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VCs Say Startups Wants to Stay Private

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Tonight I attended an interesting panel discussion that featured three Bay Area venture capitalists discussing the impact that today’s recession based economic conditions are having for startups and their fund raising processes. Two things from this discussion jumped out at me.

The first being that all three of the VCs agreed that if you can bootstrap your company and or drive to profitability with taking very little money, then do it! This isn’t what you would expect to hear from a VC, but when you consider that most VCs are “businesses” that are structured to do large deals, this makes sense. Smaller business opportunities exist all around us that could be grown to a $10M-$50M exit. Most VC’s can’t invest the time into those opportunities when these entrepreneurs are looking for under $500k of investment. Those are the deals that a few dedicated entrepreneurs could bootstrap and grow by staying focused and end up with a very nice payout with the majority going to the entrepreneurs.

The other topic that jumped out at me (but by no means surprised me, I agree with it) is that fact that most entrepreneurs or managers in startups and small companies don’t dream of taking their company public anymore. There is so much overhead and pain involved with being a public company today with regulations, requirements, and value being driven by those who don’t focus on long term fundamentals of a company that it isn’t really worth it unless you are large enough or have a unique and defensible enough value proposition. Add on top of this the increased public distrust and angst toward senior executives of public companies that the reasons for being an executive in a public company are far out weighed by the headaches involved.

On that same thread, I find it amazing how some very large companies who are sitting on Billions of dollars of cash are completely abusing their employees right now in order to increase their stock price. I have heard some scary stories as of late that take cost cutting to new highs and lows, and employees are having to take some of these cost cutting measures directly to their bottom line. It’s one thing when the company is fighting for it’s survival, but another when the company is sitting on Billions in cash and has growing revenues. The reason for this in my opinion is that stock prices currently are not being valued based upon the fundamentals of the company. Yet the senior executives of a public company can’t follow their best business sense to do what’s right toward their employees and customers because they have to cow tow to wall street analysis and fund managers who are are influencing their stock priced based on the macro economic situation.

Who wants to be a public company CEO in this climate?

(Though with the right company, right now is the time to invest with these artificially deflated stock values…)

An Plain English Explanation of the Economy

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Yesterday while driving back and forth across the bay area, I listed briefly to an interview with Law professor Michael Greenberger, professor at the University of Maryland School of Law and the director of the University’s Center for Health and Homeland Security, on NPR’s Fresh Air. This interview is one of the best descriptions of the current economic situation in the United States that I have heard to date. Greenberger’s explanation of where we are and how we got here (as well as what else we could expect) is simple enough for the layman to understand. Granted, you still need to pay attention and think through all the connections while trying not to get confused with all the complicated financial terms, but you should be able to do that without needing to reference any text books.

Every person in the United States should listen to this interview. I think the general population would be shocked to learn that (according to Greenberger) this whole mess happened because of a rider added to an omnibus appropriate bill that was passed by Congress in December 2000. And that this rider wasn’t really understood by the authors of the bill, it was written by lawyers from investment banks on wall street. The effect of this rider was to de-regulate certain financial markets at both the federal and state levels. The end result of this bill is the current situation…sub-prime mortgage crises, credit crisis, recession, and a tax payer bail out of some of the same investment banks that created the entire mess. What happened to the motherly wisdom of teaching your children a lesson: “you made the mess, you clean it up”?

And the real kicker…wait till you hear who the person is that was responsible for that original bill and was talked into adding the rider…and what he’s doing now…

Signs of Recession

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Today I overheard a strong indicator that we are in a recession. Listen to any economist and they will say that the one thing that has kept the economy humming along was the housing market. People were still spending money either on their houses or because of the equity in their houses. Once the sub-prime mortgage crises came to lite, we had various opinions on what would happen to the economy.

Today I learned that 3 Day Blinds will be closing 64 of their stores/showrooms. This is almost 40% of their 170 stores across the country. For those who aren’t familiar with 3 Day Blinds, they make custom blinds with a 3 day turn around (as if you couldn’t figure that out from the name). They do business via their website as well as their stores. Considering the nature of buying blinds, most of the time you want to see what you’re going to get before placing your order, it makes sense that they would have stores. With the strength of the housing sector, they had good business and growth.

But, now with consumers spending less, even on their homes, they are shuttering stores. It will be interesting to watch the stock returns of the other companies that revolve around the home owner (i.e., Home Depot, Lowes) and see what their returns are from the last quarter. If the consumer isn’t spending as much money on their own house…that’s the strongest indicator that we we are in a recession.