Venture Capital

This is not so new, but it has been overlooked by the media, while I think it's a very important event in the european venture capital landscape.

BaltCap has been around since 1995 and has managed four private equity and venture capital funds with total capital of €130m.

In January the closed a new €30M fund that will consist of €20m provided by EIF managed JEREMIE Holding Fund and €10m raised from local private investors, including Parex Asset Management, Hipo Fondi, LKB Krajfondi, Pirmais Slegtais Pensiju Fonds and high net worth individuals.

The fund will provide start-up and expansion financing to companies with established operations and growth potential taking equity stakes of between €300,000 and €3m, with the aim to build a portfolio of 15 to 20 investments.

Plus notably, BaltCap is the first venture capital fund to successfully complete private fund raising under the European Investment Funds managed JEREMIE initiatives in Europe, and the first structured private equity fund to be raised in the Baltics since the economic crisis hit the region.

I had to chuckle the other day when I read a post entitled “Why Twitter is underhyped and is probably worth five to 10 billion dollars” by the infamous Robert Scoble.  I am somewhat of a student of technology company valuations.  While Twitter may someday be worth $5 billion, it’s not going to be any time soon.  If Mr. Scoble thinks they are worth $5 billion then perhaps he might need to take a drug test since there is no way that Twitter is worth $5 billion today or even next year.

The best way to gauge the value of a company is to look at what how the markets value a company’s stock.  For private, venture backed companies like Twitter there is no daily market for their stock, but we can look at publicly traded technology companies to get a feel for how the real world values them.  Later in this post we’ll take a look at how the market values technology companies and see how Twitter stacks up.  First, let’s take a look at Mr. Scoble’s ideas about why Twitter is worth $5 to $10 billion.

 “The experiences I'm having with business owners in every city makes me understand some things:

1. Twitter has taken over the business world and this should be very worrying for other companies like Google, Yelp, Facebook, Microsoft, Yahoo and others.

2. Twitter is underhyped. I'm now convinced that Twitter has locked up a whole raft of businesses and that Twitter is actually worth five to 10 billion dollars.

Preliminary numbers are in for 2009 private equity backed bankruptcies and not surprisingly the numbers are up significantly from 2008.  As reported by peHUB in 2008 there were 46 Chapter 11 filings for PE-backed firms, through November 30, 2009 there were 83.  This was a sharp increase in comparison to the two PE backed firms who went bankrupt in 2008.

My first exposure to private equity was in 2003 when I became an operating executive for a portfolio company of Golden Gate Capital and Cerberus Capital Management.  This was at the beginning of the private equity boom that lasted through 2008.  At that point in time it was inconceivable that a serious private equity backed firm would ever go bust.  It was also inconceivable that a portfolio company’s debt would ever trade at a discount.  Such events would be considered professional suicide – a bankruptcy or downgrade would seriously impinge a firm’s ability to raise debt or equity in the future.  In 2010 the world has changed and the stigma of bankruptcy simply is not what it once was.

As shown in the following table the pace of PE backed bankruptcies in 2009 significantly accelerated in the first half of 2009 and then tailed off dramatically:

The types of firms filing for Chapter 11 protection should be no surprise:

Morgan Stanley’s Mary Meeker, the “Queen of the Net”, is famous for her in-depth analyses of technology markets.  In 2009 Mary and her team have been heavily promoting Mobile Internet as the next big wave in the technology market.  Several copies of her 68 slide October “Economy & Internet Trends” presentation from the Web 2.0 Summit have circulated around the web.  Recently Morgan Stanley released the 671 slide presentation, the Mobile Internet Key Themes Report, that underlies Mary and her team’s research.  If you were ever looking for the definitive research primer on why Mobile Internet will be the most dominant theme of the technology market for the next 5 years look no further.  You can download the entire presentation via this link.  You can also view it below.

Here are several links to stories that I never got around to commenting on this year.  Enjoy:

Best and Worst Industries of Decade, or, Why Children’s Clothes Makers Need to Get Into VoIP.  Paul Kedrosky, Infectious Greed

Stealth Startups, Get Over Yourselves: Nobody Cares About Your Secrets.  Vivek Wadhwa, via TechCrunch

The Startup Visa And Why The Xenophobes Need To Go Back Into Their Caves.  Vivek Wadhwa, via TechCrunch

Rangel Puts Carried Interest Back On The Agenda.  Wall Street Journal Private Equity Beat

Memo to Congress.  There are legal issues with taxing carried interest as ordinary income.  Paul Koenig, peHub

15 Google-y Perks That Will Make You Jealous.  Nicholas Carlson, Silicon Valley Insider

Why Don’t Fortune 100 CEOs Care About Social Media?, JCM at SpataillyRelevant.org

Disney's four funnels.  Forget fairy dust. M&A in the Magic Kingdom is all about process.  Richard Morgan, TheDeal.com

Barack Obama Has Better Things to Do Than Tweet.  Ryan Tate, Valleywag

Sometimes Twitter Accounts About Sh*t Your Dad Says Get You TV Deals.  MG Seigler, TechCrunch

Things VCs Never Say . . .