I just attended the LAVA(Los Angeles Venture Association) conference which was held at a very unique, old school hotel that was completely refurbished called the Millennium Biltmore Hotel. It is interesting because over the years LAVA has had its moments when the who’s who of finance showed and deals were getting done and other times when it seemed like an elephant graveyard. Well, I can tell you that this was one of the go-go times of deal making. The conference was extremely well attended and by a very diverse group of people, not just the usual “service providers.” Venture funds were well represented and so where institutional groups such as hedge funds, private equity and the APO (Alternative Public Offering) groups. This is where I felt the real winds of change…
The real difference (and one of the best features in my opinion) this time was that LAVA organized a series of panel discussions about specific deals and their structure. These panels were not only informative but gave the audience a real flavor of what it takes to grind through all the components of a deal, everything from valuation, structure, pitfalls, due diligence and, of course, the managing of personalities. Even the keynote speaker was an “original entrepreneur” back in the day; Jerry Greenfield co-founder of Ben and Jerry’s ice cream. His speech, as you can imagine, was laced with humor but gave a poignant background of what it takes to be successful, even for two self professed hippies.
I bring all this up because I am sensing a shift in the capital markets. There is a sense that the significant idle capital that has been waiting on the sidelines for some direction from the US economy as well as the credit crisis situation is getting itchy to start a wave of deployment. As a result, change is coming from a real interest by these pools of capital to roll up their sleeves in search of real opportunity. Notably, managers are not looking for random investments just to get the capital deployed but rather, there is real proactive sincerity to get good deals done. The most shocking thing I heard from the start up VC panel was that the managers’ primary concern was not with valuation or control but what the real long term opportunity the investment could provide. After my jaw dropped and I almost fell from my perch in the front row, I realized that this was sincere. In the first couple of rounds VC’s are really trying to determine if this can be an enormous opportunity, similar to some of these virtual world companies, that are garnering significant interest.
This leads me to believe that with all the hype of social networking, avatar dating and the next thing in virtual meeting rooms that this could be the next big thing, like MySpace, which was truly a game changer. The point here people is that with the amount of capital still being raised and the marked increase in deals getting funded that the winds of change are blowing. My sense of this is that the market may be bottoming as funds plunge forward with proactive capital investments. Takeaways? As a fund manager, make sure you are evaluating deals in a way that makes sense in today’s environment. As a company looking to attract investors, tell your story correctly. Don’t focus on short term gains or valuations; tell the story in terms of market impact and longevity in your industry.
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