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NYC Needs More Iconic Companies, Fewer Early Exits, VC Says
By Yuliya Chernova
Mark Lennihan/Associated Press
- New York.
Bill Gurley, partner at Benchmark Capital, leveled a number of serious charges at a ballroom full of New Yorkers this week–the city has yet to produce an iconic venture-backed company, he said. And, he added, people here are more likely to sell early rather than create a true home-run for a venture firm via an IPO.
Out of the 50 venture-backed companies that raised the most money via sales or IPOs over the years, none were located in New York City and only five were based in the New York region–that is in New Jersey or Connecticut, according to data from Dow Jones VentureSource.
“What New York needs is more iconic companies that last over a long time,” said Gurley, on stage at Disrupt NY 2013, a conference organized by TechCrunch. Gurley, who said that Benchmark has made two investments in New York recently, compared the city to Seattle, where the top four businesses, Microsoft, Amazon, Costco and Starbucks, were all backed by venture capital.
By Lizette Chapman
With money in their pockets and change on their minds, some 700 angel investors flocked to the Angel Capital Association Summit in San Francisco this week.
Alexander Klein/Agence France-Presse/Getty Images
Along with macro issues like best practices for syndicating rounds and navigating the Series A crunch, attendees buzzed about the JOBS Act, new funding platforms and other recent changes to the $20 billion a year marketplace of private investing. One of the most popular panels however, focused on a topic that’s always been near and dear to investors: exits.
“We don’t know if we’re investors until the exit occurs–until then we’re merely donors,” said Ohio TechAngel Funds Founder John Huston, eliciting laughter and some wistful sighs in the packed conference room. The panel–“8 Steps to Lucrative Exits”–was one of five devoted to the topic, with Huston suggesting all angel investors set up a process for achieving an exit before they ever enter a deal.
Huston focused entirely on exits through acquisition–a topic worthy of tutelage given the sluggishness of late. According to a recent report by Dow Jones VentureSource, M&A activity declined 44% during the first quarter of 2013 compared with the previous quarter, with the most recent quarter being the lowest since the first quarter of 2009. Huston advised investors to set exit expectations with founders from the onset and build the company for acquisition–not shareholder value.
“If you are on the board then it’s incumbent upon you to drive the exit. All the other angels are counting on you,” he said, adding that if VCs are on the cap table “then you’re neutered unless you drove the VC selection process.”
He said simply growing revenue, although nice, was too slow a process to incite high bids.
To maximize buyer value he suggested compiling a hit list of the top five strategic acquirers based on their willingness and ability to do a deal. Determining which customers they’d like to secure [and then beating them to it] and mapping their organization chart to sell the deal should also be part of the process, he said.
“Your goal is to move the strategic acquirers from greed to fear mode which is ‘Wow, I sure hope my biggest competitors doesn’t acquire them first.’ We only hire bankers [to run the sale process] if we are convinced they can do this and run the process with multiple bids,” Huston said.
Greg Sitters, managing director of New Zealand-based Sparkbox Venture Group, said he began using a similar process about four years ago and has had four of his 40 companies exit so far. Striking a balance between growing each company with additional capital and securing a solid exit has been key.
He said: “If we can get companies to exit without VCs than that’s what we’re trying to do.”
Teresa Esser, managing director of Winsconsin-based angel group Silicon Pastures, said her group is constantly trying to bring more of a science to the exit process.
“This entire conference is really helpful with information and inspiration,” she said. “It’s motivational in reminding us that we are a $20 billion marketplace.”
Write to Lizette Chapman at lizette.chapman@dowjones.com. Follow her on Twitter at @zettewil
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