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The Acquisition Option

With venture funding down and the market for IPOs still anemic -- just eight venture-backed companies so far this year, compared to an annual average of 64 from 2003-2007 -- emerging companies hoping for an exit are increasingly on the lookout for suitors.  Several trends indicate a potential upswing in M&A activity early in 2010. First, as Montgomery & Co points out (slide 4), there is a growing traffic jam of venture-backed firms who will be looking for an exit.  At…

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Pay to Pitch

An online brouhaha broke out over angel groups that charge startups to pitch potential investors. Led by media entrepreneur Jason Calacanis, and with an echo from Fred Wilson, soon a full chorus was reciting a litany of painful experiences.  The revelations are exacerbated as these "pay to pitch" sessions -- questionably effective in the best of times -- coincide with angel funding that continues to nosedive. Personally, I've never believed entrepreneurs should pay just for the privilege of an audience;…

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VC Rebound

It is basketball season, and an intriguing white paper looks at the Venture industry and suggests a strategy to rebound to premium returns.  The authors note recent conflicting trends of larger fund sizes and a decline of IPOs, and argue that the future lies in smaller fund size, considerable consolidation among funds, and exits through M&A. Most interesting in the analysis is the segmentation of Venture firms by fund size: in the 1980s, funds of less than $250M accounted for…

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Not “Do you want fries with that”?

An enterprising job coach collected actual questions from interviews at Google.  My personal favorite:  "Explain the significance of dead beef." Answers fortunately provided.

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First, gather nuts…

What is the first response to scarcity?  Hoard.  The mantra of every preschool playground holds true for venture investors (as it does for most everyone else).  New data (summarized here) shows that initial company financings are increasingly undertaken by a single VC firm (rather than syndicated across several venture firms).  This is consistent with other trends, particularly since the lack of viable exits has resulted in venture firms holding their ownership stakes longer, while their portfolio companies often require additional…

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Sloppy Secondaries

The demise of the IPO market has left many venture-backed companies in their own version of existential purgatory.  The scarcity of realized exits is particularly hard on company founders, who often regard their illiquid equity as more albatross than eagle.  This lack of liquidity, in turn, leads to an environment where capital raising is increasingly difficult, as many venture firms are reluctant to make new investments when unable to navigate an exit for their existing portfolio companies. Someone will almost…

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Founder Liquidity

And further on the topic of increased liquidity, the always-observant Mark Suster has a terrific piece on why company founders should be able to take some equity off the table once their firm has reached reasonable milestones. His point is simple, but often overlooked: the alignment between investors and founders breaks down at some midway point between investment and exit.  Why?  Entrepreneurs are concentrated; VC firms are diversified. Company founders have steep liquidity cliffs: they generally only realize a significant…

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Digestif

Lastly, in my first nod to venture celebrity gossip, read about the night Brad Feld almost went to jail. And it wasn't even for his self-regretful investment in Interliant.

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The Future of Term Sheets

The predictable pendulum swing of harsher terms during a buyer's market lead to a lively online discussion on the future of the term sheet.  A dialogue between influential bloggers -- entrepreneurs and venture capitalists alike -- including Chris Dixon, Fred Wilson, and the eponymous Brad Feld extol the benefits of a simple, standardized, Series A term sheet (see posts by Chris, Fred 1, Fred 2, and Brad). A couple of law firms all have their own versions, as do one…

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Location, Location, Location. Not.

 Investing locally is a mantra of many venture firms.  The desire to conveniently monitor, interact, and network with their portfolio companies has lead to some long return trips for out-of-town entrepreneurs.  Now a recent working paper suggests that the Think Global, Invest Local view is bunk.  Among the findings: investments in regions where a venture firm has no presence outperform investments in regions where they have an established office.  Nor is there any difference by stage - despite the general…

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