Only six weeks ago, many of us were wringing our hands about America’s faltering innovation engine. Investments in VC-backed startups had been plummeting for more than a year and American corporations had been slashing internal longer-term R&D spending for decades. Even the federal government has been investing markedly less on basic science and technical research […]
I have been fielding these same questions from my GP, LP and other industry colleagues: “What do you think about the ILPA Principles?” (soft voice)
“How do you think it will affect my business?” (worried voice)
“They don’t matter – we go through this every ten years when LPs try to get the upper
hand.” (with bravado) Others are either more certain in their opinion or not so sanguine and believe that this effort will have a long term (and dependent on your perspective) positive or deleterious impact on the industry. A few LPs, smaller ones and non-ILPA members are even cowed by the impact feeling that the “big dogs” are dictating their ability to enter into funding opportunities. I’ve been most surprised by the few on the record comments by industry members and in particular the lack of specific statements by GPs. It’s pretty hard to disagree with common sense. I see nothing offensively troubling in the document. In fact, it has offered a kind of first hand self-review opportunity for the industry. I know. I know. We GPs are supposed to rebel instinctively against any proposal by an LP that governs or restricts our ability to do business. Bull! We appeal to Pension Funds, endowments, banks and other institutions for fund capital and want as few restrictions as possible. After all, this is capitalism, no? Atlas will not shrug his great burden but rather heave the world as we know it if these socalled Principles become ubiquitous. Hardly.
[Ed note: This paper is the first formal “policy perspective” published by healthcare VC firm Psilos Group, where Al Waxman is senior managing member] It’s been a long hot summer of debate and, dare we say it, discontent. Over the past six months, Americans have watched with anticipation and increased trepidation as healthcare reform details slowly emerge. President Obama has appropriately led the charge to alert Americans about the crisis and the need for change. At this point we all know our current healthcare “system” does not work and we have all seen plenty of evidence detailing the symptoms and root causes of healthcare’s failure. It’s now time to develop a *realistic* plan for change. We need to understand that we are attempting to fix an extraordinarily complex problem and it will require the best of all parties to accomplish that. Creativity and quality ideas are the essence to build a lasting solution. Reckless expedience, in this case, may serve a political purpose but is unlikely to serve the public interest. Thoughtful deliberations do not mean we do not move forward, but rather, that we move forward with good ideas on a reasonable and achievable time schedule.
In a recent DealBook column by Andrew Ross Sorkin, Guy Hands of buyout firm Terra Firma provides an unvarnished appraisal of the buyout industry’s bubble-era mistakes and its post-bubble outlook. It will surprise no one if the large majority of buyout deals completed during the credit bubble of 2006 to 2008 turn out to be bad deals. If that was the only issue facing buyout funds, everyone could just take their lumps and move on in a couple of years. The core problem is much more fundamental. The buyout industry has sized itself based on management fees drawn not only on the record amount of capital invested during the bubble years, but also on the record amount of committed capital for investments yet to be made. The pressure to maintain high management fees and the large amount of undrawn capital commitments conspire to create an environment in which even the deals that get completed after the credit bubble (i.e. from 2009 to 2012) are also likely to produce poor returns in the aggregate. Unless the industry reforms itself, the net returns for vintage year 2006 to 2010 buyout funds are likely to be worse than even Mr. Hands predicts.
What follows is the prepared text of a speech given today by John Castle, chairman and CEO of private equity firm Castle Harlan, to the the New York Chamber of Commerce. It is a pleasure to address an audience so knowledgeable and concerned about our current economic situation. I think we can all agree that the economic meltdown of the past two years has been the worst since the Great Depression. Locally, nationally, internationally – everywhere we look, the economic wreckage is piled up. The causes of all this are many and often rehashed – the real estate bubble, excessive and unrealistic mortgage lending, derivatives whose risks were only dimly perceived. And all this is now compounded by consumers tightening their spending, businesses declining to invest, and banks refusing to lend. In addition, the mess has been global, affecting literally every corner of the world, even the Middle East. In the 1970’s, the Middle East Oil countries did extraordinarily well even as the rest of the world collapsed. But even this region has been adversely impacted this time as oil prices skidded from their peak of $150 before moving back up to $70. In this recession, virtually no region in the world did well.
Mr. President, I feel compelled to write you a letter to express my thoughts and frustrations regarding innovation policy in our country. While I have modest expectations that you’ll actually read this, perhaps someone in your inner circle will and represent my thoughts. First of all, I hope that you realize how very fortunate we […]
The software IPOs of the 1990’s are coming back – you heard it here first. That’s right, the old school enterprise software companies will be doing IPO’s starting in Q4 and there are a bunch of them. In some cases it will be new companies that look just like old enterprise software players and in many […]
Most people seem to have a favorite Saturday Night Live skit. One of my favorites is, "Ruining It For Everybody," a 1993 masterwork that features John Malkovich and some cast members discussing how they did something to ruin things for everyone else. The Adam Sandler character, for example, explains why many restaurant bathrooms are now, ahem, "for customers only." Of course, finance is full of people who ruin things for everybody, too (thanks for the SarbOx, Enron!) But the most insidious wreckers are those companies that go public and then miss their numbers within a few quarters (what's up, Rosetta Stone?!?) It's those flubs that have a chilling effect on the market for emerging growth companies. And as the IPO backlog builds, I hope the bankers take out only those companies that can keep the momentum going, not just those that will pay enough fees to help them get out of
President Obama’s compelling healthcare speech last night made the case for acting now. In a follow-up email that he sent to millions, he urged action to finally address this pressing issue, positing that we are “closer now than we have been in 60 years.” Here’s my question – where can I find an analysis of […]
Even though I graduated from college (gasp) 18 years ago, I still think about the school season as my annual planning cycle rather than the calendar year. Having three school-age kids reinforces this life rhythm. And so as I was thinking through my personal goals for this coming year, and discussing individual goals with each […]