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Semaphore's 2024 Confidence Results Revealed

Discover the latest insights from Semaphore's 2024 Confidence Survey

"I’ve got to admit it; it‘s getting better, a little better all the time (can't get much worse).”

With apologies to the Beatles that their music could belie our industry, this lyric came in a comment to our 16th Annual Semaphore Confidence Survey and seemed to summarize the entirety of the record responses received. Our respondents, while recognizing challenges, were decidedly optimistic about themselves, the state of the industry, their ability to deal with inherent problems, and rather certain that incomes would continue to climb.

Four overriding observations deserve note. First, women respondents more than doubled to 25%. Total participation exceeded 1400 responses, double last year and the largest number we have ever experienced. Artificial Intelligence is anticipated to capture the largest investment market share in 2024, far and away the hottest industry sector. Lastly, despite dismal lack of confidence in the Biden administration, over the three weeks the survey remained open, the expectation of whether the President would be reelected grew from 30% in the initial week to 46% at the end - mirroring recent political polls. Someone else with a higher pay grade than me can analyze whether and how all these connect.

The commentary remained enlightening and entertaining. Please conduct your own review and analysis of our audience opinion and whether you abide by them. Click here for the survey results and a representative sampling of commentary on matters of the industry, race, carried interest, sexual harassment, breaking up Big Tech, and whether Sam Altman should be running Open AI – 78% say yes with comments ranging from “He’s a genius” to “He’s a fraud”.

Results intrigued as usual with definitive confidence in yourselves (82%) and a 4X increase in the economy just twelve months ago (40% have confidence today in the US and 12% International), with a single digit 1% confidence in the US Congress. President Biden confidence rating held steady at just 24% with 58% expressing a lack of no confidence in US national tax and spending policies.

For the first time, less than a majority, 47% of you, earned more in 2023 than the prior year, while 58% expect to do so this year. This is a bounce back in confidence as last year we reported the lowest numbers of increased income expectation ever recorded.

Surprisingly, 56% do not support elimination of carried interest rates compared to 70% last year, with 44% apparently agreeing with one commenter that “Greed is not good”.

Our respondents don’t wish to have Big Tech broken up (72%), believe that sexual misconduct, harassment, and gender bias remains a problem (68%), both virtually the same numbers as last year. 51%, a slightly smaller majority than last year at 55%, believe inherent racism is a structural industry obstacle.

Respondents were from 25 states with California, Massachusetts and New York making up 59% of the US response. 38 other countries were represented with 37% of international respondents from Canada, UK and Germany (36% last year).

Males represented 74%, 25% Females and, 1% self-reported Gender X of those participating this year. 9% of you were from PE shops (way down from 24% last year); 34% were VCs; 3% Hedge Funds; 13% LPs; 10% operating executives; 9% Investment Bankers; and 22% third party vendors/advisors to the industry (lawyers, accountants, etc.) – the last two categories were double last year’s proportion.

Back to the Beatles – the song noted is “Getting Better” on the Sgt. Pepper’s album. The initial idea for the song's title came from a phrase often spoken by Jimmie Nicol, the group's stand-in drummer for the Australian leg of their 1964 world tour when he replaced Ringo who was ill. Take a listen https://www.youtube.com/watch?v=EGlo9LzmOME – here’s hoping things do get better all the time.

Check out the complete results and engaging opinion by clicking here.

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

 

Topics: Venture Capital, equity, private equity funds, Semaphore, limited partners, turnaround, technology, diligence, small businesses, growth equity investments, market, analysis, venture funds, private equity, ethics, ethical standards, business, Survey

Semaphore's 2022 Confidence Survey Results Are In!

“Remember in March/April of 2020 we thought every fund portfolio would crash? The joke is on others not smart enough to be in our biz - not even a global pandemic can kill us.”

That was the first comment entered in the 14th Annual Semaphore Confidence Survey. It might just be true, given the stratospheric amounts of capital committed and invested accompanied by the continuing rising incomes of those taking our survey.

Commentary continued to explode – hundreds of your colleagues penned opinions – many thoughtful and some cringing to read. You can decide for yourself. Click here for the survey results and a representative sampling of commentary on matters of race, carried interest, sexual harassment, breaking up Big Tech, COVID, and the Theranos/Holmes saga. Many comments are truly delicious – how come none of you are as pithy and entertaining on my Zoom calls?

COVID proved not as troubling as expected with only 34% reporting it hurt your business while 54% of you predicted that it would in 2022. Only a third of you think it will hurt in 2022.   It most certainly did not hurt your wallets as 77% earned more in 2021 than the prior year, and 65% expect to earn still more in 2022. Unsurprising, considering that 91% of you had full confidence in yourselves. Curiously, this confidence in self plummets to a 35% confidence rating in the US Economy and only 19% with a confident outlook of the international economy compared to 54% and 37% respectively expressing confidence last year.

The honeymoon for President Biden is evidently over. His confidence rating was cut in half from with 56% last year to 27% today. Could it be because many of our respondents fear a tax hike those in our industry doing so extraordinarily well? As one stated about eliminating Carried Interest “I benefit from it - but it is wrong,” balanced by some believing that “Tax breaks for (the) wealthiest citizens must be revisited.”

66% agree that sexual misconduct, harassment and gender bias remain a problem, down from 78% a year ago.   A majority of 54% believe inherent racism is a structural industry obstacle, down from 68%. The self-identified gender mix of respondents this year were 74% Male, 24% Female (up from 18% last year and 9% the year prior), and 2% choosing Gender X.

The top five survey taking states were 22% California, 20% New York, 19% Massachusetts, 7% Texas, and Connecticut. Washington DC, Pennsylvania, Florida, Colorado and Illinois came in at 2% each and no other state represented more than 1%.

Canada represented 17% of international respondents, 15% UK, 8% Germany, 7% China, 6% India and 3% France, Italy, Israel, and Singapore, 2% Brazil, Mexico and Australia. Respondents in descending order of submissions were from Japan, Taiwan, Sweden, Russia, Spain, Luxembourg, Philippines, Columbia, Viet Nam, Nigeria, with responses from 19 other nations.

Of the 579 participants this year 22% were from PE shops; 27% were VCs; 7% Hedge Funds; 9% LPs; 14% operating executives; 7% Investment Bankers; and 14% third party vendors/advisors to the industry (lawyers, accountants, etc.).

52% of survey takers believed the Theranos/Holmes saga was an outlier in our industry against 48% believing it more systemic. The most passionate of commentary was in response to this question including “Theranos is the tip of the iceberg - there are hundreds of VC funded startups that are illegitimate fake hacks,” and “Hubris is always in fashion.”   We’ll be sure to poll the scandal of the moment next year.

Here is hope your supreme self-confidence somehow rubs off on the world economy and we come out of these still parlous times safe, healthier, and by all accounts, richer in both wealth and fulfilment. Check out the complete results and engaging opinion by clicking here.

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

Topics: Venture Capital, private equity funds, Semaphore, general partners, limited partners, investment, growth equity investments, private equity, Corporate Growth Planning, business, Survey

No Sand Between Our Toes (2014)

Why our feet are not stuck in the mud.

I truly thought we might be skipping this 7th annual post – or have to retitle it “Feet Stuck in Mud”.  The cycle of summer seems to start only after the kids leave school and then return. My wife Tricia used to say “summer starts on the 4th of July and ends two weeks later,” and that sentiment brings near universal agreement –especially to those who have to pay attention to the back-to-school shopping rhythm and planning that truly does start in late July.     In truth, I was looking forward to an extended August respite because business was, well – just slow on the new biz development front.   No complaint, we are plenty busy and full of appreciation for clients and obligations we have right now. Our current collection of funds under management and associated portfolio companies are steaming along as we continue the work-a-day obligation of sustaining and growing value.   One of my favorites in the portfolio is going to crash through a $75 million run rate this year after plateauing near $25 million for the last few years.  Exciting stuff!  Our dozen plus Federal New Markets Tax Credit projects are either completed or in the ground, being particularly proud of the redevelopment of Liberty, Kentucky after its near total devastation by a tornado just two years ago.  We have even seen one of our completed University projects jump start an even more advantageous investment in a textbook demonstration of economic development leverage resulting in the creation of a fully privately funded nursing school. New jobs created, lives improved and strong emotional satisfaction from Florida to Oregon and San Antonio to New York City. 

So…what am I grumbling about?  In truth, we love the hunt for new fund and business opportunity.  We revel in the initial introduction to a vexing challenge.  It takes upwards of a year when we work with Limited Partners to help them understand the mitigation opportunities they have when they are involved with a troubled fund and/or recalcitrant General Partner.  All those months of free consulting – becoming intimate of the private troubles and competing interests, managing the diverse opinions and educating all parties about the complexities and opportunities of the intervention process  and the initial entry – is wonderfully exciting all by itself  (even if we don’t get paid for the effort).  I may be overselling that a bit but for those of you involved in biz dev I think you can more readily understand. 

We had at least two funds scheduled to come off the “contemplation and discovery” phase and move into “direct intervention” for the beginning of this summer.  However, for various reasons the engagements were put on pause until the fall.  We even demurred we step into one of those funds because we saw another path that would allow a repair of the GP/LP relationship twinned with some governance and oversight changes. Less income and work for us but it’s about doing the right thing for the client.  I will confess to missing the excitement of walking into a new challenge...alas. 

It was if we were planning to dig our feet firmly into the soft wet beach sand rather than trodding yet a few more airport terminals this August.  Then, just as the doldrums of summer were about to wash over us, BANG, a client crisis arrives.  Nothing is better than being able to stride into a maelstrom of doubt and fear that a challenging situation requires.  I can’t tell you about it just yet (on second thought, I’m likely to never tell you about it unless it becomes a heavily veiled business school case study) but I promise you we are enjoying the trials and pains of putting our clients at ease and reigning in the troubles caused by their badly-behaving GP. 

Maybe Tricia was right.  I did get the frantic initial Limited Partner call on July 20th. Summer did end two weeks after Independence Day.  Oh well, there is always Labor Day weekend.

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 and Venture Capital funds under management. 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: Venture Capital, troubled funds, equity, private equity funds, Semaphore, funds under management, general partners, limited partners, LP, portfolio company, venture funds, private equity

Results of 6th Annual Semaphore PE Industry Confidence Survey

 

Confidence at All Time High

Results of 6th Annual Semaphore PE Industry Confidence Survey

 

By Mark S. DiSalvo

Is irrational exuberance on the horizon?  Will the Merry-Go-Round ever stop? Can the Masters of the Universe continue to rule? Notwithstanding the recent February Dow swoon the 2014 Semaphore Confidence Survey suggests No, No and Yes.
Extraordinarily, 91% of our over 500 respondents were confident in their own businesses, fully 50% higher than a year ago. 94% were confident in themselves, an all-time high, growing from78% last year.  In contrast only 31% of respondents expressed confidence in the President with 49% stating a lack of confidence in him, significantly above last year’s 37% number. As miserable as that may be it is decidedly better than the leader of the other branch of government, Speaker John Boehner, who has an 11% favorable v 66% unfavorable rating. As dreadful a rating for sure but it is far better than Congress as an institution with 87% expressing no or little confidence in our elected officials and only 1% offering an expression of confidence in the House or Senate.
In contrast some 80%, nearly double last year’s 43%, remain confident in the PE/VC Industry, while 6% express confidence in the US economy and less than half at 22% enjoying confidence in the International economy. This is expressed in the near wild enthusiasm around expected deal number and size.  96% reported completing between 1 and 4 deals and a similar number expecting to do the same.  More surprisingly is that over a quarter of us completed more than six transactions and fully a third anticipate exceeding that plateau in 2014.  And the deal sizes are growing.  Across venture and PE the average initial investment size is expected to be 50% larger in 2014 than last year. 
So what will all this prospective deal effort be in? Health Care investing shot to top in expected activity, up from fourth. Enterprise Software got bumped to #2 and Energy oriented investing rocketed to third place and last year was not even in the top ten.  With Business Services ranked fourth in prospective deal making with Digital Media and Financial Services tied for 5th place. Agriculture investment broke the top ten for the first time and came in a close 6th.  Gaming was not only out of the money but also failed to make the top twenty. Social/Community Technology, On-line Consumer Retail and Food rounded out our top ten deal hopes.  
And where does all this enthusiasm and confident take us. 77% expect to earn more than they did in 2013 with only 6% expecting to earn less. This on top of the fact that 65% earned more last year than they did in 2012 and 23% reported earning less.
For the second year in a row 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 6th annual Semaphore Confidence Survey with last year’s results suggests that our industry remains on the rise.  Too much more enthusiasm and consequent riches and our seemingly hated colleagues in Congress might find it more politically palatable to eliminate capital gain rates on carry.
The distribution of respondents in the US remained nearly the same from past years - the top five were 29% California, 16% Massachusetts, 11% New York, 6% Connecticut and 5% Texas with only New Jersey dropping out of the mix (guess the GW Bridge traffic might have been too heavy to get our usual Garden State respondents to reply). DC 4% and Illinois came in at 3% and no other state represented more than 1%. Our US respondents had reasonable confidence in their state governments with 26% expressing confidence - at least in comparison to the US Congress.    
International responses were quite different.  We had our widest ever distribution of respondents with only the UK remaining on top with 37% of all international survey-takers with (10 points higher than last year) followed by  9% Canada, 7% China and 3% France rounding-out the top four just as they did the prior years. We received multiple respondents from Germany, the Philippines, Brazil, Russia, Japan, Ukraine, Viet Nam and single responses from14 other nations including our first ever from Bora Bora (must have been a PE partner on vacation!). International respondents had depressingly poor opinions of their governments with 5% expressing confidence in their countries leaders, down from 7% in 2013.   
The 563 of us who did reply this year, up from 470 last year, was over weighted by third party professional participants compared to past years.  The mix this year compared to the last year was VC (24% v 39% ), Buy-out pros (25% v 24%), Limited Partners (6% v 13%) operating executives (7% v 6%) and third party professional (38% v 18%). Hmmm…charting this back to the income responses, perhaps the continued increase in income levels is attributable to the transaction fees and expenses associated with our explosion of deal numbers and values.
Comments this year were more muted in tone than past years and can be viewed on the survey highlights link below. Perhaps the tight bandwidth contributed to the lack of wit expressed.   Here is one none-too-pleased respondent commenting on the survey itself:
            “Well done, like an overly charred steak forgotten on a summer BBQ grill. Terrible survey.”
I hate when that happens as I like my steak very rare.
Hope everyone’s expectations are indeed met in 2014.  See you next year.
To see the highlights of the results of the 2014 Semaphore Confidence Survey please click here.  If you want to do your own comparison, the 2013 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 troubled Private Equity and Venture Capital funds under management. 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: Venture Capital, troubled funds, equity, private equity funds, Semaphore, funds under management, general partners, limited partners, turnaround, LP, technology, investment, market diligence, venture funds, private equity

Zombie Funds

 Apocalyptic Future or Salvation?

A few days ago Luisa Beltran of PE Hub asked whether and what we should call the now popular appellation “Zombie Funds”.  I responded to her with the following:

“Here at Semaphore we call them “clients”.  No need for a pejorative characterization. It’s rather matter of fact.   Often it’s because GPs and LPs become mutually misaligned (for instance, when a carry hurdle may never be met it just makes sense for everyone to move on – the GPs to other career interests and the LPs knowingly recognizing that a better more attuned option exists to manage out the fund).

Yes, in some high profile cases it’s because of fraud or malfeasance of a GP that we find ourselves stepping into General Partnerships at the request of the LP.  Certainly those are the notorious examples.  Funny in that the GPs we replace become our best references.  Notwithstanding, generally it’s just good business judgment to let an entity such as Semaphore step in to “refresh” the relationships and more easily get the fund portfolio to perform until appropriate liquidation of the fund. The former GP moves on to other more potentially lucrative experiences, the LPs gets a more profitable eventual liquidation and everyone’s reputation is salvaged.  So let’s commonly drive a stake into the heart of the Zombie mischaracterization and understand that end of fund life sometimes requires good and compassionate hospice care.“ 

Here is the link to some other responses - PEHub.  Take a look.  If you want to discuss this or have a challenging fund situation please write me at mdisalvo@sema4usa.com.

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Semaphore (www.sema4usa.com), is 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: troubled funds, equity, private equity funds, Semaphore, funds under management, general partners, limited partners, turnaround, LP

Boston Lives

I had a lovely lunch at a great sushi place last week with a Limited Partner to whom I’d just become acquainted, nothing unusual there – except that the place is just a few runners strides from the finish line of the Boston Marathon. It was barely two days after the massacre in my city.  And just feet from us were a mob of live satellite trucks and a gang of media lined up cheek by jowl speaking into microphones with cameras trained on their faces, the background eerily quiet and barren. It was certainly strange seeing such a large and vibrant part of the city, some 15 blocks of Copley Square in the Back Bay cordoned off with an army of men and women wearing camo, carrying carbines and what felt like hundreds of others in white environmental suits clawing through every inch of the city’s streets and rooftop. The juxtaposition of my lunch and the sad events of hours earlier should have been alarming.  It felt rather normal, calming, and even necessary.

My new LP friend suggested we meet and support a neighborhood place that surely was bereft of business with such a wide swath of the city shut down and pall cast among patrons in the city.  We bantered with the server, asking “how is business” despite it being abundantly clear by the near empty place that should have been bustling at noon on a work day.  Our server answered that business was “dead”.  Odd word usage considering the circumstances of the day.  I know… I used to work in the restaurant biz and the phrase is always used to quite accurately describe the state of business at that moment in time.  Nonetheless, it was a bit jarring.

On the day after our lunch the President would be arriving nearby to speak at an interfaith service, thank volunteers, medical staff, and first responders.  He would comfort survivors in the hospitals scattered across Boston.  Boston is a living city.  That word, “living” should sound as strange as our server’s description of business. It did not. The city quite literally founded America.  It is North America’s most European city – in architecture and attitude.  Now it has taken on even more of a kinship as it suffers the senseless horrors of mad bombings similar to Madrid and London. I have personally experienced the atrocity of a terrorist bombing that leveled my hotel in Northern Ireland and have seen cars exploding in Tel Aviv and Jerusalem.  I never imagined such events would visit home.  One world indeed.

Our working lunch was full of business challenge, intellectual questioning, a bit of fun, a comparative of cities we’d lived and worked in, and discussions of family history.  Other than the initial interaction with our server we didn’t discuss or even intimate the existence of the horrid events displayed on every headline around the globe or the ongoing investigation just a few steps away.  It was unnecessary. Neither of us forgot it. We just needed to march on – for our own sake and the city’s.

Barely a day and half after that lunch the entire city and three neighboring cities were in lockdown  – not just a dozen+ blocks – through a long evening and into the next  watching a manhunt for the final suspect brother who had perpetrated the cowardly acts of blowing up the Boston Marathon. Within minutes of the brother being found there was another explosion – of relief, of thankfulness, of appreciation for the work of police and the remembered acts of heroism by the nurses, doctors and EMT’s, firefighters and police, volunteers and  spectators  who made things better because they were acting entirely normal at the time of the greatest need.  They were simply doing their jobs. 

On the very next day my family journeyed back to the site of the Marathon finishing line to pay personal honor at the roadside memorials littered with notes of condolence, of awe and appreciation. Now it is time for all us to honor them and go about doing our own unglamorous and comparatively unimportant jobs.  We are, in our own small way, responsible for a return to a new normalcy.  Boston is a living city – made more strongly vibrant by ever remembering but somehow still casting aside the terror that visited her this third Monday of April.

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After the horrific events of this past week, our prayers go out to all of the victims, volunteers, medical staff and those who responded and stayed diligent to the end in finding those responsible. I would like to take this opportunity to suggest sending a donation to the One Fund Boston. Information can be found by visiting the One Fund website at http://onefundboston.org/ .

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.

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Topics: limited partners, LP

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.

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

No Sand Between Our Toes 2012

No Sand Between Our Toes (2012)

But our LPs are very happy that we don't have summer tans.

This is the fifth edition of our summer blast. OK, it should be titled "Some Sand Between Our Toes". We've actually had the fortune of enjoying both a busy period and a highly efficient back office, operations and professional mitigation staff that is running like a well-oiled and glowingly-tanned sunbather. After 11 years of taking over troubled fund assets and doing diligence on funds and deals, we have comfortably created an effective process that makes our clients more liquid and we, at Semaphore, smiling at both our good fortunes. In fact we've just spent this past month officially closing down a Venture Fund after intervening some five years ago.

It may not be a breezy beach read but here is the story. The North Shore Fund (name changed to protect the guilty) was a moderate sized venture fund with two General Partners investing from a syndicate that included many of America's most well-known banks and several larger state pension funds, each with approximately $40 million in committed capital. It was a second fund run by well-educated but under skilled managers. You'll have to wait for the movie but suffice it to say, returns were less than generous. More accurately, they were outright awful. While few get fired for poor performance alone, you will get fired for willful destruction of value, cutting governance corners along the way and playing just on the edge of fraud. The LPs had spent the better part of two years fighting with the GPs about their misbehavior while paying 2 full points in management fees. Litigation had been filed and discovery was ongoing. There was not a no-fault divorce clause in the Limited Partner Agreement and some several hundred thousand had already been spent on litigation. An LP who had previously worked with Semaphore introduced us to the syndicate. We promised three things: 1.) Get the GP out the door without litigation. 2.) Take control of the fund and let the partnership know what had gone wrong. 3.) Tell the truth about whether we could fix it.

We were not very welcome when we walked in the GPs door to introduce ourselves as the folks who were going to replace the very individuals who greeted us. Governance was a mess, portfolio companies had been wholly ignored during the protracted fight and fund values were, well, lower than the clams buried deep in the sand we hoped to be trodding this summer. In fact we ended up taking over Fund I as well, whose value had wholly eroded. We mercifully buried the fund and secured complete liability protection for the LPs.

Back to Fund II: Bottom line is, we fixed it. Semaphore walked the GPs out the door without further litigation; straightened out governance; righted portfolio businesses; sought and received third party reparation; and replaced a third of portfolio company management teams. Ultimately, Semaphore returned 3.1X of value – all without drawing down another nickel of the then available unfunded capital commitment when we intervened.

Oh yeah, we got paid a piece of the action – real carry from a fund destined to be written down to zero. This, of course, meant that our LPs received significant newly-found liquidity. For the rest of the story give us a ring. I will promise to call you back from the beach. Then again, the phone just rang and it's a client with a recalcitrant GP who is acting badly. Maybe next summer...

Hope summer is affording you some respite. If you have any fund worries keeping you from enjoying the surf, lake, forest cabin, poolside, living room or wherever it is you should be happily vacationing - then kick the problem to us.

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 six 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 inBoston with principal offices inNew York andLondon.

Topics: Venture Capital, troubled funds, private equity funds, general partners, limited partners, investment, venture funds, operations

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, Semaphore, general partners, limited partners, VC, investment, venture funds

Semaphore’s 2012 Confidence Survey

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Hello,

Do you expect to make more personal compensation next year than this year?  Feeling more confident or less confident in the President’s Economic team?  Your thoughts on Newt or Mitt?  Annually we ask our readers to weigh in and share their level of confidence in themselves, the economy and their businesses.  Last year we heard significant confidence – was it warranted?

Semaphore is conducting its fourth annual survey of Private Equity and Venture Capital partners, principals and professionals supporting the industry. The purpose of this survey is to gather input from our industry friends and clients with the results reported to all current subscribers of the Semaphore PE Signals Blog and our monthly Semaphore Reporter, as well as the subscribers of Term Sheet.

By participating you’ll get to gauge your expectations with your peers, competitors and industry colleagues. The survey will take 2-3 minutes and respondent identity will not be reported to us.  Results will be published in the Semaphore Reporter and the Semaphore PE Signals Blog as well as in Term Sheet and on our website www.sema4usa.com .  Take the plunge.

 

Click here to take the survey.

Click here to see last year’s results.

 

Topics: Venture Capital, troubled funds, private equity funds, funds under management, general partners, limited partners, diligence, venture funds

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