Dell has been dodging a takeover for months now, but the latest interested buyer, Blackstone Group, has just backed away from the table due to the PC industry’s rather grim outlook.

The pullout was confirmed by a letter from Blackstone to Dell and other parties with a stake in the deal that rescinded the bid due to lagging PC sales and Dell’s own financial slide.

For the first quarter of 2013, PC shipments went down the proverbial toilet. Sales posted a 13.9 percent drop globally — the industry’s largest ever decrease in new PC shipments.

Now, sources for a Reuters story as well as official documents from BlackStone are saying that bit of information caused Blackstone to sour on the idea of purchasing a PC maker.

For some time now, Dell founder and CEO Michael Dell [above] has sought to take his company private in a huge $24.4 billion deal. But Blackstone and investor Carl Icahn opposed the deal, saying it undervalued the company, and were preparing to counter it.

Icahn offered $15 per share for up to 58 percent of Dell; showing broader scope but less value per share, Blackstone had said it would be willing to pay around $14.25 per share for 100 percent of Dell’s stock. Now that last week’s PC downfall means Blackstone’s offer no longer stands, the way has been paved for a Michael Dell-Carl Icahn showdown.

Dell stock is trading down 3.7 percent at $13.43 as of this writing.

Image credit: Dean Takahashi/VentureBeat

Michael Dell put his company in play in his bid to take it private. But with rival bidders now stepping forward, he runs the risk of losing control of the company that bears his name, according to a story in the Wall Street Journal.

The Blackstone Group and activist investor Carl Icahn have expressed interest in making a bid for the Round Rock, Texas-based computer maker.Their bid will reportedly top $15 a share.

Dell himself has partnered with Silver Lake Partners to buy the existing shares of the publicly traded company and take it private at $13.65 a share, or $24.4 billion. Shareholders have complained that the price of Michael Dell’s bid is too low.

Michael Dell owns 14 percent of the company he founded as a mail-order PC company in 1984 in his dorm room. The Silver Lake buyout would give Michael Dell majority control and the ability to call the shots as he sees them to revive the company. But if Blackstone and Icahn win, then Michael Dell may be sidelined, the Journal said. Dell declined comment.

Dell’s plan includes spending more money on acquisitions, internal development of corporate software and services, investing in hardware products, and hiring more sales people.

“I’d shut it down and give the money back to the shareholders.”

Time wounds all heels, I guess. Now Dell might just be finding himself in a roughly similar situation, as Dell Computer has fallen on hard times and high-flying financial vulture Carl Icahn has bought up to six percent of the company with a simple goal: cashing out.

According to CNBC, insiders familiar with the deal said that Icahn will oppose Dell’s leveraged buyout of his company and push for a significant one-time dividend to all shareholders.

Dell shares, which have languished in the $8 range for much of the last six months, are up to $14 this year in response to Dell’s buyout offer – which may include participation by Microsoft – and jumped up another two percent today on the news:

Source: Google Finance

Dell’s stock market value

Dell’s largest shareholder, which owns about 8.5 percent of the company, is reportedly against the buyout and may therefore find common cause with Icahn.

The company reported better-than-expected results in the last quarter of 2012, with $14.31 billion in sales, cash flow of $1.4 billion, and earnings of $0.40 per share.

Just a few days after we reported that Dell’s largest investor would fight the $24.4 billion buyout, another shareholder has spoken out against the sale.

“We believe the proposed buyout does not reflect the value of Dell, and we do not intend to support the offer as put forward,” said Brian Rogers, chief investment officer of investment management firm T. Rowe Price, in a statement. As Reuters points out, T. Rowe Price does not have a history of publicly speaking out against deals such as this.

The firm controls about 4.4 percent of Dell shares as of Sept. 30, according to data from Thompson Reuters.

Private equity firm Silver Lake Partners and Dell founder and CEO Michael Dell led the deal. Dell has poured his personal funds into the buyout, which would enable him to control a majority stake in the newly privatized company.

Investors began their public fight against the deal on Friday. Southeastern Asset Management said in a regulatory filing and letter addressed to Dell’s board of directors that it would fight the sale. The firm made the case that Dell stock should be valued at up to $24 per share rather than the $13.65 offer price.

“Unfortunately, the proposed Silver Lake transaction falls significantly short of that and instead appears to be an effort to acquire Dell at a substantial discount to intrinsic value at the expense of public shareholders,” the firm said.

According to Reuters, three other major shareholders are also expected to oppose the offer.

Dell has reached an agreement to go private, a move that marks the end an era for the world’s third-largest computer maker.

The Round Rock, Texas-based company was once the PC market leader, but it now trails Hewlett Packard and Lenovo. Sources say that going private will give it the space to remake itself as a provider of business technology.

The terms of the $24.4 billion buyout are that the company’s founder and CEO, Michael Dell, and private equity firm Silver Lake will pay $13.65 per share in cash. Microsoft will provide $2 billion in a loan, rather than equity, which is the only real surprise. The debt financing comes from Bank of America Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets.

Sources familiar with the deal say it’s a highly strategic play for Microsoft to make an investment. And it should help ensure that the Windows operating system remains in Dell desktops and laptops. This may prevent the privatized from Dell straying to an alternative: Linux, ChromeOS, or Android.

Dell is already one of the biggest channels for Microsoft’s Windows software.

Sanu Desai, the managing director for investment banking firm Torch Partners, said this kind of privatization will become increasingly common in the tech industry.

“We’ve had huge shifts in the industry,” he said by phone, and he explained that the older titans like Dell, Microsoft, Cisco, and Intel will need to innovate or risk being wiped out by relative newcomers like Facebook and Google.

Desai explained, “The shift to tablets is killing them. Apple is killing them. And at that point you look around and say, ‘Who’s generating cash?’”

This move will let Dell’s board carve out a new strategy without needing to report its quarterly earnings to Wall Street analysts.

You can make interesting parallels with Seagate, a company that helped define the disk drive business. It went private in 2000 in a $20 billion deal also led by Silver Lake Partners. “When Seagate went back out into the public markets, they made a lot of money,” said Desai. “Hardware has always lent itself to going private.” Seagate is now a leading provider of data storage solutions.

Dell is best known for sourcing computer components cheaply and assembling them in an efficient way. But this is now a commodity market; Dell will need to determine what the next chapter of the business will be.

Amid rumors about the company’s new leadership, only one thing is for certain: Michael Dell will remain at the helm as the board enters the new world of cloud computing. A source at a private equity firm who asked to remain anonymous said we’ll likely see executive moves, business-unit closures, and layoffs in the coming months at Dell.

Dell has invested his personal wealth to take a majority stake in the company and already owns about 16 percent of the shares.

Electronics retail chain Best Buy may soon no longer be a public company.

Best Buy announced that it will allow founder and former chairman Richard Schulze access to all the private information necessary to form an investor group — meaning it’s allowing itself to be put up for sale. Schulze has 60 days to put together the team to officially make a buy out offer for the retail chain.

Best Buy is quick to point out in a press release that there’s no guarantee that Schulze will be able an acceptable offer to buy the company. Should he fail to convince the board of directors to take the offer, he’ll not get another chance until January 2013.

Schulze, who stepped down as Best Buy’s chairman earlier in the year, currently owns 20 percent of Best Buy stock. Back in May he offered shareholders $24 to $26 per share to take the company private. His offer is over 30 percent higher than the stock’s current price of $17-$18 per share, effectively valuing the company at $8.5 billion. That offer is generous, especially since Best Buy’s stock reached a nine-year low last week.

Part of Best Buy’s drop in stock price was due to decreasing quarterly profits as well as the unexciting announcement of new CEO Hubert Joly, who has a substantial pay package. With the company facing growing competition from online retails (such as Amazon), many investors worry that Best Buy won’t be able to rebound — making the buyout offer much more attractive.

Via Engadget

Photo: socialwoodlands/Flickr

Electronics retail chain Best Buy reported dismal results in its fiscal 2013 Q2 earnings report today, with profits taking a 91 percent nose dive.

The poor earnings caused Best Buy’s stock to reach a nine-year low — dropping as far as $16.23 per share during morning trading. However, the stock decline first started with yesterday’s announcement of new Chief Executive Hubert Joly, former head of hotel and restaurant company Carlson Cos. And while Joly does have a background in tech (he also previously ran Vivendi Universal as well as IT company Electronic Data Systems), his appointment as CEO caused investors to lose even more confidence after today’s earnings.

Revenue dropped 3 percent to $10.5 billion overall for the company, with the majority of losses coming from international store sales in China and Canada. The only significant point of growth for Best Buy was in online sales, which isn’t surprising considering that Amazon and other online retailers are somewhat responsible for declines in the brick and mortar stores.

The stock dropping to record lows is even more significant because of a rumored offer from Best Buy founder Richard Schulze to take the electronics chain company private.

Schulze, who stepped down as Best Buy’s chairman earlier in the year, currently owns 20 percent of Best Buy stock and is offering others $24 to $26 per share to do this. His offer is over 30 percent higher than the stock’s current price of $17-$18 per share, effectively valuing the company at $8.5 billion.

Considering the radical changes that Best Buy will need to stay competitive (not to mention profitable) over the next few years, a buyout option from Schulze seems like an even better deal for investors.

Giant video game publisher Electronic Arts saw its stock price rise 5.5 percent today after the New York Post reported a rumor that private equity firms are considering a buyout.

The Post reported that makers of such games as SimCity, Mass Effect 3, and Battlefield 3 is in early discussions about a possible buyout with private equity giants KKR and Providence Equity Partners. KKR, headed by Henry Kravits, declined comment, as did Providence, in comments to the New York Post. EA also said it does not comment on rumors.

A source told the Post that EA’s management made it known that they would “do a deal at $20 a share.” EA’s stock closed today at $13.81 a share, up 72 cents. Its market value is $4.4 billion, well below the $7 billion it traded at for much of last year.

EA’s stock has fallen in part because the company’s flagship online game, Star Wars: The Old Republic, hasn’t performed as well as expected after six years in development.

EA’s largest rival, Activision Blizzard, was also reportedly up for sale as majority owner Vivendi wanted to sell its 61 percent stake for around $8 billion. No deal materialized. EA is a 30-year-old company that is adapting as fast as it can to the digital age. About a quarter of its revenues, or $1.3 billion in 12-months trailing revenue, now come from digital sources.

Rival Zynga has also seen its stock price plummet from $10 a share last fall to $3 a share today, knocking its value down to $2.28 billion. But rumors of a takeover haven’t hit Zynga, in part because founder Mark Pincus holds a majority of the voting shares of the company and so it can’t easily be taken over against his wishes.

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Getty Images, the stock photo site to end all stock photo sites, has been acquired by the Carlyle Group and several key Getty Images management personnel.

The parties grouped together to purchase Getty Images from Hellman & Friedman for $3.3 billion. Hellman & Friedman bought Getty in 2008 for $2.4 billion, a four-year investment yielding $900 million in gross profit for its current owners.

“We acquired Getty Images in 2008 because we believed in its strategic direction, growth potential, and capability to build on its leading position as one of the world’s premier media franchises,” said Hellman & Friedman managing director Andy Ballard in a statement from the companies.

“Our partnership exceeded our expectations, and has resulted in an outstanding investment for Hellman & Friedman.”

Carlyle Partners is a large fund ($13.7 billion in its current and fifth incarnation) specializing in buyouts. Goldman Sachs, Credit Suisse, J.P. Morgan, Barclays, and RBC Capital Markets have contributed to the funding for the deal, which is expected to close sometime later this year and will be undergoing the typical regulatory scrutiny for a purchase of this size.

“This partnership with The Carlyle Group reflects and bolsters our ongoing strategy, strong management team and the talent of our dedicated employees,” said Getty Images co-founder and CEO Jonathan Klein in a statement on the deal.

Image courtesy of Korionov, Shutterstock

Best Buy founder Richard Schulze wants to take the electronics retail store chain private, according to a letter sent to shareholders today.

Best Buy has experienced some turbulence in terms of profitability over the last year, citing heavy competition with online retailers as one of the biggest factors for this. Talk of taking the company private first started back in June, as VentureBeat previously reported.

Schulze, who stepped down as Best Buy’s chairman earlier in the year, currently owns 20 percent of Best Buy stock and is offering others $24 to $26 per share to take the company private. The offer is about 34 percent higher than the stock’s closing price of $17.64 on Friday. The offer would also value the company at $8.5 billion.

Schulze intends to contribute $1 billion in equity from his shares, with the remaining amount coming from private-equity firms with an interest in acquiring Best Buy, reports Bloomberg. None of these equity firms, however, are mentioned in the letter.

“I have been actively exploring all available options for my ownership stake,” Schulze wrote in the letter to shareholders. “That exploration has reinforced my belief that bold and extensive changes are needed for Best Buy to return to market leadership and has led me to the conclusion that the company’s best chance for renewed success will be to implement these changes under a different ownership structure.”

It’s unknown at this point if the board will allow Schulze the opportunity to conduct due diligence and form a bidding group. We’re reaching out to Best Buy for further comment and will update the post with any new information.

Do you think taking Best Buy private will help return the electronics store giant to its former glory? Let us know in the comment section.

As usual, the sources are remaining anonymous, so take the rumors with a grain of salt. The purchase price is also somewhere between 10 and 20 times PopCap’s yearly revenue, which is a pretty steep price even for bold suitors. The company recently acquired the San Francisco-based social game developer ZipZapPlay and said it was planning to go public later this year as well.

PopCap is an appealing target for almost any game company because it has several extremely popular games that can be turned into franchises. The company also has a large number of regular users who purchase games, and it is expanding into social gaming with games like Bejeweled Blitz. It’s a rare company that draws gamers from all audiences — social, casual, mobile and hardcore gamers.

Game publishers Electronic Arts and Activision Blizzard are unlikely suitors, ThinkEquity research analyst Atul Bagga said. EA already tried buying a social gaming company, and Activision Blizzard is focused mainly on hardcore gamers. There’s a chance a Chinese company might come in and try to buy PopCap, but those companies are usually pretty stingy when they make acquisitions, Bagga said.

Zynga, which has wildly popular social games like Farmville and CityVille, is also an unlikely candidate. Zynga has also been on a spending spree — its huge user base has allowed it to buy 12 companies in 12 months. But Zynga already has 259 million monthly active users and is known for rapidly turning out new intellectual property.

“That leaves Japanese guys like DeNA and maybe a few media companies,” Bagga said. “It won’t be Disney, obviously, though there’s a chance a company like Fox might be involved.”

Japan-based DeNA, which focuses on social games and has taken aim at Zynga, has been growing at a blistering pace and could be on track to unseat Zynga as the top developer of social games for mobile devices.

Whether you believe the EA rumor or not, it has led investors to cash out of the massive publisher. Shares of Electronic Arts were down 3.5 percent to $21.76, down from a closing price of $22.54 on Wednesday. Shares of Electronic Arts fell around 2 percent in extended trading on Wednesday when rumors about a potential buyout for PopCap surfaced.

PopCap’s soon-to-be customer engagement leader Jennifer Kye said the rumor was unfounded on her Twitter account. Kye said her boss confirmed to her that the company was not planning to sell to any other company for $1 billion. When contacted directly by VentureBeat, PopCap did not give any comment as to whether the rumor about the buyout was true or not.

The casual game maker reported more than $100 million in revenues last year and is one of the most successful independent game companies. Sales of Bejeweled made up about 40 percent of its revenues, and about 20 percent came from Plants vs Zombies, PopCap chief executive Dave Roberts told VentureBeat. But the company was born in 2000, long before the era of social gaming.

PopCap has 16.3 million monthly active users on Facebook. The company has 4.3 million daily active users, or those who come back once a day. It ranks No. 3 behind Zynga and Electronic Arts, according to AppData.

The Seattle, Wash.-based company was founded in 2000 raised $22.5 million in October 2009.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Unnamed sources quoted in the Journal story said Hulu’s board is weighing its options, which include “soliciting other potential interest in the company from larger companies and private-equity firms.” Hulu had been focusing on building out its library, a project that would likely demand new funding, as well as expanding its subscription business.

The report is launching a guessing game over who’s the bidder. Sources indicate it’s not Google. Microsoft, Apple and Netflix might have reasons to acquire an established video site with a robust library. Several media companies have a stake in Hulu, including Comcast, News Corp., and Disney as well as private-equity firm Providence Equity Partners.

The various owners are rarely on the same page when it comes to decision-making for Hulu’s future business practices. A buyout could consolidate control of Hulu under a single entity, which could help it focus its strategy better and allow the various media investors to pursue their own streaming strategies.

Rumors circulated last summer that Hulu was showing interest in going public  — with in an initial public offering that valued the company at more than $2 billion — but in December the company appeared to back away from those plans.

Groupon has reportedly called off the massive buyout offer from Google and apparently makes $2 billion in revenue year, according to a number of reports. The reports also indicate the site could file to go public next year.

The daily-deal space has exploded thanks to sites like LivingSocial and Groupon. Both Groupon and LivingSocial, as well as a host of imitators, now offer deeply discounted offers for services, meals, and group activities from local merchants that have previously struggled to reach new customers online. The sites make money by convincing businesses to offer steep discounts, then selling those discounts directly to consumers and picking up the difference.

Both of those sites are living large right now. Groupon is the king of the hill, based on a recent Experian Hitwise blog post that showed that Groupon received 79 percent of U.S. visits among 81 group-buying sites last week. It was valued at over $1 billion following a large round of funding in April. LivingSocial also recently confirmed an earlier VentureBeat report that it was receiving an investment from Amazon worth $175 million.

AllThingsD reported a few weeks ago that Google and Groupon were in talks, which sparked countless follow-up rumors. We argued that the Google-Groupon deal would inevitably be bad for the daily-deal provider because it would rip the human element right out of the service. Deal sites have grown because they have a human touch. The sites rely on local salespeople, who solicit merchants, and city planners and writers who curate deals and market them with old-fashioned well-written emails.

This would be the second time Groupon has rejected a massive offer from a search giant. There were reports that Yahoo tried to purchase Groupon for as much as $4 billion, after rumors from earlier this month that the deal site was after more funding that would value it at $3 billion. And it’s also the second time Google has failed to pick up a potential daily-deal site in as many years, after it failed to buy Yelp last year.

Sorry guys. Better luck next year?

[Photo: ramblingmediaimages]

Yet that is reportedly how executives at the microblogging startup saw an informal offer from Google and a larger offer of $4 billion from another bidder earlier this year.

There remains a strong element of twee in Twitter, the San Francisco-based microblogging startup. Despite its increasing reach with 175 million users, it still cultivates the quirky spirit of cofounders Ev Williams and Biz Stone as it casts about for the kind of powerful revenue machine Google and Facebook have found.

Business Insider, which reported the offers, rightly noted that it’s common for company executives to talk to each other and float around ideas. In the past, Facebook has fended off some 11 offers earlier in its day, including one from Yahoo for $1 billion.

Besides a belief that Twitter is worth more than the price offered — a view perhaps bolstered by the brisk private trade in Twitter’s shares on the secondary market — it’s understandable that cofounder Williams and current CEO Dick Costolo may hesitate at the thought of selling to Google. Both had previous ventures, Blogger and FeedBurner respectively, which were bought by Google and then neglected. It’s hard not to see the same happening even to a property as large as Twitter.

And the less said of the notion of a Microsoft-owned Twitter, the better.

The rejection of the offers, however informal, are a sign that the company is serious about its future, and isn’t going to show its cards this quickly. It could be gunning for an initial public offering, though its advertising products would have to gain far more traction for that to be possible. In the meantime, Twitter could easily raise more money at a valuation comparable to the buyout offers it’s getting.

Facebook previously made Twitter an all-stock offer of $500 million in 2008. Disagreement over the value of Facebook’s shares led to that deal falling apart, and misunderstandings between cofounder Jack Dorsey and Twitter’s board over that deal and other matters led to his ouster. (He is now the company’s chairman, a role which has grown more active and less titular since Williams stepped down as CEO and was replaced by Costolo.)

Apple also may have made an offer of $700 million, going as far in its due diligence as interviewing some key technical employees, last year, according to unconfirmed reports that were roundly dismissed at the time. Now that Apple has launched its own social network, Ping, and partnered with Twitter, though, those reports of Apple’s interest make far more sense.

Everyone wants in on Twitter’s precious tweets, it seems. And the price tag keeps rising.

The private firms will offer Seagate $16 per share, a 26 percent premium over yesterday’s closing price and a 4 percent premium over its current share price, according to the Bloomberg report. Seagate’s shares jumped nearly 21 percent in extended trading yesterday when the rumors of a Seagate buyout first cropped up. That would put Seagate’s value on the stock market at about $7.4 billion — up from its current value of $7.14 billion — based on its market cap.

This is the second batch of rumors involving a large company that might be taken private just this week. Silver Lake Partners, which had taken Seagate private the first time in 2000, was reportedly in talks with AOL and Blackstone Group LP to acquire Yahoo, though sources subsequently told the New York Times that Blackstone was no longer actively considering a deal.

The outcome of the Seagate deal could have an impact on Yahoo talks, in that the private-equity groups involved may not want to deploy so much capital in large deals in the broader tech sector at once.

Old “spin-up” drives that use magnetic platters like Seagate’s have lost momentum since solid state drives, which are faster and lack moving parts, have become increasingly popular. Solid-state drives are still much more expensive, but are typically less power-hungry and boot more quickly. Solid-state drives are particularly popular in gadgets, as flash memory is now most often used in phones and MP3 players that once used hard drives.

While such shifts in the market are inevitable in technology, public-market investors don’t always take them well, and they may well be easier to weather as a private concern. Seagate has already gone private once, when Silver Lake Partners and TPG Capital paid $20 billion for the company. It later went public again in 2002, listed at $12 per share.

After losing about $3.1 billion in its fiscal year ending July 2009, Seagate posted net income of about $1.6 billion for its 2010 fiscal year earlier this summer, according to its most recent 10-K filing with the Securities and Exchange commission. Seagate’s revenue was up 16 percent from 2009 to 2010, but still down 10 percent from an all-time high of $12.7 billion in 2008.

If you take funding from a venture capital firm or angel investor and want to build a large, enduring company (rather than sell it to the highest bidder), this isn’t the decade to do it. The collapse of the IPO market and dysfunctional math in the venture capital community has stacked the odds against you.

Here’s why.

The two decades from 1979 (when pension funds fueled the expansion of venture capital) to 2000 (when the dot-com bubble burst) were the Golden Age for entrepreneurs and venture capital firms. VC’s were making investments every other financially prudent institution wouldn’t touch – and they were printing money.

The system worked in predictable and profitable ways. VCs invested their limited partners’ “risk capital” in a portfolio of startups in exchange for illiquid stock. Most of the startups they invested in either died by running out of money before they found a scalable business model or ended up in the “land of the living dead” by never growing (or failing to pivot.)

But a few startups succeeded and grew into profitable companies. Their venture investors made money by selling their share of these successful companies at a large multiple over what they originally paid for it. One of the most predictable ways for an investor to sell these shares was to take a company “public.” (Until 1995 startups going public typically had a track record of revenue and profits. Netscape’s 1995 IPO changed the rules. Suddenly there was a public market for companies with limited revenue and no profit. This was the beginning of the five-year dotcom bubble.)

During the decade between 1991 and 2000, nearly 2000 venture-backed companies went public. Take a look at the chart below. (It includes venture-funded startups in all industries, from software to biotech. Source: NVCA.)

The size of the red bars (IPOs) versus blue (mergers and acquisitions) illustrates that while venture-backed startups did get acquired, the IPO market was booming.

Going public did two things for your company. You finally had money in the bank to expand your business, scaling it from the “build” stage into the “grow” stage. But more importantly, your VC’s could sell off their ownership stake. This changed their interest from managing your board for their liquidity to managing the board for all shareholders.  Most VC’s would get off of boards of companies that went public.

The public markets for venture-backed technology stocks never really recovered after the collapse of the dot-com boom. Fast forward to today and take a look at the last ten years of IPOs and M&As in the chart below, and you’ll see why life is different for entrepreneurs.

Depending on your industry, in this decade it’s 5 to 10x less likely that your company will have an IPO as an exit. And what the chart doesn’t show is that the dollar amounts of the deals are significantly smaller than the last decade.

Since there’s no public market for the shares your venture investor has bought in your startup, the most reasonable way for a venture firm to make money is to have you sell your company to another company. But unlike an IPO — where you sold stock to the public and got to run your company — in an acquisition, your company is gone. And odds are you will be too in a year or so.

None of this has gone unnoticed by the venture community. Some of the old-line venture firms have changed their strategy, but some are still locked into last decade’s model while the partners are living off of their management fees and go through cargo cult-like rituals. You can tell who they are by how often they remind you “this is the year the IPO market will come back.” (If the limited partners of these VC’s acted like real fiduciaries rather than waiting for the end of life of the fund, more than half of old-line venture firms would have shut themselves down today.)

New, agile and adroit venture firms with new business models have emerged to deal with the reality that Web 2.0 startups require significantly less capital to start, exits for venture firms are predominately acquisitions and a venture firm with a smaller fund (less than $150 million) matches these exits.

Floodgate, Greycroft, Union Square Ventures, and True Ventures are example of this class of firm. (Raising a VC fund in this environment has it’s own perils.) And the explosion of private Angel firms continues to fuel this new ecosystem.

Other VC’s who invest in Information Technology have taken a different approach. They’ve created virtual IPOs for founders and employees via late-stage private financing. It has put a per user dollar value on these sites and these few startups will be the next likely IPO candidates. In their short time as a fund, Andreessen Horowitz seems to be on top of this game with their investments in Facebook, Skype and Zynga.

But not all industries are as capital efficient as the Web or information technology. Biotech, medical devices, semiconductors, communications and cleantech require significantly more capital to build and scale before they can generate profits. It’s in these industries that the lack of a public market has taken the heaviest toll on entrepreneurs and their startups. Great companies with innovative ideas have simply died not having the cash to scale. Venture capitalists who would have normally kept writing checks were faced with no public exits and cut them off.

Some of these industries have turned to the U.S government for funding. Elon Musk has not only tapped the feds for his electric car startup Tesla, but also received hundreds of millions for his space launch company, SpaceX. Other cleantech companies have tried this approach as well. Yet while the U.S. government doles out funds to connected entrepreneurs, it lacks an integrated strategy to deal with the lack of public market financing for critical growth industries.

It may be that these entrepreneurial industries suffer the same fate as manufacturing in the U.S. — they die out of benign neglect and a lack of a coherent understanding of the role of risk capital in our national interest.

If you’re starting a software company, your exit is most likely a sale to a larger company. This decade has been a Darwinian filter – only the very best companies will survive as standalone companies.

If you’re starting a company in other, capital-intensive industries, it’s no longer just about having great technology. You need a plan for partnership and long term funding from day one.

Question:  We just got an offer to buy our company for a sweet pile of cash, but we don’t know what the next step is.  My father said we should hire an investment banker and let him handle the negotiations.  Do you agree?

Answer:  Congratulations!  Without knowing more about the deal and the proposed purchase price, it’s hard to say.  I practiced law for a number of years in New York City, and it was pretty rare not to have an investment banker involved in an M&A transaction.  Here in California, it’s a little different since most of the deals tend to be relatively small.

A strong investment banker can add a lot of value — not only in connection with negotiating the material terms of the transaction, but also valuing the company and making sure that you’re not selling too low.  A strong banker will also create a competitive environment (or the perception of one) and play bidders off of each other to make sure you get the best possible deal terms.

The problem in the lower middle-market space (e.g., $5-50 million sale price) is that it’s sometimes difficult for entrepreneurs to find a strong investment banker.  A lot of the bankers I have come across in California are more like business brokers, simply trying to close two or three deals a year.  This creates a certain inherent conflict of interest. They don’t get paid if the deal doesn’t close. Thus, some of them tend not to push very hard on the key issues.

Moreover, middle-market investment banks often have relationships with certain buyers (e.g., private equity firms) and bring those same buyers lots of different deals.  Accordingly, they don’t necessarily want to rock the boat.

You’re better off talking first to an experienced M&A attorney. He or she can discuss whether hiring an investment banker is a good idea, given the parameters of your offer.  If you do decide to retain an investment banker, ask the attorney for a few recommendations. Then meet with them and choose the best fit.  Ask for references – and check them!

If you opt against an investment banker, that M&A attorney can help you negotiate the letter of intent (or term sheet).  The letter of intent is very important from your perspective – and you need to ensure all of the material terms of the deal (e.g., the “cap” on liability, the size of the “basket/deductible,” the survival period of the reps and warranties, etc.) are negotiated at this stage of the transaction.

This is when you have the strongest leverage – prior to the execution of the letter of intent. This is the time frame when bidders can be played off of each other.  Once the letter of intent is executed, you won’t be able to shop your company around or talk to any other potential buyers. (That’s due to the no-shop provision, which is commonplace in all letters of intent).  Accordingly, if you don’t retain an investment banker, this is when you and your lawyer will need to button-down the key issues.

The buyer, meanwhile, will often try to keep the letter of intent general (other than the no-shop provision). Then, when the other interested parties (if there are any) have gone away and your leverage is weakest, they’ll negotiate the key issues in the acquisition agreement.

Disclaimer: This “Ask the Attorney” post discusses general legal issues, but it does not constitute legal advice in any respect.  No reader should act or refrain from acting on the basis of any information presented herein without seeking the advice of counsel in the relevant jurisdiction.  VentureBeat, the author and the author’s firm expressly disclaim all liability in respect of any actions taken or not taken based on any contents of this post.