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    6 Replies Latest reply on Feb 7, 2009 12:02 PM by Bridge

    Private Equity/Venture Capital

    sage309 Newbie
      With all the doom and gloom of the economy I know there are many out there still those looking for funding for acquisitions,
      start up projects,etc. Many of the projects are out of the realm of traditional banks. These folks have the management team in place,
      able to put some skin in the game, etc. These folks are looking for funding in the $10 to $300 Million range. My question is with the current
      credit freeze are there institutions still lending or funding these type of opportunities?
        • Re: Private Equity/Venture Capital
          DomainDiva Ranger

          Making the rounds of the VC Firms is something like asking for the ebola virus. VC is a brutal world where the idiot ideas get the money if the VC sees a chance at cashing out. I made the rounds for two years and saw no one interested in new innovative technology. If you are a female...forget it theres' no VC money for you either. The idea of VC is to fund the business, get it running, go public and run with the money. Making the world a better place is not in their top 10 list of things to do.

          The start up business model is changing, the 10-300 million funding projects are all but dead, no one puts money like that into anything except maybe bio-tech, bio-pharma. Think about it...all of the great tech companies were started in someones garage or bedroom or ratty storefront or dorm room. For a bank or VC to lend this amount of money their stake in the venture would leave most founders out in the cold. VC Funds for offices, salaries, health insurance, Herman Miller chairs etc do not exist now like they did in the late 90's.

          Our little start up gets together on Basecamp, and has face time at a tearoom. We are spread from Texas to California.

          For some honest VC info, go to Garage.com. Read the new start up business model article as well as the Top Ten Lies of VC and Top Ten Lies of Entrepreneurs. There are also tips on writing business plans and Exec Summaries, as well as design pointers on powerpoint presentations. While you may not be presenting at a VC, these pointers are good for other sources of funding.

          Since the economy is so bad, a lot of tekkies are getting laid off and moving home with Mom & Dad, they will retreat to their bedrooms with their friends and will start creating new technology, launch it themselves and make a lot of money. Look for lots of global collaboration as people from different countries get together and form alliances. This is a very exciting time for technology.
          • Re: Private Equity/Venture Capital
            bmt2008 Adventurer
            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.
            • Re: Private Equity/Venture Capital
              teamcreative Wayfarer

              There are different ways of finding loans of that loan amount, I work with private investors and investors that will provide collateral.
              • Re: Private Equity/Venture Capital
                teamcreative Wayfarer
                I work with people that help with these matters.
                • Re: Private Equity/Venture Capital
                  tricia_morley Newbie
                  I'm also working with a client looking for equity capital, and our experience is positive so far primarily because the premised business is built on a proven business model that had been deployed successfully within a global corporation. The principals are the same team that built the business for the corporation.

                  We've also found a well-written, thorough business plan is critical. If you do a little research online, you'll find good guidance for how to put one together. Length is commensurate with the amount of money requested. Above all, you should include extensive financial modeling for how your business will deliver a return within a very short timeframe.

                  Tricia Morley
                  Fresh Edge LLC
                  www.fresh-edge.com
                  • Re: Private Equity/Venture Capital
                    Bridge Navigator
                    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.