Feeds:
Posts
Comments

Posts Tagged ‘Scale Venture partners’

Article from SFGate.

In recent years, LinkedIn, Groupon and Demand Media all suggested they were profitable while privately held. But when the businesses were forced to file audited financial statements as they prepared to go public, those years or quarters in the black mysteriously vanished.

That’s just one of many reasons why it’s disturbing to see legislators hard at work on laws that would actually make it easier for companies to seek investments without also providing thorough and transparent financial data. And it’s why the proposals demand serious scrutiny.

This week, Sens. Pat Toomey, R-Pa., and Tom Carper, D-Del., introduced a bill that would raise the number of shareholders that companies are allowed to have before being forced to routinely disclose finances. Under the proposal, the threshold would rise from 500 to 2,000, minus employees.

Companies often feel compelled to go public when they near the 500 mark, because the disclosure requirements are nearly the same as those for a public company. Observers were quick to note that the law could ease IPO pressure on businesses like Facebook, which is bumping up against that threshold, further inflating private trading markets without adding any financial clarity.

“Lots of companies with fairly substantial market capitalizations would avoid the transparency of being reporting companies,” said John Coffee, a law professor at Columbia University.

Crowd funding

Separately this week, the House approved legislation proposed by Rep. Patrick McHenry, R-N.C., that would allow small businesses to raise capital through what is called crowd funding. That would mean startups could solicit investments from a pool of small investors, not just high-net-worth investors.

Individuals could invest the lesser of $10,000 or 10 percent of their annual income. As long as the firms raise less than $1 million a year, they could provide scant if any financial disclosures (though they would have to highlight the risky nature of the offerings).

Meanwhile, the private-equity and investment-banking industries are pushing for even bigger changes. Last month, a group calling itself the IPO Task Force – including representatives from Hummer Winblad Venture Partners and the law firm Wilson Sonsini Goodrich & Rosati – submitted an audacious wish list for policymakers.

Complaining about the paucity of IPOs in recent years, it recommended a looser set of rules for “emerging growth companies” with less than $1 billion in annual gross revenue.

These companies would be able to take advantage of a five-year “on-ramp” period that would reduce requirements for disclosures of historical financial data. The bill would also exempt companies from regulations concerning shareholder voting rights on executive compensation and loosen rules regarding analyst conflicts of interests.

Some corporate governance experts think the very premise of an on-ramp is flawed.

The first five years “is exactly when you would need to have the best disclosures,” said Charles Elson, director of the center for corporate governance at the University of Delaware.

The argument in favor of these proposals is that freeing companies from onerous regulations put in place in recent years would allow them to more easily build capital, accelerate innovation and create jobs.

Advocates for the task force recommendations contend that the rules are directly responsible for the decline in IPOs in recent years. Without that potential payday, venture capitalists and other investors have less incentive to take chances on young companies.

“Given the urgency to get America back on the path to economic growth, we need to get capital back in the hands of companies that create jobs,” said Kate Mitchell, chair of the task force and managing director of Scale Venture Partners, in a statement.

These are all tantalizing promises in the current economic climate. But we’ve seen again and again why transparent information is critical for the investing public..

Shareholders of Enron lost $11 billion and employees saw their life savings evaporate when it turned out the company was hiding billions in shell firms and fudging its balance sheet.

More recently, Lehman Bros., Bear Stearns and AIG crashed and nearly took the global financial system with them after losing highly leveraged, complicated and opaque bets on toxic mortgages.

These economic crises prompted laws like the Sarbanes-Oxley Act of 2002, which required more thorough disclosures of things like off-balance-sheet transitions. Similarly, the Dodd-Frank Act, passed in the aftermath of the 2008 economic collapse, granted greater oversight of complex instruments like credit default swaps.

Watering down

But political memories are short, and the instinct to enact reforms to prevent future catastrophes fades as constituents shift their frustrations to stubborn unemployment rates. And so now, we see proposals to water down the protections that were just passed.

From the moments these rules went into effect, industry has lamented how the burdensome and expensive regulations harm business and discourage IPOs. But maybe these things should be burdensome and expensive.

There’s a great responsibility that goes along with accepting millions of dollars from college endowments, pension funds, mom-and-pop stock pickers and, yes, even accredited investors.

I’d submit that the decline in IPOs had at least as much to do with the market crashes brought about by dot-com pump-and-dump schemes and the subprime mortgage and derivatives fiasco.

In other words, the private-equity and investment-banking industries haven’t exactly proven themselves worthy of lighter regulations. On the contrary, they’ve repeatedly demonstrated an unconscionable eagerness to get away with exactly as much as they can, even at immense cost to the broader economy.

Obviously, this isn’t universally true, and not all startups, venture capitalists or investment banks should be tarnished by the acts of a few. But the best way for the rest of us to know the difference is through crystal-clear transparency.”

Read more here.

Read Full Post »

Here is some interresting news from Bloomberg.

“Silicon Valley companies looking to put their cash to work may drive a wave of mergers this year, bankers and venture capitalists say.

Companies are eager to make acquisitions because many of them have cut research budgets, says Robert Ackerman, founder and managing director of Allegis Capital in Palo Alto, California. That means they’re not as able to fall back on their own ingenuity to fuel growth. More businesses are relying on acquisitions to find their next new product or service, he says.

“The product cabinet is bare, but the market continues to move forward,” Ackerman said. “Wherever you see innovation sprint ahead, companies will have a product deficit, and will look to fill it.”

Google Inc., based in Mountain View, is currently one of California’s most acquisitive companies, buying at least five businesses in 2010. It agreed to buy Picnik Inc. last month, acquiring online photo-editing tools. Its purchase of DocVerse provided it with software that lets people share documents over the Internet. The value of the deals wasn’t disclosed.

The state’s largest single deal this year was Shiseido Co.’s purchase of San Francisco-based Bare Escentuals Inc. for about $1.7 billion.

California deal-making plummeted after 2007, when more than 2,670 transactions totaled almost $254 billion. So far this year, there have been about 530, worth $16.7 billion. That’s a higher number than in the first three months of 2009, although the value was greater in that year-ago period, at about $30 billion.

McAfee, Tibco

Local acquisition targets include Santa Clara’s McAfee Inc., Tibco Software Inc. in Palo Alto and Cupertino-based ArcSight Inc., according to Brent Thill, an analyst at UBS AG in San Francisco. McAfee and ArcSight both make programs that protect data, which could be more valuable as cyber threats mount. Tibco’s software helps programs of all kinds share information.

Goldman Sachs Group Inc. also cited San Francisco’s Salesforce.com Inc. and Palo Alto-based VMware Inc. as possibilities — though those companies aren’t the most likely targets, the firm says. Salesforce.com makes online customer- relationship software, while VMware sells so-called virtualization programs, which help computers run more than one operating system. Representatives from all the targets declined to comment or didn’t respond to messages.

Deal Volume

In Northern California, there were 45 deals involving venture-backed startups during the first three months of 2010, according to the National Venture Capital Association. That was the highest number in any quarter in at least five years.

More than 50 companies in California have at least $1 billion in cash and equivalents, which they could use for acquisitions. They’re led by a Bay area trio: San Francisco’s Wells Fargo & Co., with $68 billion; Cisco Systems Inc. in San Jose, with $39.6 billion; and Cupertino-based Apple Inc., with $24.8 billion, according to Bloomberg data.

“There’s a lot of cash on people’s balance sheets, so I think it’s a great time for startups,” said Kate Mitchell, managing director at Scale Venture Partners in Foster City, California. “They see that the faster, better, cheaper venture- backed companies are still growing, and they’re not spending on R&D, so they can be accretive.”

The value of deals in California topped out at $378.1 billion in 2000 during the Internet bubble, when there were more than 2,200 transactions. It took five years for the number of deals to surpass that earlier peak, and the dollar amount has never come close to recapturing the dot-com era’s glory.

Internet Bust

While the latest recession was the worst economic slump since the Great Depression, it actually wasn’t as devastating to California deal-making as the dot-com collapse. After having easy access to venture money and initial public offerings in the late-1990s and 2000, money dried up. The M&A industry hit bottom in 2002, when just 1,505 transactions accounted for $95.3 billion.

The deals crept back up over the next four years, peaking again in 2006 and early 2007. There were 665 in the first quarter of 2007, valued at $59.8 billion. That’s more than three times the number reported last quarter.

Tor Braham, head of technology mergers and acquisitions for Deutsche Bank AG in San Francisco, says mergers are ready to surge again for two reasons.

Pressure’s On?

“Private-equity funds have raised a lot of money before the financial crisis and there’s pressure on them to spend it before those commitments expire,” he said. Also: “Sellers want to get their deals done this year, before the expected increase in capital gains tax rate.”

Private-equity firms raised $538 billion in 2006 and $587 billion in 2007, just before the recession, according to the Private Equity Council in Washington. Capital-gains taxes, meanwhile, could rise above 20 percent for people earning more than $250,000 under budget proposals before Congress.

In the first quarter, Deutsche Bank advised Techwell Inc. in its $370 million takeover by Intersil Corp. The bank also worked with Nimsoft Inc. in its $350 million acquisition by CA Inc., and Francisco Partners on its sale of Numonyx BV to Micron Technology Inc. for about $1.3 billion.”

Read the full article here.

Read Full Post »

Here is an intresting article from Money morning.

“Goldman Sachs Group Inc.’s (NYSE: GS) initial public offerings (IPO) guru Tom Tuft has joined Bruce Wasserstein’s Lazard Ltd. (NYSE: LAZ) as chairman of Global Capital Markets Advisory and vice-chairman of its U.S. investment banking, in what could be a sign that the market for IPOs is thawing.

Tuft, a 33-year Goldman vet who co-founded its equity capital markets business in 1985 and became its chairman in 2004, was involved in several high-profile IPOs, including those of The Estee Lauder Companies Inc. (NYSE: EL) and RJR Nabisco Inc. He also advised Lazard on its own IPO in 2005.

A slowdown in mergers and acquisitions has prompted Lazard to expand its equity capital markets and restructuring operations, working on nine of the top 10 bankruptcies this year, Bloomberg News reported. Capital raised by IPOs in the first half of this year was $11.4 billion, down 85% from the same period last year according to data compiled by Bloomberg.

“There is demand for companies to come public,” David Menlow, president of IPOFinancial.com told Bloomberg. “The fact that we haven’t seen that many is not an indication that companies are not out there ready to come public.”

The article continues.

The “Silicon Valley Six”

“An informal poll of venture capitalists and others conducted by Reuters yielded six successful companies with revenue of $100 million or more in Silicon Valley that are ripe for acquisition or an IPO, excluding social networking sensations Facebook Inc. and Twitter Inc. The news service dubbed the companies the “Silicon Valley Six,” which were chosen out of 34 citied in sectors ranging from alternative energy to video games.

The top four companies found were social network LinkedIn Corp., solar panel maker Solyndra Inc., smart grid company Silver Spring Networks and Zynga Inc., which develops games that run on social networks like Facebook or New Corp.’s (NYSE: NWS) MySpace.

The other two are Guidewire, which develops software for property and casualty companies, and LiveOps, which operates call centers from contractors that work from their homes.

“They are exciting because they…demonstrate what is possible with venture capital,” Sharon Wienbar, managing director of Scale Venture Partners told Reuters. “These are companies that have proven a new, attractive business model that works big in spaces.”

Venture capitalists’ rule of thumb for declaring a company ripe for an IPO is that a company must have  $100 million in sales and have a capitalization of about $1 billion in order to have enough money to meet the reporting structures of the Sarbanes-Oxley act.

“The market is in the early stages of being back,” LiveOps Chief Executive Officer Maynard Webb said. “The market is ripe and open today for great companies.”

While not mentioned in Reuters’ “Silicon Valley Six,” one private company that’s making waves in Silicon Valley is PopCap Games Inc., which publishes and develops easy-to-play, accessible “casual” video games.”

Read the full article here.

Read Full Post »