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Archive for the ‘boic’ Category

A decade of ups and downs on the M&A carousel

Posted in Board Of Intellectual Capital, boic, Economy, Gerbsman Partners, Investments, Market research, Marketing, Strategy, Technology, Venture Capital, tagged , , , on December 28, 2009| Leave a Comment »

Here is a good article from Financial Times.

In January 2000, as Steve Case unveiled the all-stock $164bn merger between AOL and Time Warner, the AOL chief executive declared it an historic moment that would transform the competitive landscape of the media business and the way people used the internet forever.

A decade later, the “deal of the century” is not only being unwound but is widely castigated as an example of the chief executive hubris that characterised a period when the worldwide value of deals exceeded $3,500bn and bankers briefly gained celebrity status but ended with their reputation in tatters.

Daniel Stillit , mergers and acquisitions analyst at UBSsays: “The decade opened at the high point of a merger wave. It’s ending at the low point”.

The new millennium began just as the US stock market was wrapping up its fifth consecutive year of double-digit gains and the rapid growth of the technology industry had started to ebb.

The urge to merge was driven by globalisation, deregulation, the need to reduce costs and the desire to gain critical mass – not to mention chief executives’ penchant for empire-building. Bigger was not only better, boards felt, but was necessary if companies were to compete and survive on the global stage.”

Read the full article here.

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Which Greentech Firms Will IPO in 2010?

Posted in Board Of Intellectual Capital, boic, Business models, tagged , , , , , , , , , , , , on December 22, 2009| Leave a Comment »

Here is an article from earth2tech.

“Will 2010 be the year for greentech IPOs? When lithium ion battery maker A123Systems successfully debuted on the Nasdaq back in September, there was much speculation that the move would ready the market for a following of greentech IPOs. The notion seemed over-enthusiastic then, but three months later solar power startup Solyndra has registered for an IPO, which will likely happen in 2010, and we’ve heard rumors that Tesla is plugging away at its S-1 (Reuters also reported an upcoming Tesla IPO).

Then there’s Silver Spring Networks, which just raised $100 million and looks like it’s getting to that stage where it’s too big to be acquired but will need more financing to compete in the smart grid infrastructure market. Silver Spring isn’t commenting on any IPO rumors, but it is clearly one of the best candidates in the greentech world. If these three — Solyndra, Silver Spring and Tesla — do go public in 2010, it’ll make investor Steve Westly look like a pretty solid market forecaster — he predicted in May that these three would go public by early 2010 and he’s already good for one out of the three.

Out of any of the venture capital investment sectors, greentech has the most bullish outlook in 2010 from a VC standpoint. According the National Venture Capital Association, more than half of a group of venture capitalists surveyed predicted that clean technology would see higher investment levels in 2010. According to a report by PricewaterhouseCoopers, venture capital investing in cleantech already rebounded sharply in the third quarter of 2009 to $898 million in 57 deals, up from $475 million in 49 deals in the second quarter of 2009.

The IPO market in general is also looking better to VCs. VCs surveyed by the NVCA are predicting “a mild improvement” in the number of venture-backed IPOs overall in 2010, with 74 percent of respondents saying they think there will be more than 20 IPOs in 2010. However, according to this Reuters article, greentech companies’ offerings represented only a small portion of the overall U.S. IPO market in 2009, ranking fifth by dollars raised in 2009 in the IPO market, and accountng for 8.5 percent of issuance by companies going public in 2009.”

Read the full article here.

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Venture Capital Business Model

Posted in Board Of Intellectual Capital, boic, Business models, Investments, Market research, Strategy, Venture Capital, tagged , , , , on December 21, 2009| Leave a Comment »

Here is some interresting thoughts from MondayNote.

“Limited Partners, LP, institutions or individuals put money into the fund. We, the General Partners, GP, make and manage the investments and we split the profits with the LP as the sole compensation for our services.

Over time, the split has varied with the industry’s prosperity and the fund’s reputation, it went as high as 35% of the profits for the GP but, as this WSJ story belatedly explains, is now back to about 20%. In our vernacular, that number is called the Carried Interest or, for short, Carry.
A second number, the Management Fee, needs a bit more elaboration.
As the Carry did, it varied and went up to 2.5% of the fund’s capital; it is now pegged at a fairly standard 2% per year. The Management Fee provides the money needed to run the firm’s operations, pay the rent, associates’ salaries, travel expenses and the like. It also provides fodder for misunderstandings.

The Management Fee is a loan, not a stipend. For the GP to get its 20% of the fund’s profits, both the capital, the money invested by the LP and the Management Fee must be repaid first.
When funds become very large, say a billion dollars or more, the Management Fee gets correspondingly large and can encourage spending habits, thus generating criticism the GP is more interested in the fee than in making money for its investors.
But, you’ll object, the advance must be repaid before profit-sharing kicks in. Yes…, and what happens if the fund doesn’t make money? Are the LP losing money while the VC enjoys a good time, living off the Management Fee? The answer depends upon the way the fund agreement is written. If it contains a Clawback clause, the GP is obligated to return the “unearned” fee. As you can imagine, this leads to interesting exchanges during the fund’s formation and, much later, if it turns out it loses money.

To summarize: profit sharing (Carry) of 20%, a yearly advance of 2% of committed capital (Management Fee), to be repaid before profit sharing kicks in.

Let’s move to the heart of the matter: making investments. Here, let’s focus on a basic, oversimplified but usable formula:

We like to invest between $3M and $15M to end up with 20% of a company worth $250M when it “exits”.
“Exit” can mean going public through an IPO (Initial Public Offering). IPOs are rare these days, they’ll come back when the economy does. In the meantime, exits are achieved through M&A (Mergers and Acquisitions) deals, that is the company is sold to a larger one such as Cisco, Google and countless others who thus get access to valuable technology and/or people. In may respects, we, the VC, have become an engine of “externalized” R&D, of technical innovation for larger companies. We make and manage speculative investments in riskier technologies on the big companies’ behalf. This is a meaty topic all unto itself, maybe for a future Monday Note.

Going back to the numbers, they need three qualifications. First, they’re only valid for a mid-size fund, in the $200 to $400M range. Larger funds, billion of dollars, can’t make “small” $5M investments, they deal with bigger projects requiring larger amounts of capital such as infrastructure investments, semiconductors or biotech.
Second, the $3M to $15M bracket covers the total amount poured in over the life of the investment, that is 2, 3 or more rounds, over 3, 5 or more years.
(Add to this we never invest alone, for financial reasons, more capitak, and psychological, we don’t want to “fall in love”, a small (2 to 5) group of investors, called a syndicate, provides more viewpoints, more objectivity.)

Lastly, the $3M, $5M, 20%, $250M set of numbers is a neat simplification, reality gets much more complicated, from outright failures, to so-so, middling results, to the occasional “out-of-the-park” success. It’s not called venture capital (capital risque in French) for nothing.
If we invest “only” $3M and get 20% of $250M, that is $50M, this is more than 15 times our investment. If we risk the “full” $15M, we get about 3 times our money. Either way, it looks good, even if you keep in mind a few hard failures.
But you need to introduce time: how many years did the adventure take? 3 times your money over 7 years yields “only” 17% in compound interest, but 44% if the exits happens after 3 years. (Readers interested in geekier Excel simulations of cash-flows can go back to the May 17th, 2009 and May 24th, 2009 Monday Notes.)

The permutations, the possibilities for success and failure are, pardon the bromide, endless; they make our profession so fulfilling as it engages so many dimensions of human endeavor, from technology to psychology, from the fleeting desires of customers to the hard realities of time-expiring cash.”

Read the full article here.

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Top Moments in VC / Tech 2009

Posted in Board Of Intellectual Capital, boic, Economy, Gerbsman Partners, Investments, IPO news, Market research, Strategy, Technology, Venture Capital, tagged , , , , , , , , , , , , , , , , , on December 16, 2009| Leave a Comment »

Here is a good summary from Shai Goldman on top events in the VC and tech industry of 2009.

“Given that we are just about at year-end, I wanted to provide a recap of some of the most memorable moments that took place in the venture capital and technology ecosystem.  Below is a list of  the 10 most important events:

First VC backed technology IPO –  OpenTable goes public at $20/share on May 21st.

First VC backed acquisition (above $500M) – Pure Digital acquired by Cisco for $590M.

First VC backed cleantech IPO – A123 goes public at $17/share on September 23rd.

Khosla Ventures raises $1.1B – in 2009 most VC funds were shrinking in size, yet Khosla Ventures was able to raise $1.1B, this event was a sign that Limited Partners (L.P.s) we actively seeking investment opportunities in the VC sector – September 1st.

Tesla Motors receives $465M from the D.O.E – First technology company to receive a loan guaranty – June 23rd.

Twitter raises a $100M VC round of financing – at a time when there are questions about the consumer internet sector, this funding provided some positive support that $ can be made in the sector – September 25th.

NASDAQ closes above 2,000 – August 3rd- the previous time NASDAQ was above 2,000 was September 30, 2008.

Dow Jones Industrial Average closes above 10,000 – October 14th – the previous time the Dow was above 10,000 was October 2, 2008.

Apple App Store gets more that 100,000 applications published – November 4th – as you may recall the App Store launched on July 10, 2008 and the creation of the iPhone and App Store has created opportunities for both VCs and Startups to make $$.

Facebook Connect is widely adopted by 60M users and 80K sites – the utilization of Facebook Connect has allowed startup companies a way to reduce the time / effort for their users to sign up for a particular service.”

Read the full article here.

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U.K., U.S. Top Aaa Ratings Tested by Debt Burdens, Moody’s Says

Posted in Board Of Intellectual Capital, boic, Economy, tagged , , , on December 10, 2009| Leave a Comment »

Here is an interesting article from Bloomberg.

“Dec. 8 (Bloomberg) — Moody’s Investors Service said the top debt ratings on the U.S. and the U.K. may “test the Aaa boundaries” because public finances are worsening in the wake of the global financial crisis.

“The deterioration has been pretty severe,” said Pierre Cailleteau, managing director of sovereign risk at Moody’s, in a Bloomberg Television interview in London. “We expect a pretty strong policy response in the next couple of years in order to keep the debt in the Aaa range. We expect them to bend but not to break.”

The U.S. and U.K. have “resilient” Aaa ratings, as opposed to the “resistant” top ratings of Canada, Germany and France, Moody’s analysts led by Cailleteau said in a report today. None of the top-rated countries is “vulnerable,” or have public finances that are “stretched beyond the point of ‘no return’ to the Aaa category,” New York-based Moody’s said.

The U.S.’s debt burden will climb to 97.5 percent of gross domestic product next year from 87.4 percent, the Organization for Economic Cooperation and Development forecast in June. National debt in the U.S. climbed to $7.17 trillion in November. The U.K.’s public debt will swell to 89.3 percent of the economy in 2010 from 75.3 percent this year, according to the OECD.

“There has been a huge increase in debt-to-gross-domestic- product ratios as a result of the crisis,” said David Keeble, head of fixed-income strategy in London at Calyon, the investment-banking unit of Credit Agricole SA. “It’s right that there should be a lot of attention and pressure on these numbers.”

‘Resistant’ Countries

All Aaa rated governments are affected by the global financial crisis, with differences in their impact and ability to respond, Moody’s said. “Resistant” countries, which also include New Zealand and Switzerland, started from a more robust position and won’t see debt exceeding levels consistent with their Aaa status, Moody’s said.

Moody’s defines “resilient” countries as “Aaa countries whose public finances are deteriorating considerably and may therefore test the Aaa boundaries, but which display, in our opinion, an adequate reaction capacity to rise to the challenging and rebound.”

The cost of protecting U.S. debt from default was unchanged at 32 basis points, or $32,000 a year to protect $10 million of the nation’s bonds from default for five years, according to CMA DataVision prices. That compares with a peak of 100 basis points in February and 20 basis points in October.”

Read the full article here.

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