It's admittedly a warning that's been circulating for a long time now without ever seeming to lead to much, but venture buyout investor Terry Garnett sounded another alarm about the unsustainable economics of the VC sector on Wednesday when he said it was "perplexing" that so much money continued to flow into venture capital.
Citing some gloom-and-doom forecasts that the roughly 1,000 venture capital firms operating today should contract to about 100, Garnett said "that's probably not too far off the mark." Garnett, himself a former venture capitalist with Venrock Ventures who went on to co-found the venture buyout firm Garnett & Helfrich, which spins out businesses from global companies, said the venture model simply did not support the $35 billion of new investments that was poured into startups last year.
Behind some of the highest-profile Web 2.0 startups, he said, there were a host of other startup companies receiving funding but generating a lot less hype and standing less chance of succeeding. The result: "an incredibly bifurcated model" in which the very top tier of VC firms do well and all the others lose money.
GodTube has reportedly received a $30 million investment from hedge fund GLG Partners, according to PaidContent. The news came on Sunday, unsurprisingly.
GodTube is a quickly growing Christian online video sharing and social networking website and previously received $2.5 million in funding, some from private investor Norm Miller of Interstate Batteries.
The site now has 2 million users per month and was launched less than a year ago in Dallas. CEO Chris Wyatt formerly acted as an executive producer at CBS.
While $30 million sounds like a massive amount, the costs of broadband make it a normal investment for comparable video sharing sites. Recently, GLG invested in digital media companies Glam Media and Spinvox. This round of funding for GLG Partners is $150 million.
Also according to the article in PaidContent, GLG Partners and GodTube each declined comment on the rumored investment.
Quaker BioVentures closed its second fund that focuses on life science companies in the Mid-Atlantic region at $420 million, beating a target of $120 million.
The first fund closed for $280 million and invested in 24 companies. The fund has been successful, with Amicus Pharmaceuticals going public last May, while Eximias and MedMark were each acquired in spring of 2006. BioRexis Pharmaceutical Corp. and Precision Therapeutics are pending acquisitions.
The second fund has already invested in five companies including Argolyn BioScience, Diasome Pharmaceuticals, EKR Therapeutics, Optherion, and Transave. Quaker's partners for the fund include Sherrill Neff, Brenda Gavin, Richard Kollender, Ira Lubert, Adele Cirone Oliva and Dr. Matthew Rieke. The limited partners for the second fund have not been disclosed, however, Thomson Reuters reported that the Pennsylvania Public School Employees' Retirement System and the Pennsylvania State Employees' Retirement System have invested.
AirNet Systems, Inc. (AMEX: ANS) has entered into a definitive merger agreement with an affiliate of Bayside Capital. The size of this deal is tiny when you compare it to the massive billion dollar club deals, but deals of this size also have a much better chance of being able to be financed and the size is such that banks won't have to come up with three million excuses not to fund.
AirNet Systems is a provider of specialized cargo airline and expedited transportation solutions for time-critical shipments like people that must get somewhere 10-minutes-ago, items like canceled checks and other key parcels. Here is their route structure that it operates in a spoke system if outside of that group. The website says that the company operated 130 aircraft, although that appears to be an old figure.
The company will be acquired for $2.81 per share, a transaction valued at $28.7 million. The offer represents a 94% premium to Friday's $1.45 closing price.
As already noted, the size here is tiny. But this niche is one that sees steady interest from public companies and private companies in what feels like a "regardless of the economy stance" over the last decade. What is even more interesting is that the size of a deal like this crosses over with venture capital players, even if it is already a developed company. VC's have funded many logistic and niche shipping companies over the last decade and there has been a major consolidation of the smaller players.
The board approved the transaction and awaits shareholder approval in a special meeting. The current management team will continue to manage the company upon completion of the transaction which is expected to close in the second quarter of 2008. AirNet shares are up over 80% today to $2.63, representing a $26.7 million market cap. The 52-week range is $1.38 to $3.69, so this might not be a 100% assurance that all shareholders will vote along with the deal.
For many entrepreneurs, the VC world is a mystery. What do VCs really want? What are the valuation metrics? What are the key terms in a shareholder's agreement?
It's all complex stuff (even for some VCs) and, yes, there are numerous VCs who are blogging about these issues.
Is it a good thing? Well, there's a piece on the topic on Boston.com. So far, it seems the answer is "yes."
After all, if entrepreneurs have accurate guidelines, it means that the parties won't waste time. Something else: certain companies – that may provide tremendous benefits – can get the funding they need.
Oh, a blog can also bring more deal flow for VCs, and in light of the competition, this can be a nice advantage.
What's more, VC blogs can be a good source for those who aren't looking for capital. After all, VCs must keep a pulse on the latest-and-greatest. So, they often have some intriguing opinions.
If you want to check out some of the VC blogs, click here.
There's been quite a bit of M&A activity in the business intelligence (BI) software space lately. Oracle (NASDAQ: ORCL) bought Hyperion; SAP (NYSE: SAP) acquired OutlookSoft; and Business Objects (NASDAQ: BOBJ) snagged Cartesis.
Why all the activity? Well, I had a chance to interview Brian Farrar, who is a managing director at Innovation Advisors in Chicago.
What are some of the key trends in BI? Why the interest in M&A?
Squeezing more decision-making power out of the data companies collect in the ordinary course of business is the most fertile ground for innovation in the information technology market today. Software and services companies have only scratched the surface. At the top of the software market Oracle acquired Hyperion and SAP acquired Outlooksoft, as market leaders see the need to have those arrows in the quiver. Services companies are hungry for consulting firms that focus on Business Intelligence because BI can rapidly grow the share of IT received from existing customers. BI is harder to offshore, requires substantial business acumen, and can drive major improvements in profitability and efficiencies. The M&A interest in BI-related software and services companies is hot first because the underlying commercial market for BI is strong today and will grow faster than the broader tech market. Given this strong commercial market environment, the backdrop of healthy public market valuations for tech, larger players and financial buyers such as private equity funds can and are being aggressive.
Do you also expect more VC activity? What about private equity?
You won't see any more investment in general BI software platform businesses. However, large opportunities remain for software companies that focus on vertical market solutions where analytics can yield hard dollar revenue increases or cost decreases. VCs are hungry for those types of businesses.
I talk to lots of VCs. Lately they have been fairly glum -- it's been a long drought since the dot-com implosion. But, there are signs that things are improving. An example is Microsoft Corporation (Nasdaq:MSFT)'s buyout of Tellme.
According to a report from Red Herring, it looks like the deal was a big score for Benchmark Capital and Kleiner Perkins Caufield & Byers. The investors got into the deal during the heady days of 1999. The round was about $47 million.
OK, so what was the return? It looks like about 6x to 8x.
That's pretty good considering that there are many 1999 deals that are zeros.
No doubt, it's still going to take time for the VC business to get its footing. But, I have a feeling that – within about five years or so – it's going to be cool to be a VC again.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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It's admittedly a warning that's been circulating for a long time now without ever seeming to lead to much, but venture buyout investor Terry Garnett sounded another alarm about the unsustainable economics of the VC sector on Wednesday when he said it was "perplexing" that so much money continued to flow into venture capital.
and 
There's been quite a bit of M&A activity in the business intelligence (BI) software space lately. 
I talk to lots of VCs. Lately they have been fairly glum -- it's been a long drought since the dot-com implosion. But, there are signs that things are improving. An example is Microsoft Corporation (Nasdaq:
