Comments on: The private equity bubble, and what it means for startups http://venturebeat.com/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/ News About Tech, Money and Innovation Mon, 23 Nov 2009 03:59:39 +0000 http://wordpress.org/?v=2.8.5 hourly 1 By: The VC model is broken » VentureBeat http://venturebeat.com/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/comment-page-1/#comment-833641 The VC model is broken » VentureBeat Wed, 12 Nov 2008 23:43:20 +0000 http://www.venturebeat.com/contributors/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/#comment-833641 [...] VCs turn to invest tens or even hundreds of millions of dollars into each company. That’s why there was this rush to invest at the lastest stage possible, that is in private equity. There’s major pain in that sector right now, because there’s no way for anyobody to [...] [...] VCs turn to invest tens or even hundreds of millions of dollars into each company. That’s why there was this rush to invest at the lastest stage possible, that is in private equity. There’s major pain in that sector right now, because there’s no way for anyobody to [...]

]]> By: What downturn? Private equity still going strong » VentureBeat http://venturebeat.com/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/comment-page-1/#comment-830460 What downturn? Private equity still going strong » VentureBeat Tue, 07 Oct 2008 21:09:52 +0000 http://www.venturebeat.com/contributors/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/#comment-830460 [...] However, that’s not to say that the stock market crash over the past two weeks won’t change things. With few deals getting done, and thus no way for PE firms to lock into returns on their investments, many investors in private equity firms will get nervous — or they will suffer credit crunches themselves — and will lack the money or the will to invest in the coming quarters. A PE downturn is long due. [...] [...] However, that’s not to say that the stock market crash over the past two weeks won’t change things. With few deals getting done, and thus no way for PE firms to lock into returns on their investments, many investors in private equity firms will get nervous — or they will suffer credit crunches themselves — and will lack the money or the will to invest in the coming quarters. A PE downturn is long due. [...]

]]> By: De Rigueur » Blog Archive » Capital Capitulation http://venturebeat.com/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/comment-page-1/#comment-724894 De Rigueur » Blog Archive » Capital Capitulation Thu, 10 Jan 2008 14:30:51 +0000 http://www.venturebeat.com/contributors/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/#comment-724894 [...] year for capital markets from Sand Hill Road to The City. Credit woes, capital gains legislation, bloated investment pools and slumping returns have plagued private equity and venture capital funds alike. [...] [...] year for capital markets from Sand Hill Road to The City. Credit woes, capital gains legislation, bloated investment pools and slumping returns have plagued private equity and venture capital funds alike. [...]

]]> By: VentureBeat » Here come the “distressed funds” http://venturebeat.com/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/comment-page-1/#comment-720974 VentureBeat » Here come the “distressed funds” Tue, 08 Jan 2008 14:19:26 +0000 http://www.venturebeat.com/contributors/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/#comment-720974 [...] IPO from the beginning. Also, Stu Phillips talked about the private equity bubble a year ago, and no one took him seriously. Tagged N/A VentureBeat [...] [...] IPO from the beginning. Also, Stu Phillips talked about the private equity bubble a year ago, and no one took him seriously. Tagged N/A VentureBeat [...]

]]> By: VentureBeat » The credit crunch could help venture capitalists http://venturebeat.com/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/comment-page-1/#comment-495098 VentureBeat » The credit crunch could help venture capitalists Fri, 24 Aug 2007 17:57:18 +0000 http://www.venturebeat.com/contributors/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/#comment-495098 [...] venture capitalist Stu Phillips predicted something like this eight months ago, in a column at VentureBeat, focusing on the likely correction in the buyout/private equity world. In an extreme case of bad [...] [...] venture capitalist Stu Phillips predicted something like this eight months ago, in a column at VentureBeat, focusing on the likely correction in the buyout/private equity world. In an extreme case of bad [...]

]]> By: Deniel Panfield http://venturebeat.com/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/comment-page-1/#comment-17145 Deniel Panfield Mon, 08 Jan 2007 23:08:26 +0000 http://www.venturebeat.com/contributors/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/#comment-17145 The bigger question here is whether this "bubble" will burst or simply deflate. I think the later for the following reasons: 1) The amount of money raised by the LBO funds are in forms of commitments and is still in the hands of the Pension and Endowment funds, mostly likely invested in short term securities. As the amount of attractive deals in the market decreases, the amount of capital calls from General Partners will decrease as well, presenting LPs with an opportunity cost. Pension Funds will have to find new ways to invest that 3-5% of their money they are allowed to dedicate to alternatives. However no major financial harm will be done. 2) For the committed capital the situation is not as grim either. Unlike venture capital deals of 1999 - 2000, the Private Equity deals have much higher liquidation value. The possibility of complete loss of value is highly unlikely. 3) The VC bubble of the year 2000 was inflated with the public market's money. This is clearly not the case here, since PE is not investing into the "next big thing" without proven cashflows. When funds liquidate their holdings by going public they usually present cleaner and more efficient businesses for investors to invest in. These companies usually get a fair price from the market, but never command ridiculously high valuations. Overall I agree with the author that some amount of new capital will most likely shift from PE to VC. However, it’s not the lack of money that was the problem in the past 2 years, but rather the lack of good ideas... The bigger question here is whether this “bubble” will burst or simply deflate. I think the later for the following reasons:

1) The amount of money raised by the LBO funds are in forms of commitments and is still in the hands of the Pension and Endowment funds, mostly likely invested in short term securities. As the amount of attractive deals in the market decreases, the amount of capital calls from General Partners will decrease as well, presenting LPs with an opportunity cost. Pension Funds will have to find new ways to invest that 3-5% of their money they are allowed to dedicate to alternatives. However no major financial harm will be done.

2) For the committed capital the situation is not as grim either. Unlike venture capital deals of 1999 – 2000, the Private Equity deals have much higher liquidation value. The possibility of complete loss of value is highly unlikely.

3) The VC bubble of the year 2000 was inflated with the public market’s money. This is clearly not the case here, since PE is not investing into the “next big thing” without proven cashflows. When funds liquidate their holdings by going public they usually present cleaner and more efficient businesses for investors to invest in. These companies usually get a fair price from the market, but never command ridiculously high valuations.

Overall I agree with the author that some amount of new capital will most likely shift from PE to VC. However, it’s not the lack of money that was the problem in the past 2 years, but rather the lack of good ideas…

]]> By: PE http://venturebeat.com/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/comment-page-1/#comment-17144 PE Mon, 08 Jan 2007 22:23:55 +0000 http://www.venturebeat.com/contributors/2007/01/08/the-private-equity-bubble-and-what-it-means-for-start-ups/#comment-17144 As a tangent, does it not make sense, given that 1) LBO/buyout capital is still a small fraction of overall undeployed capital sitting in less than exciting instruments, AND 2) we are in a time where industry disruption is heightened, the deployment of buyout capital is natural and intuitive? Buyouts commonly occur in times of structural change where a part of the capital deployment is making contrarian bets on the longevity of established cash flow (when "conventional market wisdom" overcorrects on the assumptions of change pacing)? An amateur musing... As a tangent, does it not make sense, given that 1) LBO/buyout capital is still a small fraction of overall undeployed capital sitting in less than exciting instruments, AND 2) we are in a time where industry disruption is heightened, the deployment of buyout capital is natural and intuitive? Buyouts commonly occur in times of structural change where a part of the capital deployment is making contrarian bets on the longevity of established cash flow (when “conventional market wisdom” overcorrects on the assumptions of change pacing)?

An amateur musing…

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