Summary
There's not much in the news about the health of FC firms. They are getting squeezed from low investment activity, reduced valuation on portfolio companies, and very little fund raising activity. Large public companies like IBM, Cisco, and Microsoft are turning a renewed eye towards monitoring private companies' health. The VC firms who are working with the pro-acquisition companies could be at an advantage when the clouds part.
Analysis
As business news these days focuses on small businesses surviving the economic cycle and the potential pressure from government regulations, few articles look into the health of the VC firms. With so many small, private companies not performing as expected and the low valuation allowed by the markets, successful equity raises are being accounted for. When you consider privately held portfolio companies are being devalued, the venture capital industry is getting squeezed and is too having a hard time with living up to expectations.
It shouldn't be a surprise that fund raising efforts by VC firms has dropped-off. This is partially due to investors waiting on the sidelines, and because VC firms know better than to try to raise money in this market. I've spoken to over 30 firms in the past 3 months. Several closed funds in late 2008; no firm was currently trying to raise money this year.
There maybe a new focus on the private sector. Large companies are keeping a pulse on up-and-coming private companies. IBM just announced they are establishing a collaborative effort with VC firms in Brazil. This isn't a new idea; several large companies are active in watching potential acquisitions, Cisco and Microsoft are two examples who have heavily invested in watching for good candidates. But if we are 6-12 months away from the VC activity improving, what better way is there for acquisition hungry companies to be poised? If this strategy continues to gain momentum, VC firms that take notice could be a couple of steps ahead of the competition.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
