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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.


Mark S. DiSalvo is the President and CEO of Sema4 Inc., dba Semaphore (, 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: Venture Capital, troubled funds, private equity funds, Semaphore, general partners, limited partners, technology diligence, technology, VC, finance advice


Posted by Cris Miller on Thursday, Jan. 7, 2010 @ 011:35 AM

By Cris Miller

The other day I was reading an interesting article on Defensive Due Diligence by Claudine Cohen, Mendy Dwestel and Andrew Finkle (all from Grant Thornton) in the January 2010 of Mergers & Acquisitions publication of the Association for Corporate Growth.  They make an excellent case for doing sell side due diligence prior to the initiation of the deal.  They say "by performing due diligence that typically covers such areas as accounting, finance, tax, IT and compensation and benefits...prior to going to market the seller can address areas and avoid any unwanted surprises that can adversely affect the valuation and purchase price."  The problem is that, where as these areas are important, they are simple reporting matrix.  Yes get your reporting systems up to snuff but don't miss the important Stuff. The value isn't in the numbers - it is in what causes the numbers to exist.   Doing just part of the diligence is like having a 5 course meal and skipping the entrée.  If there were no product then the numbers would be Zero - thus no reason to do diligence of any kind at any stage.

Performing pre-sale Technology Due Diligence on the product and the market will have a significantly greater impact on the outcome of the deal and the future success of the acquisition or investment. 

No product is perfect.  Know where the deficiencies are.  If it is a software product, know what the software contains...such as what, if any, Open Source exists and what liability may exist with proprietary code or other IP so that when the buyer/investor asks the question, the answer is readily available.  This avoids delays, but more importantly, it avoids opening the discussions to further questions, doubts and trust.  With proper identification remediation activities can be accomplished prior to going to market -whether that is marketing the company for acquisition/investment or marketing the product for revenue and return on investment.  The market could be shrinking, or for that matter dead, and competition could be focused on to the next generation of the technology.   Customers could be in a state of transition.  All these situations will be missed or misinterpreted if you are looking only at historical numbers

Some investment bankers have a tendency not to want to "expose" the product deficiencies.  The diligent ones address the issues early in the conversation in order to either remediate the problem or have legitimate answers for the issues.  Ask and you will receive...ignore and the risk of discovery could be huge and the consequences could cost millions.

Here are just a few of the thousands of questions to ask when performing complete diligence.  The most important part of pre-deal due diligence:

  1. What is contained in the product and product components? 
  2. How old and ‘out of market' is the technology? 
  3. Where does it fit with the advancing technology continuum? 
  4. Are the development personnel capable of advancing the state of the technology?
  5. Where is the competition regarding the existing product? 
  6. What is the condition of the market itself - growing or declining? 
  7. Where are the next revenue opportunities?
  8. Where are the next markets for the product?
  9. Are all the contracts for third party components in compliance?

So when performing "defensive due diligence" cover all the important areas of a business including finance, operations and most importantly, the product itself. After all, that is meat and potatoes on the plate - you know-the important stuff.

Cris Miller is Global Technology Diligence Practice Lead of Sema4 Inc., dba Semaphore (, 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.   You can write to Cris on


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