Friday, June 26, 2009

The VC Outlook - Report from June 24 Event

Charlie Federman, Crossbar Capital • Jeanne Sullivan, Co-Chair, StarVest • Owen Davis, NYC Seed • Ben Boissevain, Agile Equity • F. Morgan Rodd, Milestone Ventures

We usually do a VC Outlook iBreakfast once or perhaps twice a year – and they are good. But somehow the June 24th event was special in an extraordinary way.

Maybe it’s the strange times we are in. People really needed to understand where we are headed and so Investors, by telling us where they are placing their bets – are also giving us a view into the future.

It is also a tricky time because, on the one hand, there appears to be a rising tide of private equity. On the other hand, we see a lot of entrepreneurs but for all their enthusiasm, also lack a vision about the future. Most of all, entrepreneurs may not be thinking of what the Venture marketplace wants – only what they want to do.

We understand that deals have become cheaper and investors can cherry-pick them in a way they may not have been able to do in the past. But what are they looking for?



So this iBreakfast was a wake-up call to “game” the Venture marketplace – getting your plan in line with what the market wants instead of wondering what’s wrong with the market…...

According this iBreakfast - here is the lay of the land:

Most of the exits are closed – the IPO market is all but dead, few investors speak of building a great profitable company in the old enterprise-building sense of the word. M&A is the main exit. Fortunately, many companies have strong balance sheets and after having laid off staff, they are finding that buying start-ups is the cheapest form of R&D. Great. Perhaps even better, foreign companies too, are eyeing the US market and they will often pay a premium if they feel they can get market entry.

So what are investors looking for? According to Jeanne Sullivan, the companies they look for include tech-enabled service businesses, platforms and any high perceived value service that once required custom tailoring, that can be delivered in a mass format is in demand.

Charlie Federman of Crossbar, a noted early stage investor looks for the first new idea in a marketplace. First to market is big deal and if properly executed, usually carries over in the long term. He especially likes ones that "export deflation" - i.e. offer a really low-cost alternative to a current business under price pressure. More importly, he looks for entrepreneurs who can adapt, since most start-ups find their real opportunity later. The business they end up is never quite what they started with. Somewhere, they’re going to have to take a left turn. Will they be ready to respond to that…..?

Owen Davis has analyzed various investment deals and has laid out a kind of roadmap that would be an invaluable guide for an entrepreneur to determine which sector has the highest probability of raising capital in the New York area. Hint: social media and communities highest pitch topic – least invested in.

(Note to Entrepreneurs: check back with us for the best bets.)

Morgan Rodd noted that Milestone Ventures was increasingly interested in tech-enabled medical services.

Based on the surge of investor/entrepreneurial interest we will be producing a new series of Start-Up bootcamps, business and deal structure sessions and more investor meetings.

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Ben Boissevain - Agile Equity
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