Wharton PE Conference Notebook: VC Panels

The following Wharton PE Conference notes are from Carmen Feliciano, a first-year MBA student at the Wharton School. Prior to Wharton, she worked as a Brand Manager in Technology & Consumer Goods.

Panel: VC in Emerging Markets
Panelists: David Lam (WI Harper Group), Patrick Eggen (Qualcomm Ventures), Vijjay Khanna (GIV Venture Partners), Jeff Richards (GGV Capital Partners) and Ravi Viswanathan (New Enterprise Associates). The moderator was Andras Forgacs of Richmond Management.

Investments from US to emerging markets
– Innovation will still be in the US (Ravi)
– Emerging markets success must be scalable in the US (Vijay)
– Bullish about China (Jeff)
– Bullish about India (Patrick)

Advantage/disadvantage of international investors versus locals (more competition from local VC firms)
– Disadvantage: local firms less strict on due diligence, financials, etc. also with time frame of engagement
– Advantage: credibility
– Partnering with local firms and hiring locals
– In the US, the challenge is to source great deals, in China it is to close great deals

Advantage of being US-based and doing business globally
– Using partners and other funds in the US to find opportunities for portfolio companies
– No US companies successful in China because of the complex structure of US companies so this is a way in
– Business development (e.g. introducing Alibaba to US players)
– Applying business models that work
– Large rounds, exits

Realizing returns
– No M&A
– Domestic and international IPOs, although trend is doing domestic IPO,s as more funds are going to Asia
– Friendly strategic partners

Panel: Venture Capital Investing
Panelists: Michael DeRosa (Element Partners), Warren Lee (Canaan Partners), Alex Kinnier (Khosla Ventures), Jim Lussier (Norwest Venture Partners), (Nick Sturiale JAFCO Ventures) and Ravi Viswanathan (New Enterprise Associates). Moderated by Dean Miller of Novitas Capital.

VC structurally flawed
– Too much money
– Too many companies
– Smaller IPO’s
– Very little returns

Is early-stage dead?
– Furious re-engagement coming from seed
– Less capital needed to go to market
– Bloom of the rose for clean-tech (capital intensive), some parallels between clean-tech and semi-conductors
– Last year’s deals only 60% compared to previous year
– There is slowdown; some ideas are not getting funded e.g. semi-conductors, me too’s, less experienced entrepreneurs
– Innovation won’t stop but there will only be 15 to 20 money-makers
– Ratcheting down because of too much money
– Requires venture-like returns

Exit markets
– Financings are secondary as people (entrepreneurs, employees, etc.) are trying to get liquidation on their stocks
– IPOs:  More activity, maybe 20 IPO in 2010. Downside is mediocre companies wanting to get out, companies still working through their issues
– Best startups will go out next year (e.g., Facebook)
– Capital efficiency matters

Does the math work? (e.g., 400M fund need to generate 1.5B)
– There is a difference when you start looking at quartiles and deciles; Top 10% outperform the rest (need to be in top quartile)
– Spread vs other assets higher by 500 to 1500 basis pts (risk adjusted); different risk/return threshold
– Need for discipline and accountability esp. as fund gets bigger

Difference between East versus West Coasts
– West has a higher appetite for risk, also very different eco-system e.g. In Philly, an entrepreneur probably needs to talk to more than 20 people versus a deal being closed in Starbucks while waiting in line for coffee
– East might have more proprietary deals
– East has advantages to certain industries such as proximity to advertisers, financial services