Posted on May 29, 2010 by Michael DiSanto

Silicon Valley Venture Capital Q1 -- Not Bat At All

There are several signs that point to continued health in Silicon Valley's emerging growth, venture capital market.  Most significantly, in my opinion, is the fact that exits remain strong.  111 venture-backed M&A deals in the first quarter of this year, according to the MoneyTree Report, which was the largest number of exits in a single quarter since MoneyTree began tracking deals more than 35 years ago.  The MoneyTree also reported that there were 43 venture-backed companies currently in registration with the SEC for an initial public offering.  43 companies in registration is a healthy pipeline by anyone's standards, particularly since nine companies actually made it out in the first quarter, raising an average of approximately $104 million.  The renewed exit activity has to give everyone a sense of optimism.

On the venture capital side, funds are definitely either having difficulty raising money or aren't in the market for new capital raises these days (something that I seriously doubt).  According to the MoneyTree, the $3.6 billion raised in the first quarter represented the lowest aggregate raise by VCs in 17 years.  This statistic doesn't bother me that much because trouble raising money from limited partners coming out the nuclear winter of 2009 is to be expected.  There is little doubt, though, that the increase in venture-backed company exits will loosen the purse strings of at least a few LPs in the second quarter and beyond.

As with any statistical survey, one must read the above with a grain of salt or two.  VentureSource has slightly different numbers, citing 77 venture-backed M&A deals, eight initial public offerings and a full billion more in raise by venture capital funds.   I'm not sure which set of numbers is actually correct.  One could certainly surf Edgar and figure out the IPO statistic easily enough, but that isn't the point.  The point is that the activity is much more robust than the previous quarter, and that is noteworthy in and of itself.

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Posted on February 25, 2010 by Michael DiSanto

Quick Headlines: M&A, Possible IPO and Venture Capital

A few quick headlines on a Thursday afternoon:

  • Just a few days after VMWare completed its acquisition of Zimbra, the Silicon Valley technology darling announced its intention to acquire certain assets from EMC.  The deal focuses on software products and expertise from EMC's Ionix IT management business in an all-cash transaction valued at up to $200 million.   Ben Verghese, Chief Management Architect, Virtualization and Cloud Platforms Business Unit, gave a bit of insight into the transaction on his executive blog.  VMWare is certainly keeping my former colleague and current Sr. VP and General Counsel Dawn Smith busy these days.
  • Deutsche Telekom didn't rule out spinning out T-Mobile USA and taking it public later this year, though the global telecom giant did rule out trying to gain market share buy acquiring one of its competitors in a "multi-billion-euro" deal anytime in the next two years, according to a BusinessWeek article today.  An IPO of that magnitude could certainly serve as a nice shot of adrenaline for the still-stalled US IPO market.

 

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Posted on February 17, 2010 by Michael DiSanto

Are Secondary Private Offerings and Facilitators like Second Market Changing the IPO Game?

Over the last few months, three technology darlings, Facebook, Zynga and Yelp, have closed deals with venture capital funds that included both an investment in new shares and also the acquisition of existing shares from employees and other major stockholders.  The secondary piece of those deals is somewhat unique because it gives those employees or stockholders the opportunity to liquidate some or all of their equity positions without the company filing for its initial public offering.  Illiquid securities sales facilitators like SecondMarket are also providing the opportunity for early liquidity by matching equity holders in venture-backed companies with willing buyers outside of the public markets.

The question, of course, is whether this new trend in venture capital investing or the emergence of SecondMarket is going to radically change the IPO market.

If by radically change, we are talking about reducing the numbers of offerings by elite technology companies, I'm not sure that anything can really move the needle significantly compared to the last two years when technology IPOs were about as common as Bigfoot sightings.  The fact remains, though, that employees often choose to join hot venture-backed companies and take annual base salaries below the current market in exchange for the dream of a quick infusion of cash thanks to an IPO or acquisition.  The market meltdown in late 2008 has dramatically affected the personal finances of those individuals, who are now forced to hold on to what has traditionally been illiquid stock for far longer than they would like.  The lack of exits certainly has hurt venture-backed companies attracting rock-star employees.  But the emergence of secondary pieces to late stage venture capital investments and facilitators like SecondMarket helps solve that problem.  It also dramatically reduces the pressure on a company's board of directors to take a company public.

As a result, I think that hot technology companies will now wait until there is a compelling reason to begin the IPO process.  IPOs have always been expensive transactions to consummate, both from a dilution standpoint and also in terms of legal and accounting fees.  But the maintenance fees for public companies weren't that big of a deal, until Sarbanes Oxley came along and completely changed the game on operating as a public company from a cost perspective.  And that change certainly wasn't to the benefit of companies, though the protections add a good layer of protection for stockholders of listed companies.  Thus, companies haven't been rushing to the IPO gates like in the pre-SOX days, and the emergence of the new liquidation avenues discussed above will only slow that race even more.

Nevertheless, I don't think that either secondary pieces to venture investments or illiquid securities sales facilitators will completely derail the need for companies to go public.  Indeed, both VCs and facilitators need robust exits for their strategies to continue to work, which is why these liquidity strategies aren't implemented in very young companies, opting instead to work with startups that have been around for several years and look like excellent IPO or acquisition candidates.  If anything, I think that the market for exits will be more robust, maybe not in terms of numbers of deals but in terms of quality of deals, as a result of these new liquidity strategies.

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Posted on December 18, 2009 by Michael DiSanto

Friday Five: Hijackers, Industry Survey, Funding and Exits

After a multi-week hiatus due to the holidays and, of course, the ever-present demands of deal making as the year comes to a close, Friday Five is back to highlight a few of the top stories from the week. 

  • A group of hackers commandeered Twitter's DNS for about an hour on Thursday night, directing traffic to their own webpage.  According to the social media giant, its website and micro-blogging that plugged into Twitter's API were not affected.  This is the second time in less than six months that Twitter fell victim to a DNS attack, though it is the first time that a "Cyber Army" took credit for the fiasco.  What is a "Cyber Army" anyway?  Do they attend boot camp, wear uniforms and otherwise follow unquestioned orders from superiors?  I digress. 
  • Earlier this week, the National Venture Capital Association released its yearly Venture View Survey.  The survey polled more than 325 venture capitalists across the country, and the results were as expected with the industry professionals remaining somewhat bullish about the short-term future.  63% expected the total dollars invested in 2010 to stay the same or increase.  50% predicted an increase in the number of companies receiving funding.  The survey pointed to clean technology and Internet as the industries best positioned for higher investment levels in 2010.  Asia will continue to be a growing focus for investment dollars.  74% predicted an improved IPO market.  And the overwhelming majority predicted that funds raised in 2010 will be smaller than previous funds and the overall number of funds would decline over the next five years.
  • Regado Biosciences yesterday closed its Series D financing, raising $40 million from an investor syndicate led by LCF Rothschild Group that also included existing investors Domain Associates, Quaker Bioventures, Aurora Funds and Caxton Advantage Life Sciences Fund.  The New Jersey-based company is developing antithrombotic therapeutic aptamers with active control agents.  Regado's successful raise is a nice feel-good moment for emerging companies in light of the continued talk of general venture capital industry contraction.

That is all for now.  We won't have the same radio silence over the next few weeks that we did in late November.  Enjoy your weekend!

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Posted on November 11, 2009 by Michael DiSanto

Venture Capital Industry Shows Uptick in Returns

For the first time in nearly a year, the venture capital industry showed a positive return, according to Cambridge Associates, LLC.  The Cambridge US Venture Capital Index returned 0.2% for the three-month period ended June 30, 2009, ending three consecutive quarters of negative returns.  Of course, in an economy still clouded in doubt and pessimism, the positive news was paired with a cautionary outlook.  Managing Director Peter Mooradian raised questions about whether the asset class can generate sufficient exits to provide healthy long-term returns. 

It will be interesting to see the figures for the current quarter after Google's recent acquisition of AdMob for $750 million and EA's recent acquisition of PlayFish for $300 million (with an additional $100 million in earnouts).   

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