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VC Offramp Backup

An insightful and numbers-full piece in, of all places, Pensions and Investments, discusses the traffic jam developing in Venture Capital. As with any other backup, there is an excess at the beginning and less near than the end: as total capital invested continues to rise (more dollars but a smaller number of deals), however there are fewer exits, as market reluctance remains intact and IPOs sit perpetually on the horizon with liquidity always a destination, but too rarely an visit. The piece points out…

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M&A Appetite and Indigestion

We facilitate acquisitions. So it's good for us if M&A activity pays off for everyone involved. But too often it does not. The Economist has an excellent post on the difficulty with many M&A deals, focusing on a new study on acquisitions by public companies that, pretty simply,   concludes that the shares of acquirers underperform their less acquisitive peers. Profit margins also fall, as do returns on capital. The good news (for us at least, since we swim in the smaller end…

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Angel Investing and the Devil in Gil

We've been lucky enough to have heard Gil Penchina opine a lot. Unfortunately, most of this was well before he became known for angel investing and his Angel List syndicate, and was usually about his failed romantic exploits. Whatever -- truth is we usually didn't listen anyway. But now we do, and gladly. Burnished to a brighter shine as one of the guys democratizing venture capital, Gil had a recent spot at TechCrunch Disrupt where he gave his candid thoughts…

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Six Economic Ideas that Changed the World

Over the summer, The Economist magazine published independent pieces on six big economic ideas that changed the world (or at least modern finance). These have now been collected into a a single brief. Economic students will recognize many, but these should be read by anyone interested in why markets work (or don't work) in unexpected ways. Among the best are the classic essay on Information Asymmetry, of special interest to anyone buying a used car (the "Market for Lemons"), as well…

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Heads: do it. Tails: do it!

We're big fans of behavioral economics, so the idea that you can make better decisions by flipping a coin naturally caught our eye. The author of a working paper that makes this claim is none other than Steven Levitt, of Freakonomist fame. Levitt recruited people who were struggling to make a big decision and were willing to allow their choice to be governed by a coin toss. When he followed up, what he found was telling: For important decisions (e.g. quitting a job…

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PE Partnership Transitions: Greed vs. Legacy

Leadership transitions within private equity firms are icebergs: sometimes the tips are spotted in the distance, but the vast majority are usually out of sight and only significant in a catastrophe. Large crashes became well-known, but even then information is largely anecdotal -- stories passed around with cocktail glasses. Most leadership transitions float past, largely hidden from view. However a working paper from researchers at Harvard Business School (aptly subtitled The Economics within the Private Equity Partnership) has quantified the inputs and impact of the mechanics…

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Five Best Blogs: July, 2016

This month what's caught our eye includes: a brief from consultancy McKinsey on where machines can replace humans (with accompanying visualization) -- not to give it away, but about 60 percent of occupations could see just under one-third of their activities automated. And perhaps related is a thoughtful essay by Tyler Cowen on the political anger of generally prosperous Americans, which has at its genesis insufficient savings for many people on the cusp of retirement (which should be of concern regardless of the political…

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Venture Capital: Variance, Speed and Volume

Looking at venture capital investment during the first half of 2016, Redpoint's Tomasz Tunguz has a nice piece (and several graphs) on the flux in the fundraising market -- early stage deals (Series A) have nosedived by a whopping one-third, as have later stage financings, while expansion stage financings (Series B) are up substantially. This view is a little bit more light than heat, as even with this data Series A investment is still higher than at any point since…

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Mutual Fund Fun

One of many interesting changes in venture capital in the past few years has been the emergence of mutual fund companies investing in very late rounds. In many ways this makes sense -- technology companies are delaying IPOs, and a late-stage investment gets a mutual fund pre-IPO equity at a slightly better price (they hope) and often with significant  downside protection not available in a public offering. But good intentions have unforeseen consequences, for mutual funds have to publicly price…

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Q3 Venture Bender

When you're in a boom, it's always hard to see if a down quarter is a welcome correction or the beginning of a slump. For venture capital, Q3 could be either.  Based on data from Pitchbook, the number of Q3 financing were down significantly: 22% from the second quarter and 34% from the same period last year. However the dollar amounts rose: the $14.1 billion invested in Q3 is up 13% from Q2 and a whopping 81% from the same…

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