Private Equity/Entrepreneurship

Fascinating! You can feel the "animal spirit".

2008

Keywords: Silicon Valley, Entrepreneurship

CNN Money: The next generation of pre-IPO financing? October 23, 2012

Buyout firms have a new strategy for reducing portfolio company debt.

FORTUNE -- I recently wrote about private equity's golden hangover, or the glut of large-cap companies that remain in PE portfolios after being acquired between 2005 and 2008. Conventional wisdom is that many of these companies are planning 2013 IPOs, but such offerings can face serious challenges. Namely, that capital raise targets are tied tightly to debt repayment.

Here's what I mean: read more on CNN Money

Keywords: IPO, Private Equity Leverage, IPO to Repay Leverage

Keywords: Private Equity, Bain Capital, Mitt Romney

WSJ: Debt Fuels a Dividend Boom; Firms Collect Payouts, and Investors Get Yield; 'Reminiscent of the Bubble Era', Oct. 18, 2012

Private-equity firms are adding debt to the companies they own in order to fund payouts to themselves, a controversial practice now reaching a record pace.

Leonard Green & Partners LP, Bain Capital LLC and Carlyle Group LP CG -2.09% are among the firms using the tactic, which rose in popularity before the financial crisis.

In these deals, known as "dividend recapitalizations," private-equity-owned companies raise cash by issuing debt. The proceeds are distributed in the form of dividends to buyout groups. read more in the Wall Street Journal

Keywords: Private Equity, LBO, Leveraged Buy Out, Recapitalization

Ronald S. Burt, private games are too dangerous, 1999

Keywords: Prisoner Dilemma, Trust, Organization

Keywords: Decision Making, Entrepreneurship

A new paper (see below) comes to surprising results. We still see a lot of value in teams of highly skilled private equity intermediaries/managers. Particularly in volatile times where firms need a lot of attention.

Fang, Lily H., Ivashina, Victoria and Lerner, Josh, The Disintermediation of Financial Markets: Direct Investing in Private Equity (October 9, 2012). Available at SSRN: http://ssrn.com/abstract=2159229

Abstract:

"One of the important issues in corporate finance is the role of financial intermediaries. In the private equity setting, institutional investors are increasingly eschewing intermediaries in favor of direct investments. To understand the trade-offs at work in this setting, we compiled proprietary dataset of direct investments from seven large institutional investors. We find that solo investments by institutions outperform co-investments and a wide-range of benchmarks for traditional private equity partnership investments. We also find that the outperformance is driven by deals where informational problems are not too great, such as more proximate transactions to the investor and later-stage deals, and by an ability to avoid the deleterious effects on returns often seen in periods with large inflows into the private equity market."

Keywords: Financial Intermediation, Private Equity

May 2012

Keywords: Private Equity, Job Growth, Mitt Romney

Forbes: The Most Entrepreneurial Colleges, August 2012

Stanford
MIT
Harvard
Caltech
UC Berkeley

read more here

Keywords: Entrepreneurial Colleges, Entrepreneurship, Start Up Activity

about the importance of the connective mind..

Kewyords: Innovation, Creativity

Ang, Andrew and Sorensen, Morten, Risks, Returns, and Optimal Holdings of Private Equity: A Survey of Existing Approaches (July 30, 2012). Available at SSRN: http://ssrn.com/abstract=2119849

Abstract:

"We survey the academic literature that examines the risks and returns of private equity (PE) investments, optimal PE allocation, and compensation contracts for PE firms. The irregular nature and limited data of PE investments complicate the estimation and interpretation of standard risk and return measures. These complications have led to substantial disparity in performance estimates reported across studies. Moreover, studies suggest that the illiquidity and transaction costs inherent in PE investments have substantial implications for optimal holdings of these assets. While incentive fees in PE address moral hazard and information agency problems, total fees in PE investments are large and incentive fees account for a minority of total compensation." Source: SSRN

Keywords: Private Equity, Financial Performance Measurement

DealBook, NYT: Taking a Risk, and Hoping That Lightning Strikes Twice, by Andrew Ross Sorkin, July 23, 2012

...“How can you as an entrepreneur that’s had success, has a reputation, ever build the courage to go and do something again?” he asked, almost rhetorically. “Most entrepreneurs don’t remain entrepreneurs. It’s just too psychologically draining to have to constantly start over.”...

Keywords: Entrepreneurship, Serial Entrepreneurs

A new paper shows that the effect of the selling process on the premium paid is quite insignificant. Entrepreneurs could consequently be well advised to mandate a very senior M&A advisor to build up a small exclusive group of potential buyers instead of hiring a firms which sees M&A as an "industrial process" and spreads a dossier "around the world".

Fidrmuc, Jana P., Roosenboom, Peter, Paap, Richard and Teunissen, Tim, One Size Does Not Fit All: Selling Firms to Private Equity Versus Strategic Acquirers (May 15, 2012). Journal of Corporate Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2098939

Abstract:

"This paper investigates the selling process of firms acquired by private equity versus strategic buyers. In a single regression setup we show that selling firms choose between formal auctions, controlled sales and private negotiations to fit their firm and deal characteristics including profitability, R&D, deal initiation and type of the eventual acquirer (private equity or strategic buyer). At the same time, a regression model determining the buyer type shows that private equity buyers pursue targets that have more tangible assets, lower market-to-book ratios and lower research and development expenses relative to targets bought by strategic buyers. To reflect possible interdependencies between these two choices and their impact on takeover premium, as a last step, we estimate a simultaneous model that includes the selling mechanism choice, buyer type and premium equations. Our results show that the primary decision within the whole selling process is the target firm's decision concerning whether to sell the firm in an auction, controlled sale or negotiation which then affects the buyer type. These two decisions seem to be optimal as then they do not impact premium." SSRN

Keywords: Private Equity, Takeover Premium, Auctions

Chung, Ji-Woong, Performance Persistence in Private Equity Funds (March 1, 2012). Available at SSRN: http://ssrn.com/abstract=1686112 or http://dx.doi.org/10.2139/ssrn.1686112

"Performance persistence in the private equity industry is not long-lived. Current fund performance is positively and significantly associated with the performance of the first follow-on fund, but the magnitude of persistence substantially declines afterwards. Persistence, if any, is largely driven by relatively underperforming funds. Furthermore, excessive fund growth, conditional on past performance, erodes persistence, and the commonality of market conditions between two successive funds partially explains performance persistence. The findings are not conclusive about whether general partners have proprietary skills, but have important implications for the capital allocation decisions of investors in the private equity industry."

Kewords: Private Equity Performance, Market Charakteristik

Forbes: The Seven Habits of Spectacularly Unsuccessful Executives, Feb. 2012

Keywords: Management Style, Leadership

Keywords: Private Equity, Venture Capital

Reuters: Mr. Biden, here’s the truth about private equity, by Suzy and Jack Welch, May 30, 2012

Hello, indeed, and with all due respect to the vice-president, and certainly with no offense intended toward plumbers, we have a question.

Mr. Vice-President, where in the world are you getting your ideas about private equity?

read Suzy and Jach Welch's lesson to Joe Biden on Reuters

Keywords: Private Equity, Mitt Romney, US Elections

Keywords: Internet Trends, Mobile, Social Media

Grilli, Luca and Murtinu, Samuele, Government, Venture Capital and the Growth of European High-Tech Start-Ups: A Firm-Level Panel Data Analysis (May 25, 2012). Available at SSRN: http://ssrn.com/abstract=2066867

Abstract:

"Using an European Union-sponsored new firm-level longitudinal dataset, we assess the impact of government-managed (GVC) and independent venture capital (IVC) funds on the sales and employee growth of European high-tech ventures. Our results indicate that the main statistically robust and economically relevant positive effect is exerted by IVC on firm sales growth. Conversely, the impact of GVC appears most of the time negligible. We also find a positive and statistically significant impact of IVC-GVC syndicates on firm sales growth only if leaded by IVC investors. Our results remain stable after controlling for endogeneity, survivorship bias, reverse causality and anticipation effects." Source: SSRN

Keywords: Venture Capital, Firm Growth

The bashing of Mitt Romney's entrepreneurial role by Obama election team members is in fact not justified, looking at the Administration's performance with public money venture investments:

Investors.com: The Real Scandal Is Obama's Public-Equity Ventures, by Marc A. Thiessen, May 25, 2012

Despite a growing backlash from his fellow Democrats, President Obama has doubled down on his attacks on Mitt Romney's tenure at Bain Capital. But the strategy could backfire in ways Obama has not anticipated.

After all, if Romney's record in private equity is fair game, then so is Obama's record in public equity — and that record is not pretty.

Since taking office, Obama has invested billions of taxpayer dollars in private businesses, including as part of his stimulus spending bill. Many of those investments have turned out to be unmitigated disasters — leaving in their wake bankruptcies, layoffs, criminal investigations and taxpayers on the hook for billions. Consider a few examples: read more on Investors.com

Keywords: Private Equity, Public Venture Investments