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No Sand Between Our Toes (2016)

Why being at the bar won’t get you a drink but will make your dermatologist smile.

I’ve been spending my summer with lawyers.  It’s not a sentence for misbehavior or because I’ve committed some wrong.  It’s not been at BBQ’s or quaffing beers with my friends at the bar (groan) telling enhanced memory college war stories while listening to the surf above the clatter of conversation. We have not even been competing at Rio inspired beach volleyball pretending each slam - if we could actually jump high enough to make one over a regulation net - was for the gold medal winning point.

Nope.  It’s been nose to the grindstone reviews of complaints and counter complaints, pleadings, filings, hearings, motions, and depositions.  And it’s been fun! Now, not the fun of an exhilarating boat ride against a swift current or being elbow deep into a great steamed lobster fest.  Rather it’s been the joy of winning a tactical position, discovering confirmation of an adversary’s transgression,  laboring under the responsibility of being fully prepared to argue your belief against some very smart colleagues, enjoying the emotional fulfillment of knowing that you are right and having someone in a black robe affirm your belief. Yeah…that may seem like a poor substitute for being at the beach but as far as alternatives go it is certainly better than, say,  Disney World in August.

This year I have relished the privilege of a deep dive in litigation esoterica and SEC regulation, welcomed as a real-world contributor to strategy, even appreciated the more than occasional 2 o’clock in the morning email exchanges, and learned that being a “good” client working with open-minded and keenly intelligent lawyers makes for more than good results.  In our troubled fund practice over the last 15 years we often spurn law firm “help” – particularly at the crisis stage of an intervention as few law firms truly understand the practitioner level consequence of the standard legal playbook on a VC or PE practice that is more medieval than modern.  The vexing engagements we have been working this year required intimate assistance and leadership of a group of attorneys who, in concert with our replacement General Partner practice team, helped secure rights lost, arrested loss of value and fixed governance of particularly dynamically challenging circumstances.  The collective efforts of the Team have given our common Limited Partner clients progress and conclusions that any one of us independently would not have been able to gain.  So here’s a toast, to my friends at the bar who, while keeping me off the beach, have kept me engaged, stirred intellectually and appreciating the fire-power a well-crafted legal and operational strategy can have when dealing with wayward General Partners and the mess they leave behind.  

Here’s hoping next year we are all scrunching sand with beer in hand telling war stories about the terribly active summer of 2016.  Meanwhile our summer labor is not over. I think my lawyer friends spent less time than I did on whatever their version of a holiday may be.  Instead we are all seemingly locked in steel and glass towers under the glow of fluorescent lights rather than risk sunburn. Other than our clients, maybe only our dermatologists applaud the consequence of our busy summer this year!

Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore, www.sema4usa.com, a leading global professional services provider of troubled Private Equity, Venture Capital and Hedge funds under management. Semaphore currently holds fiduciary obligations as General Partner for eight funds, is a New Markets Tax Credit provider and advises General and Limited Partners as well as corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York, London and Dallas.

Topics: LP, VC, equity, ethics, business, Semaphore, venture funds, private equity, troubled funds, general partners, Venture Capital, business advisory, private equity funds

Results of Annual Semaphore PE Industry Confidence Survey

 Self-Confident PE v Congressional Follies

By Mark S. DiSalvo

 

The Semaphore Confidence Survey respondents are truly prescient.  If America had only listened to our results last year it would have saved the American people over a Billion dollars in advertisements and political machinations in the just concluded presidential campaign.  Exactly twelve months ago some 47% of our respondents had confidence in Mitt Romney (funny, that number).  Game over.  Then again, only 39% were confident in President Obama.   Let’s see what Nate Silver can do with this year’s results!

While Romney is off the political grid and despite the big re-election, only 33% of respondents expressed confidence in the President with 37% stating a lack of confidence in him. That is decidedly better than his principal newest political foe, Speaker John Boehner, who “enjoys” a 3% favorable v 64% unfavorable rating. Those abysmal ratings are only superseded by Congress as a whole with nearly 80% expressing no or little confidence in our elected officials laboring under the Capitol Dome with not a single expression of confidence by any respondent.

In contrast some 78% of our respondents are confident in themselves and 43% remain confident in the PE/VC Industry with only 18% expressing some lack of confidence in how they earn a living. Personal confidence slipped a bit from last year’s results of 81%. Confidence in the US economy has slipped from last year, 37% to 46% and degraded even more with the International economy as the preponderance of those with little or no confidence grew from 47% last year to 57% today.  This seems a bit counterintuitive in that the number and size of expected deals appear significantly up by those self-reporting their expected investment objectives.  Further proofed by the fact that 65% earned more income last year than in 2011 and fully 57% expect to earn yet again more income than in 2012 - they’re going to need it to pay higher taxes.

Continuing the reversal of a trend prior to last year, my industry colleagues continue to see the prospect of more income, more deal flow and high confidence in themselves, their peers, and industry. This clear read comparing the raw highlight data from the 5th annual Semaphore Confidence Survey with last year’s results affords some fascinating insight across business and politics.

And in what is the group investing?  Enterprise Software replaced Social/Community Technology for the top spot with the latter moving down to third and Financial Services moving from eighth to 2nd this year.  Health Care Services moved from third to 4th with Digital Media rounding out the top five.  For the second year in a row, Sustainable Energy/Cleantech (for the first three years of our survey in the top five) failed to make the top ten.  On-line Consumer Retail and Gaming went from 4th and 5th to 9th and 10th.

The distribution of respondents in the US stayed remarkably the same from past years - the top six were CA, MA, NJ, NY, CT, TX, with only NY and NJ swapping places. Our US respondents had reasonable confidence in their state governments with 28% expressing confidence - that must look like heaven to the US Congress even though it is down from 37% last year.   

International responses were quite different.  We had our widest ever distribution of respondents with only the UK remaining on top with 27% of all international survey-takers with  Canada, China and France rounding-out the top four.  Russia, Japan, Switzerland and Germany were knocked out of last year’s top five. International respondents had crushingly poor opinions of their governments with the same 74% having no or little confidence in their countries leaders, up 3% from the 2011 survey and more than double the 31% of three years ago. 

The over 470 who did reply this year, up slightly from last year, were weighted a bit differently than  prior years’ mix of VC (39%  this year v 28% last year), Buy-out pros (24% v 33%), Limited Partners (13% v 11%) operating executives (6% v 19%) and third party professional 18% v 12%).

Comments this year were generally policy oriented and in a serious vein.  Some can be viewed on the raw data highlight link below.  There was one comment I’ll share in full from either a jokester or savant – or both:

“I met a fairy who said she would grant me one wish.  Immediately I said, "I want to live forever." "Sorry," said the fairy, "I'm not allowed to grant eternal life." "OK," I said, "Then, I want to die after Congress gets its head out of its ass!" The fairy replied, "You crafty bastard."  12/26/2012 2:14 PM

Maybe this individual should run for Congress.

See you next year.

To see the highlights of the results of the 2013 Semaphore Confidence Survey please click here.  If you want to do your own comparison, the 2012 Semaphore Confidence Survey results are here.

_________________________________________________________________________________

Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Private Equity and Venture Capital funds under management and diligence services. Semaphore currently holds fiduciary obligations as General Partner for six Private Equity and Venture Capital funds, is a New Markets Tax Credit lender and advises General and Limited Partners as well as corporations around the world. Semaphore's corporate offices are in Boston with principal offices in New York, London and Dallas.

Topics: entrepreneurs, equity, investment, Business Operations, private equity funds, Semaphore, funds under management, general partners, limited partners, VC

Cash Trumps Politics

Cash Trumps Politics

Results of Annual Semaphore PE Industry Confidence Survey

 

By Mark S. DiSalvo

It’s all about the cash.  Reversing a trend, my industry colleagues seem to have the wind at their backs when it comes to their personal income and business expectations - this despite a decided lack of confidence in government, most especially Congress. This clear read comparing the raw data from the 4th annual Semaphore Confidence Survey with last year’s results affords some fascinating insight across business and politics.

Let’s start with pay.  At the start of last year 74% of the over 400 respondents to the 2010 Confidence Survey believed they would earn more money than the prior year. Fully 61% did. And this is over 5 times as many who earned more income in the then prior year. 18% earned the same as the prior year and only 21% earned less, halving the number whose compensation was less the prior year.   Not only are the respondents richer but they also expect to get more so.  57% believe they will earn yet more money than last year, 31% the same amount and only 12% less. We don’t know the sources of this increased comp but for the 61% of our respondents who were PE or VC professionals it’s a fair bet that, like Mitt Romney, they had a much smaller tax rate than our other respondents who presumably paid ordinary income tax rather than the 15% carried interest tax rate.  Perhaps we should ask that specific question next year.

Speaking of Mitt: 47% express they are somewhat confident or confident in Romney against the 11% who express somewhat confidence in Gingrich while, significantly, 0% are confident in Newt. Romney even beats the President by 8% in a head to head match on confidence.

On the negative side, in this particularly contentious Presidential election year,

72% are not confident or not very confident in Gingrich while the numbers are 27% for Romney. Romney again laps the President with 49% expressing a lack of confidence.

Clearly Romney is the favorite in this crowd as one might expect him to best Obama here.  Nonetheless, the small gap in confidence between them suggests that Obama may be in better shape than one could generally predict although he is significantly weighted down by the large non-confidence opinion expressed.  Surely, Gingrich would be the preferred opponent for the current resident of 1600 Pennsylvania Avenue. Surprising still is that Obama does not receive more credit for the growth in actual income and trend of continued growth expressed by respondents.  

There is no wondering or skillful analysis needed when you talk about Congress. Last years lowest ever number of 7% confidence was more than halved to 3%!  Even state legislatures grew in confidence from 27% to 32% (you should know that the top states replying were CA, MA, NY, NJ, CT, TX, WA, NC and then IL).   This does not bode well for any member of Congress running for reelection.  Their jobs may be more at risk than a GP who has made negative returns for, say, two straight funds (in and of itself an all too common experience).

International respondents had crushingly poor opinions of their governments with fully 74% having no or little confidence in their countries leaders, up 4% from last year and still more than double the 31% of two years ago.  The preponderance of our international respondents were from the UK with most replies coming, in order, from France, Switzerland, Japan, German and China. 

Our peers expect to be busy this year. In the beginning of 2011, fully 100% thought they would make up to six investments – and they did. 81% completed up to three deals and almost the same numbers intend to complete up to three deals. Further, those deals were as large as expected with 63% self reporting that their deals were in excess of $25 Million in each discrete investment. 

And in what is the group investing?  The industry stayed rather consistent. Social/Community Technology took the top spot for the first time, moving up from second, swapping places with Enterprise Technology and Health Care remaining third. Sustainable Energy/Cleantech dropped out of the top five (it dropped out of the top ten!) with On-line consumer retail claiming 4th and Gaming staying in 5th.

The over 400 who did reply this year, down slightly from last year, were similar to last year’s mix of VC, Buy-out pros, operating executives and third party professionals. One thing for sure is that this year’s mix of survey takers continued to be very high on themselves believing that 71% (78% last year) were confident in their business and 81% (84% last year) confident in themselves.  Confidence in their bosses dropped to 63%, from 75% expressing that view last year, but still – that is 13 points higher than two years ago and nearly triple the year before.

As always, there was insight and entertainment offered by our contributors.  Channeling Lady Macbeth, one offered “Out out damned Newt” balanced by “Obama's wealth redistribution agenda is destroying the economy of this country”.  An optimist suggested, “Even 9% unemployment still means 91% employment”. Another bemoaned that “I should have gone to law school” - hope that was not one of our attorney respondents.  

We had an infamous commentator from our inaugural survey who said “PE is dead and I wish my boss were too.”   I can’t tell you how many people still ask me about that guy. All have waited for him to resurface.  I can’t say definitively it was the same person but someone this year noted, “PE is not dead. Still wish my boss was.”  That, at least, was a confession that he was wrong a few years ago about the industry, and a comfort that he did not murder his boss.  Whew.

See you next year.

To see the highlights of the results of the 2012 Semaphore Confidence Survey please click here.  If you want to do your own comparison, the 2011 Semaphore Confidence Survey results are here.

 

Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Private Equity funds-under-management and diligence services. Semaphore currently holds fiduciary obligations as General Partner for six Private Equity and Venture Capital funds, is a New Markets Tax Credit lender and advises General and Limited Partners as well as corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York and London.

Topics: Venture Capital, investment, venture funds, Semaphore, Venture Capital, general partners, limited partners, VC

Semaphore's Annual PE Industry Confidence Survey results

Posted by Mark DiSalvo on Tuesday, January 25, 2011 @ 12:30PM

Is 2011 a Wasteland or Playground?

By Mark S. DiSalvo

It seems my industry colleagues have continued to be wrongly optimistic about their personal income against a backdrop of continued and decided lack of confidence in the economy and their national governments.  That appears to be the clear read comparing the raw data from the 3rd annual Semaphore Confidence Survey with last year’s results. 

Let’s start with pay.  At the start of last year 78% of the over 500 respondents to the 2010 Confidence Survey believed they would earn more money than the prior year.  The truth was that only 36% of this year’s respondents reported they did in fact earn more than the prior year.  Importantly though is that only 11% of respondents earned more money two years ago against that prior year baseline, clearly signaling at least a change in how some shops are valuing their talent. This must be counterweighted by the realization that 45% earned less than last year – carry not being what it used to be.  Nonetheless, not unlike last year, my colleagues firmly believe that the next year will provide the big score as nearly 75% of this year’s respondents believe they will earn more money than last year.  If they are right, then next year the national deficit will be on the decline despite no increase in upper tier taxes or capital gains and the real estate market will be certain to see significant rebound.

Our peers demonstrated their personal income optimism with their LPs pocketbooks too. In the beginning of 2010, fully 98% thought they would make up to six investments.  The year did not go as strong as hoped with only 11% doing six deals or more, but 76% closed 1-3 deals. Further, those deals were as large as expected with 73% self reporting their deals were in excess of $25 Million in each discrete investment when they anticipated 76% of their deals would be above $25 Million in size at the time of last year’s survey. 

And in what are we investing?  Unlike the year before when our respondents chose three new investment areas in the top three, the industry stayed rather consistent. Enterprise Technology and Health Care were 1 and 3 and Social/Community Technology took the second spot in that list, breaking the top 5 for the first time.  Sustainable Energy/Cleantech and Gaming (not even top ten last year) were 4th and 5th.  Last year the survey indicated investors were apparently smelling money and opportunity in Obama-care. As one person noted, “…when you mess with 16% of the economy something’s got to break our way.” We’ve yet to see if that comment is correct or merely hopeful but investors intend to remain active, according to our survey, in that space.

The just over 500 who did reply this year were similar to last year’s mix of VC and Buy-out pros, with a slightly higher representation of operating executives responding.  One thing for sure is that this year’s mix of survey takers were very high on themselves believing that 78% (63% last year) were confident in their business and  84% (77% last year) confident in the person who sits down in front of their computer each morning. They even had increasing confidence in their bosses with 75% expressing that view - a full 25 points higher than last year and triple the year before.

This personal and professional confidence does not extend itself to America’s political leaders.  While respondents were hard on President Obama and his economic team with only 36% expressing confidence in the President; it was more that triple the 11% expressed last year.  His economic team did not fare as well with 49% (55% a year ago) dissing Larry Summers et al.  

A 7X return is spectacular in a year but when it comes to Congress it is de minimis as its favorability improved over last year’s 0% reply of confidence in Congress to 7% with 77% (65%) stating no confidence in the folks under the Capitol Dome.  Apparently it does not matter which party is in control of the Congress. State governments and state legislatures earned a doubling of confidence to 27% (you should know that the top states replying were MA, CA, NY, NJ, NC and IL).  While confidence has skyrocketed for the President and crept upward, however marginally, for other pols in America, international respondents had crushingly poor opinions of their governments with fully 71% having no or little confidence in their countries leaders, more than double the 31% of a year ago.  The preponderance of our international respondents were from the UK with most  replies coming, in order, from Germany, Switzerland, Japan, France and China. 

To see the highlights of the results of the 2011 Semaphore Confidence Survey please click here.  If you want to do your own comparison, the 2010 Semaphore Confidence Survey results are here.

As usual there was a bit of entertainment offered by our none-too-shy contributors. One offered that “This was a terribly written survey,”…alas.  There was the usual partisanship with strong comments about “not believing the positions the Republicans are taking” counterbalanced by charging that Obama “is a socialist with desire to make US a 3rd world country”.  While there is little danger of we becoming Sweden in a hurry there were many serious comments reflecting state budget shortfalls, pension liabilities, and a belief in significant New Year investment opportunity with many industry recommendations.  One notable recommendation offered was “I have never felt as strongly about the investment opportunity presented by vertical farming,” who knew? 

A cottage industry has grown about the infamous response in our inaugural survey “PE is dead and I wish my boss were too.”   Many wondered where “he” was and hoped he would surface. He didn’t.  One survey taker suggested that “he must be serving time without access to internet.”  Many have tried their hand at PE Killer’s NY Post style headline writing skills (maybe he got laid off from Wall Street in ‘08 and is now working for Murdoch?).  One offered that “VC is a wasteland. PE is a playground (unless your name is Guy Hands.)”  Ouch! We’ll check back next year to see what side of the seesaw we will actually experience in 2011.  

Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Private Equity funds-under-management and technology diligence services. Semaphore currently holds fiduciary obligations as General Partner for seven Private Equity and Venture Capital funds, is a New Markets Tax Credit lender and advises General and Limited Partners as well as corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York and London.

Topics: VC, Venture Capital, Semaphore, general partners, diligence, technology, troubled funds, Venture Capital, equity, investment, venture funds, business advisory

Good Fortune, Dan

Posted by Mark DiSalvo on Tuesday, September 14, 2010 @ 1:45PM 

I think I was subscriber number 293 – certainly somewhere under one thousand.  That got me the privilege of sharing a Dim Sum meal in Boston’s Chinatown with the curly haired, lightening talking, quick-fire questioning editor of what was then known as PE Week Wire.  In those days Dan Primack would meet with anyone.  Witness his suffering me gnawing on Fung  Zao (chicken feet steamed in black bean sauce—don’t knock it till you try it) and learning that the young scribe was a former political activist, community newspaper reporter and editor as well as failed federal level campaign manager.  I kept thinking to myself “he’s just like me (politically) except with hair and actually is able to write – and he really does speak intelligently about the fund business”.   It was odd that we both started our careers in politics for it was abundantly clear, in my case anyway and I’ll bet Dan’s, that early in our community oriented activism that neither of us could spell PE. 

Dan has not since shared a meal with me (showing excellent judgment) but has offered countless insights on our business sector spiced with an open and undeniably irreverent style.  It seems his corporate overlords, as he respectfully touted his employer, could look past bald political opinion, an undeserved mistrust in the initial coaching abilities of Doc Rivers, a penchant to encourage nationwide betting on college basketball and a desire to increase his own subscribers’ income taxes.  He also shared, in a disarmingly intimate manner, absolute love for his wife Jen along with the tests of that affection including a grueling trek up Machu Picchu, frequent trips away from home in the “trusty” (read “death trap”) old Pontiac – and now the blessings of soon-to-be fatherhood. 

I learned to appreciate the aggregation of content, saw the business blogosphere grow up in front of me, witnessed the creation and explosion of the peHUB brand, the wisdom of contrarian thought, and most particularly appreciated the daily news that would occasionally set up an insight or future knowledge base that would occasionally get me a gig.  The day just plain required that 10am Primack fix.

Dan’s announcement begs the many questions of an ever curious investor. What prompts a founder’s departure?  Was there a fatal flaw in whatever the relationship/agreement was with Thompson Reuters?  Was he pushed because of cost cutting?  Did he jump for better security and/or more cash?  Is this next gig an entrepreneurial adventure (and did I miss the opportunity to participate!)? What can I learn from his experience to cement my own portfolio relationships?  I suspect we will yet learn the answers to those queries as Dan himself will be as revelatory as one could expect and present his own valedictory.

This fund manager and advisor will continue to be a reader of peHUB and hopes its next editor will bring the same irreverence and a unique perspective to the marketplace.  The entire Semaphore team and I wish Dan Primack all good fortune(.com). 

               

Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (www.sema4usa.com), a leading global professional services provider of Private Equity funds-under-management and technology diligence services. Semaphore currently holds fiduciary obligations as General Partner for seven Private Equity and Venture Capital funds, a New Markets Tax Credit lender and advises General and Limited Partners as well as corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York and London.

Topics: VC, Venture Capital, private equity funds, Venture Capital, equity, investment

Reward Offered for Industry "Killers" - Results of Annual Semaphore PE Industry Confidence Survey

Posted by Mark DiSalvo on Thursday, Jan. 21, 2010 @ 3:15PM  

By Mark S. DiSalvo

It seems my industry colleagues have been wrongly optimistic and also hyper cynical. At least that is the bottom line of the read I get in comparing the analysis of the 2nd annual Semaphore Confidence Survey with last year's results.  And some people have very threatening ways.

Let's start with pay.  At the start of last year 51% of the nearly 500 respondents to the 2009 Confidence Survey believed they would earn more money than the prior year.  The truth was that only 11% of this year's respondents reported they did in fact earn more than the prior year and nearly 67% earned less than the prior year.  But hope springs eternal, just like every investor is certain that they will score a tens strike on the next investment, 78% of this year's respondents believe they will earn more money than last year.  Let's check back a year from now and see whether BMW dealers will be smiling.

My peers demonstrated their optimism with their pocketbooks too (well, their LP's dollars anyway). In the beginning of 2009 8% expected not to do any deals and fully 74% thought they would make up to six investments.  The year proofed strong with no respondents reporting the intent to do no deals and nearly 98% doing up to six deals with 73% closing 1-3 deals. Further, those deals were larger than expected with 62% self reporting their deals were in excess of $25 Million in each discrete investment when they anticipated less than 17% believed their deals would be above $25 Million in size at the time of last year's survey.  As one respondent commented "I smell irrational exuberance". 

And in what are we investing?  We may be either fickle or very nimble as a business class. This year's expected top three industries were not in the top three last year. Health Care, Enterprise Technology and Financial Services were win, place and show as compared to Digital Media, Sustainable Energy/Cleantech and Infrastructure at 1, 2 and 3 last year.   Health Care moved up from 4th last year.  People are apparently smelling money and opportunity in Obama-care. As one person noted, "...when you mess with 16% of the economy something's got to break our way."

The just under 400 who did reply this year were similar to last year's mix of VC and Buy-out pros, with a decidedly higher representation of operating executives responding.  This year's mix of survey takers were very high on themselves believing that 63% were confident in their business and 77% confident in the person they see in the mirror.  Both marked increases to last year's numbers.  They even had more confidence in their bosses with 50% expressing that view - nearly double last year.

This confidence however does not extend itself to America's political leaders.  Respondents were downright, well...down on President Obama and his economic team. Only 11% expressed any confidence in the president with 55% damning his economic team (compared to 37% disapproval for Obama).   The cynicism is markedly clear when literally no one - not a single person - expressed any confidence in Congress with 65% stating no confidence in the folks under the Capital dome. Even state governments and state legislatures earned 12% confidence. This is what happens when you threaten to screw with capital gains taxes, I guess. Interestingly, the survey closed on election eve of the Massachusetts vote to replace Ted Kennedy in the US Senate.  I think we know how the Bay State respondents voted!

Click the link to see the highlights of the results of the this year's Semaphore Confidence Survey results.  If you want to do your own comparison, click the link to see last year's Semaphore Confidence Survey results.

While some might think the survey results rather depressing in either fact or faultily hopeful there was more than a bit of entertainment. Several wondered after the wag who famously noted in the survey comment section last year that, "PE is dead and I wish my boss were too."   Commenter's this year frequently asked after that quote master, speculating if he or she were "on the lam", noting that "if he did murder his boss it would be justifiable homicide".  Our infamous predictor never surfaced - neither admitting to the crime or the prediction. However, a new would-be industry murderer surfaced stating with equal certainty, "‘PE Killer' was wrong. It is VC that is dead. And my boss is comatose..."  I doubt that either PE or VC conclusion reflects the true state of our industry.  That said, apparently at least two of our colleagues have either a morose sense of humor or deserve to be patted down before they go to an industry conference. Maybe we should post a reward to uncover their identity.  Wanna contribute? I'll put up the first half a buck.

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Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (http://www.sema4usa.com/), a leading global professional services provider of Private Equity funds-under-management and technology diligence services. Semaphore currently holds fiduciary obligations as General Partner for six Private Equity and Venture Capital funds and advises General and Limited Partners as well as corporations around the world. Semaphore's corporate offices are in Boston with principal offices in New York and London.

 

Topics: VC, Venture Capital, Semaphore, general partners, private equity funds, technology, limited partners, finance advice, technology diligence, troubled funds

Morning Person Lament: The Upside of the New Down

Posted by Mark DiSalvo on Tue, Nov 10, 2009 @ 12:41 PM 

I'm a morning person.  No, not the kind you are thinking.  The type that goes to bed at 2:30 or 3:00 AM.  You won't find me at a power breakfast at a fancy hotel at 6:30 AM as I'll be making breakfast for my 12 yr old daughter Celia and then jumping, OK, reluctantly climbing onto the treadmill.

My colleagues at Semaphore know that I will handle any evening event or red-eye required travel with abandon but asking me to be presentably lucid in the morning is an effort.  Nonetheless, I accepted an invitation to speak at a recent T-Cubed seminar to discuss VC consolidation.  Wheeling slowly down Rt. 93 and 95 (the roads are a lot emptier in the evening) grinding to the Foley Hoag Emerging Enterprise Center, I reflected on the VC industry.  All too often we at Semaphore in our funds-under- management practice see the worst - disengaged, incompetent sometimes outright criminal General Partners as we take over trouble Venture and Private Equity funds. On the other hand, it is pretty small proportion and many outstanding GPs work assiduously, engaging Semaphore for diligence on people, process, markets, strategy and technology to help make the right decisions.  

At 7:15 AM a room alive with beaming chattering entrepreneurs and PE professionals greeted me at the event cosponsored by RSM McGladrey, Silicon Valley Bank and Foley Hoag.

70+ of my newest bright eyed and ebullient morning friends quickly gathered, coffee cups in hand and half eaten bagels aside and got down to a "down" discussion. There's not much fun in talking about Venture Capital industry consolidation.  I'll leave my fellow panelists to speak for themselves except to say that Michael Greeley of Flybridge and Alain Hanover of Navigator are decidedly morning people in the more traditional sense, being more awake than this correspondent, as they capably presented chilling facts about the steep drop off in fund commitment (both in numbers of General Partnerships funded and the aggregate amount of dollars committed) and cogently offered the gathered entrepreneurs personal experience and simply great advice on how to deal with the adverse conditions of the moment.

I stated that we should welcome the consolidation of the industry.  All too long I have seen General Partners who should not have been funded get funds. Companies that should not have been started were flooded with millions of dollars.  Fund and effort that was unsurprisingly unproductive and portfolios that offered no return to the well meaning but under-skilled entrepreneur, venture fund partners or Limited Partners providing the investment capital.  In embracing the situation it seemed to me, to surprisingly frequent nods from the audience attending, that we should celebrate the upside of the new down circumstance. 

It should never be encouraging to an entrepreneur that they have been turned down by, say 12 VC's but then had another 40 identified in which to speak and appeal for funds.  That is unhealthy and unproductive for all parties all around.  I argue that it is a better and ultimately more profitable circumstance that fewer funds with fewer partners and analysts (but more senior partners) talking with a smaller but more talented pool of entrepreneurs seeking funds is a better situation all around.

VC funding is not for everyone and once or twice a cycle it seems like everyone can get it. It's like when your brother-in-law the car mechanic starts dabbling in spec home construction or "flip" real estate you know the housing market will crash.  The discipline of fewer funds will improve the market for every one as the funded entrepreneurs will receive money from the most appropriate VC and receive the most attention possible from them to leverage each party's cash, sweat equity and intellectual contribution.

Oscar Jazdowski capably played ring leader at our forum and he ably challenged panelist and questioners alike. What I found is that early morning people really do get the worm - and the best advice.  Those 70 early risers walked away with, at least, some level of intellectual stimulation, a contact or two, lots of metrics and particular insight on how to be prepared for the best possible funding opportunity that they may deserve. 

Some learned, disappointingly, that VC funding was not for them or that they were wholly undeserving to receive funds. No one had ever told them that before.  While perhaps stung for a moment, they got to spend the rest of a sunny bright day reflecting and acting on how and what they should do to move forward  rather than waste precious time chasing VC dollars and delaying dreams that were unattainable.  They got liberation instead of money - and that may have been worth more that any millions of dollars they hoped to have received.  At least until the cycle turns again and the VC investing in this current economic trough provide great returns resulting in allocation increases by LPs.  Then we'll get back to the point where I'll have to get up again in a future decade and give the same talk.  I can handle it once every ten years or so.  Now if only we could have a forum that started at 10 PM?  I'll buy the last round.

Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (http://www.sema4usa.com/), a leading global professional services provider of Private Equity funds-under-management and technology diligence services. Semaphore currently holds fiduciary obligations as General Partner for six Private Equity and Venture Capital funds and advises General and Limited Partners around the world. Semaphore's corporate offices are in Boston with principal offices in New York and London.

 

Topics: VC, Venture Capital, funds under management, general partners, private equity funds, diligence, limited partners, technology diligence, market diligence

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