Here's to hoping that machine does a little more than "creak" back to life. Reading the 451 Report, the Q1 2009 numbers are ghastly - $9B in total transaction value for 646 transactions (avg. deal was almost $14M, eesh).
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Tech M.&.A. Moves Into Higher Gear
June 23, 2009, 8:49 am
The technology industry’s deal machine is creaking back to life.
With two weeks remaining in the second quarter, The 451 Group counts about $43 billion in announced tech mergers and acquisitions, which is five times the volume announced in the first three months of the year. Granted, it is still far below the levels in the year-ago quarter — roughly one-fourth as much — but it could suggest that tech deal-makers are finding their footing again.
A top executive at Cisco Systems, which has been one of the industry’s more active acquirers, recently hinted that it could be doing more deals later this year.
In addition, there’s a takeover feud brewing over Data Domain, a maker of computer storage products..
Almost all of the second-quarter deals were made by strategic buyers as opposed to financial firms, which reflects how private equity firms have been sidelined by tight credit markets and troubles at their current portfolio companies.
About one-third of the tech deal volume so far this year was what The 451 Group describes as asset sales, which involve a business that is shedding certain assets instead of being acquired outright. Such asset sales are often distress signals from cash-strapped companies, rather than signs of renewed confidence.
Even so, there seems to be growing optimism (or at least declining pessimism) about the tech M.&A. environment: In a new survey by The 451 Group, big tech buyers said they planned to be even more active in the second half of the year.
http://www.the451group.com/report_view/report_view.php?entity_id=58665&dealbook=refer
Tuesday, June 23, 2009
Q&A with Josh Lerner, from WSJ Venture Capital Dispatch
To the point about the current proposed financial reforms that the Obama adminstration has released, specifically the call for the taxing of carried interest at the ordinary income tax rate, I think such action will expedite the evolutionary change that Josh Lerner proposes. The VC industry consists of too many firms that have shown little in the way of returns to their LPs and GPs. Taxing what are already mediocre returns at a higher rate will make VCs think twice about whether they can actually invest viably and if they can really achieve a rate of return, post tax, comensurate to their risk profile.
Nevertheless, I like Professor Lerner's thoughts and will most likely be buying his new book.
Q&A With Harvard’s Josh Lerner On State Of Venture Capital
Yesterday, June 22, 2009, 5:13:59 AM
Josh Lerner, a professor at Harvard Business School and a well-known voice in the venture capital industry, has signed on as a senior advisor to Wellesley, Mass.-based fund of funds manager Grove Street Advisors LLC. We caught up with Lerner to get his take on government regulation and its impact on the venture capital industry.
Your next book (Boulevard of Broken Dreams to be published this fall by Princeton University Press) addresses public efforts to boost entrepreneurship and venture capital. How did you choose this topic?
The financial crisis opened the door to massive public interventions in the Western economies. In many nations, governments responded to the threats of illiquidity and insolvency by making huge investments in troubled firms, frequently taking large ownership stakes. Many concerns can be raised about these investments, from the hurried way in which they were designed by a few people behind closed doors to the design flaws that many experts anticipate will limit their effectiveness.
But one question has been lost in the discussion. If these extraordinary times call for massive public funds to be used for economic interventions, should they be entirely devoted to propping up troubled entities, or at least partially designed to promote new enterprises? In some sense, 2008 saw the initiation of a massive Western experiment in the government as venture capitalist, but as a very peculiar type of venture capitalist: one that focuses on the most troubled and poorly managed firms in the economy, some of which may be beyond salvation. Meanwhile, as we well know, the venture industry in many nations is on “life support,” struggling for survival.
Moreover, the global hubs of entrepreneurial activity—for instance, Silicon Valley, Singapore, and Tel Aviv—all bear the marks of government investment. Yet, for every successful public intervention spurring entrepreneurial activity, there are many failed efforts, wasting untold billions in taxpayer dollars.
In your opinion, what one or two changes would provide the biggest boost to venture capitalists?
There are two sets of changes that could make a big differences. The first is an evolutionary one, which is already underway. Not only have too many groups had mediocre returns for long periods of time, but they have undertaken a lot of “me too” investments that have made it hard for everyone to succeed. We are now seeing that many second- and third-tier groups are having much greater difficulty raising new capital. While this is of course a frustrating turn of events from an individual perspective, from the point of view of the industry as a while, it cannot help but be seen as a healthy development.
The second relates to public policy. In too many areas, our system has made it hard to be an entrepreneur developing advanced technologies. From a patent system which has been overrun by sham litigation to the many barriers that public companies face, there are a whole variety of policies that create barriers to entrepreneurship. We need to revisit many of the “reforms” of recent decades—from the strengthening of patent rights to Sarbanes-Oxley—and ask how they could be changed to minimize the harmful effects on entrepreneurs.
The proposed financial reforms recently released by the Obama Administration suggest that more private equity and venture capital firms will have to register as investment advisors with the Securities and Exchange Commission. What impact do you see this having on private equity or venture capital firms?
It appears to impose quite modest costs on the industry, while advancing transparency into an opaque industry that has prompted regulatory concern. In fact, the greater transparency may even be helpful to the industry itself in terms of getting a better sense of market conditions in “real time.”
Far more worrisome are some of the proposals emendating from Brussels and Strasbourg, in which some members of the European Commission and Parliament are proposing to “micro-manage” investment decisions of private equity groups.
What systemic risks, if any, does private equity and venture capital pose to the financial system?
There have been repeated discussions regarding the desirability of increased regulation of financial intermediaries of all types, prompted by fears that the financial sector poses systematic risks, which may affect the economy in broad and unanticipated ways. It is a natural question whether private equity firms (both buyout and venture capital funds) pose such systemic risks. The relevant trade associations have staked out strong positions arguing against the presence of such risks, yet to date, this issue has received little study.
As part of our ongoing research initiative under the umbrella of the World Economic Forum, we are exploring how economic cycles between 1985 and 2007 affected sectors where private equity was and was not present. In particular, we are looking at whether the presence of private equity investments in given countries and industries led to more or less dramatic shifts in the face of economic cycles. This new work will provide some insights into the impact of private equity in exacerbating or dampening economic crises.
Nevertheless, I like Professor Lerner's thoughts and will most likely be buying his new book.
Q&A With Harvard’s Josh Lerner On State Of Venture Capital
Yesterday, June 22, 2009, 5:13:59 AM
Josh Lerner, a professor at Harvard Business School and a well-known voice in the venture capital industry, has signed on as a senior advisor to Wellesley, Mass.-based fund of funds manager Grove Street Advisors LLC. We caught up with Lerner to get his take on government regulation and its impact on the venture capital industry.
Your next book (Boulevard of Broken Dreams to be published this fall by Princeton University Press) addresses public efforts to boost entrepreneurship and venture capital. How did you choose this topic?
The financial crisis opened the door to massive public interventions in the Western economies. In many nations, governments responded to the threats of illiquidity and insolvency by making huge investments in troubled firms, frequently taking large ownership stakes. Many concerns can be raised about these investments, from the hurried way in which they were designed by a few people behind closed doors to the design flaws that many experts anticipate will limit their effectiveness.
But one question has been lost in the discussion. If these extraordinary times call for massive public funds to be used for economic interventions, should they be entirely devoted to propping up troubled entities, or at least partially designed to promote new enterprises? In some sense, 2008 saw the initiation of a massive Western experiment in the government as venture capitalist, but as a very peculiar type of venture capitalist: one that focuses on the most troubled and poorly managed firms in the economy, some of which may be beyond salvation. Meanwhile, as we well know, the venture industry in many nations is on “life support,” struggling for survival.
Moreover, the global hubs of entrepreneurial activity—for instance, Silicon Valley, Singapore, and Tel Aviv—all bear the marks of government investment. Yet, for every successful public intervention spurring entrepreneurial activity, there are many failed efforts, wasting untold billions in taxpayer dollars.
In your opinion, what one or two changes would provide the biggest boost to venture capitalists?
There are two sets of changes that could make a big differences. The first is an evolutionary one, which is already underway. Not only have too many groups had mediocre returns for long periods of time, but they have undertaken a lot of “me too” investments that have made it hard for everyone to succeed. We are now seeing that many second- and third-tier groups are having much greater difficulty raising new capital. While this is of course a frustrating turn of events from an individual perspective, from the point of view of the industry as a while, it cannot help but be seen as a healthy development.
The second relates to public policy. In too many areas, our system has made it hard to be an entrepreneur developing advanced technologies. From a patent system which has been overrun by sham litigation to the many barriers that public companies face, there are a whole variety of policies that create barriers to entrepreneurship. We need to revisit many of the “reforms” of recent decades—from the strengthening of patent rights to Sarbanes-Oxley—and ask how they could be changed to minimize the harmful effects on entrepreneurs.
The proposed financial reforms recently released by the Obama Administration suggest that more private equity and venture capital firms will have to register as investment advisors with the Securities and Exchange Commission. What impact do you see this having on private equity or venture capital firms?
It appears to impose quite modest costs on the industry, while advancing transparency into an opaque industry that has prompted regulatory concern. In fact, the greater transparency may even be helpful to the industry itself in terms of getting a better sense of market conditions in “real time.”
Far more worrisome are some of the proposals emendating from Brussels and Strasbourg, in which some members of the European Commission and Parliament are proposing to “micro-manage” investment decisions of private equity groups.
What systemic risks, if any, does private equity and venture capital pose to the financial system?
There have been repeated discussions regarding the desirability of increased regulation of financial intermediaries of all types, prompted by fears that the financial sector poses systematic risks, which may affect the economy in broad and unanticipated ways. It is a natural question whether private equity firms (both buyout and venture capital funds) pose such systemic risks. The relevant trade associations have staked out strong positions arguing against the presence of such risks, yet to date, this issue has received little study.
As part of our ongoing research initiative under the umbrella of the World Economic Forum, we are exploring how economic cycles between 1985 and 2007 affected sectors where private equity was and was not present. In particular, we are looking at whether the presence of private equity investments in given countries and industries led to more or less dramatic shifts in the face of economic cycles. This new work will provide some insights into the impact of private equity in exacerbating or dampening economic crises.
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