Gone but not lost

2/13/2009 - The economy has taken a nosedive — and has dragged the private equity and venture capital industries down with it.

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Investors offered this bleak perspective at the Kellogg School’s 2009 Private Equity & Venture Capital Conference, a day-long series of lectures and panel discussions Feb. 11 at the James L. Allen Center.
 
“The general lack of liquidity is driving people to the sidelines,” said Andrew Marek ’91, managing director of Dymas Capital Management Company and a participant in the “Opportunities in Today’s Market” panel. “Lenders don’t have capital to invest. There’s no financing available. And the distribution mindset isn’t there anymore.”

Yet the outlook for the industry isn’t all doom and gloom, speakers said. There are solutions to problems plaguing the field, and opportunities to be had — if you know where to look.

“The [venture capital] model isn’t broken; it’s changing,” said Promod Haque ’83, managing partner at Norwest Venture Partners, who spoke at the “State of the Venture Capital Industry” panel. “At Norwest, we’re mixing early-stage investments with later-stage investments.” The company also puts its early-stage companies in front of customers as quickly as possible to ensure fast wins, he added.

To increase the security of deals, Marek advised, partner with other firms. “Find more creative ways to structure earn-outs to deal with the insecurity,” he said. “We have firms partnering together…. Everyone is thinking outside the box to make something happen and take advantage of an opportunity.”

Despite so much talk of toxic assets, J.B. Pritzker, managing partner of The Pritzker Group, said that good investment opportunities still exist. “There are forced sellers of good assets because they’re over-leveraged,” he explained.

Several speakers encouraged entrepreneurs to move forward with their business plans. Recessions are optimal times to start a business because “customers are willing to change their behavior and try new things,” said Matthew McCall, ’91, managing director of Draper Fisher Jurvetson Portage. “In fact, the uglier it gets here, the better it is to start a company.”

Tim Draper, founder and managing director of Draper Fisher Jurvetson, cited several successful Fortune 500 companies that were launched during a recession or the Great Depression, including GE, Coca-Cola, Johnson & Johnson, Kodak and HP. He encouraged Kellogg students to use technological advancements as a platform for their businesses. “Innovation is relentless and continues unabated, growing exponentially and globally,” he said. “It’s a great opportunity for entrepreneurs, because they can get bigger faster.”

“Entrepreneurs are heroes,” he concluded, showing images of superheroes on a power point slide. “They take risks, create jobs, make lives better and can rebuild the economy.”