.S. economy, there is a clear contrast between the two candidates. Senator […]
The following was written by Julius Genachowski, founding partner of LaunchBox Digital and special advisor to General Atlantic, and Mark Gorenberg, a partner with Hummer Winblad Venture Partners. This is a defining moment in our history and the most important election of our lifetimes. We face unprecedented economic, energy, environmental, and healthcare challenges. It is […]
A lot has been said about the “bridge to nowhere,” but here’s an idea that might be a win/win/win: Right now the larger private equity firms have raised significant capital that they have little ability to use for what could be some seriously real time. Their choices are to buy things with all equity (not a bad […]
Every start-up board is having the same conversation these last few weeks: How will this economic crisis affect us and what should we do in our own business? We had our annual investor meeting this week and warned our investors that it was going to get ugly over the next year or two (surprisingly, they indicated that some of their other VC investors had sounded positively pollyanna during this annual season). For all the reasons I described in my recent blog, "Short-Term Bear, Long-Term Bull," we remain a fan of the start-up economy in the long run. That said, CEOs need to take swift action to make sure they survive to see the long run. For as economist John Maynard Keynes observed, "In the long run, we are all dead." My partner, David Aronoff
At a recent private equity conference, Stephen Schwarzman was asked why he thinks Blackstone’s share price has fared better than those of the investment banks (see Erin Griffith’s summary here). Schwarzman attributed Blackstone’s relative resilience to the fact that it has long-term capital and is not subject to the daily money-market pressures required to support trading operations. Indeed, a key benefit of the private equity business model is that you can afford to be patient with your portfolio companies. However, the long-term nature of private equity capital is often overstated. Private equity funds have commitments from investors to call capital as needed to make investments. Most funds hold just minimal cash or other assets that could be considered actual long-term capital. While skeptics may wish to dismiss as semantics the distinction between commitments for and actual long-term capital, in periods of economic stress this difference can be highly problematic. Individual investors are often the first to default on capital calls. In the Internet boom, many of the founders and early employees of recently IPOed startups made commitments to venture capital funds with ten-year partnerships. When the market value of their stock options collapsed, many of these investors were unable to meet their capital calls—so much for long-term capital.
The mood was somber on the 5:52 a.m. train as it pulled into Greenwich last Monday. A week after passengers had been shaking their heads at the Lehman epitaph, Goldman and Morgan Stanley were sending out releases that signified, in the words of The Wall Street Journal, that “Wall Street…will cease to exist.” I am […]