ForumsAccounting and Budgeting

There are very few - even with all the right stuff. Not just the credit freeze but the down stock market has hurt the private equity industry. Lots of limited partners are not honoring commitments or are pulling back. General partners are worried about the quaility of deals in a down market and their potential exit strategies (which are almost non-existant now) so they are not approving new deals.

Most private equity firms or groups are now concerned about losses in their portfolio companies. In good times, it is ok to only have 1 homerun out of ten companies because that homerun is huge. Now, they do not expect even one homerun - so the focus is to have several base hits. Two reason, they are still required to provide a reasonable return to the LPs and two, their portfolio companies are getting hit in this down economy - many of which will not survive.

Thus, their main focus is on their portfolio. All new investment is going into these companies to help ensure that they make it through these hard times.

Think about this: you have $100 million to buy and sell real estate. For years you have funded $75 million in deals that are worth $200 million. Now, the market drops. That $75 million investment is now worth $50 million. What do you do? Do you fund more deals knowing that prices and valuations are dropping - knowing that you could not sell any of your holdings? Or, do you take the remining $25 million you have and attempt to improve the deals you have? Thus, you could increease some of their values now or work to put these deals in better positions for when the market does turn.

There are expection of course: You can netowrk locally and try to find one or more investors to take a chance on you. You could start smaller, gain some traction and experience, then go after the big money when the market turns. Or,

You can network, network, network, and hope that one of your contacts will make an introduction to an insitutional, VC or angel group AND that this person is held in some esteme with the investor AND this person sells you to them - all on top of having the next google or ebay or whatever.

Just my thoughts - there are a lot of research out there on the web that will back up what I say. Just search for recent deal activity and you will see that most all investment over the last quarter and so far this year is in follow-on investments.

I work with people that help with these matters.

From a definitional standpoint, VC usually invests in early stage companies with little or no positive cash flow. They assume greater risk and expect a greater return. Private Equity usually invests in on-going concerns.

Iget calls from at least PE groups a week. They "typical" business they are looking for (I swear they all had the same calss at Harvard "Here's what you invest in if you are a PE group"):

1) Revenue between $20 - 100 MM
2) EBITDA min. $5 MM
3) Strong Management
4) Solid, continued growth
5) Defensible leading market position
6) Competitive barriers to entry

Right now I see too much money chasing the same "profile" deals. Some PE groups are starting to break this mold and look further down the food chain; i.e. $1 MM EBITDA in hope of getting companies at a more reasonable price.