Private Equity vs. An IPO
Published by Bob Foster· Comment
The mood on Wall Street is still not favorable for IPOs. So, what are successful young tech companies—and their investors—to do? How will they cash in on that big payday? Many employees went to work at some of these companies for very low wages plus stock in the company, which they expected to cash in on IPO day. Now, instead of months from startup to IPO, it is taking years.
In the meantime, many employees are holding stock they deem worthless, because there is no market for it…and that doesn’t make happy employees. Someone at the National Venture Capital Association said, “You want entrepreneurs hungry, not starving.”
Also, many Venture Capitalists are not happy with the long wait for payday. They have fund investors they have to keep happy, and they normally do that through the IPO…but not lately.
Well, things are looking up. Large Private Equity firms are stepping in and laying out cash for employee stock, as well as helping some of these tech firms continue their growth. Here are some recent examples of private equity deals that have—at least partially—replaced the IPO for now.
Facebook — Russia’s Digital Sky Technologies kicked in $200 million and promised another $100 million to buy employee shares and give the company some cash to grow on.
Twitter — T. Rowe Price put up $100 million so Twitter could invest in much-needed servers and equipment to keep up with burgeoning traffic.
Yelp — Elevation Partners put $100 million into Yelp, 75% of which will be used to buy employee’s stock.
Zynga — Game developer Zynga took $180 million form DST. A portion of this money was used to buy out employee’s stock.
These are only examples of some of the larger deals that fast growing tech companies are putting together with private equity firms. So, if your company is a potential candidate for an IPO and you—and your investors—are just waiting for the timing to get better (it may be a long wait), you may want to take a look at some partial stock sales to a private equity firm.
Forget Tax Incentives!
Published by Bob Foster· 4 Comments
With Congress and the Administration wringing their hands over how big to make tax incentives for small business so they will hire more people; they are—as usual—totally missing the boat. Tax incentives to hire more people will do little to increase jobs. As one small-businessman said in an interview the other night, “Tax incentives are nice and I’ll take them, but they do not encourage me to hire more people. Why would I hire someone that I have no work for and then turn around and lay them off again?”
What is really needed is more work! When small business owners have more work for their workforce, don’t think for a minute that they won’t hire the people they need to do that work—whether there are any tax incentives or not. That’s why they are called “business” owners.
All this haranguing and carping in Washington simply proves even further just how far out of touch with the real world our politicians actually are. Until demand for small business products and services increases, small business owners will NOT hire more people. It’s as simple as that.
U.S. Innovation Falling Further Behind
Published by Bob Foster· 2 Comments
Innovation creates so many jobs and so much opportunity for our country…it is absolutely key to our long-term success in the global economy, [and patent filings] are a reflection of innovation.”
—David Kappos, Director of the Patent Office
It would be hard to argue with Kappos statement—the U.S. has been a world leader in innovation for decades. Unfortunately, that reign may be coming to an end.
The number of patents filed in 2009 dropped 2.3 percent from the prior year…the first year since 1996 that fewer patents were filed by U.S. inventors year over year.
Yes, you say, but we are in the midst of the Great Recession, and we should expect patent filings to drop. True enough, but it does not explain why U.S. patents (yes, U.S. patents) issued to inventors in foreign nations increased 6.3 percent over the same period.
Here is what Bijal Vakil, partner on White & Case’s intellectual property team, in Palo Alto, CA had to say:
…this trend could spell financial ruin for some U.S. companies. We’ve lost our competitive edge, and other companies from other countries stand to benefit.
I’m about to go and watch the President’s State of the Union speech, where he is supposed to talk about jobs and getting our economy back on track. We’ll see!
But, here’s the real deal—Congress and the Administration can posture and postulate all they want, but if they don’t come up with a plan to get our kids and schools revitalized in the areas of math and science, innovation leadership will soon be taken over by other countries…and where does that leave our high-tech businesses then?
How Big is the National Debt?
Published by Bob Foster· Comment
Consider This!
One stark and sobering way to frame the [economic] crisis is this: if the United States government were to nationalize (in other words, steal) every penny of private wealth accumulated by America’s citizens since the nation’s founding 235 years ago, the government would remain totally bankrupt.
No bankrupt nation in history has ever defended or preserved the freedoms of its citizens. In fact, it has been the exact opposite: in desperation, bankrupt governments have routinely plundered their citizens’ wealth and imposed totalitarian controls. What will make things different for the United States, the largest debtor nation in all of recorded civilization?
Putting Fiscal Year 2009’s… $9 trillion deficit another way, 17% of America’s private wealth, accumulated over a period of 235 years, was wiped out by just one year’s worth of government deficit spending…”
Note: These statements are excerpts taken from an article by Stewart Dougherty who is a specialist in inferential analysis, the practice of identifying historic and contemporary patterns and then extrapolating their likely effects upon the future. Dougherty was educated at Tufts University (B.A., magna cum laude), and Harvard Business School (M.B.A. and an academic Fellow). You can read his article in its entirety here: http://bit.ly/8WGXBH
Small Business Squashed…Again!
Published by Bob Foster· 3 Comments
Well, I see the Supreme Court handed big corporations the golden spoon of political clout by striking down major parts of the McCain/Feingold campaign reform legislation. Now, big money has direct control over who does and who does not get elected.
Remember, it is all about the money, and since it takes millions of dollars to get elected to major office, it is obvious who will be controlling our government. And where does that leave Small Business?…guess!
With lobbyists from K-Street orchestrating the performances of Congress, and big business paying for the players, there is not much left for individuals and small businesses to say.
Sadly, the term “We the People” has become nothing more than fodder for political rhetoric to sooth the anger of the uninformed.
Business Funds for Veterans
Published by Bob Foster· Comment
Sadly, veteran owned businesses are at an all-time low. Fifteen years ago veterans owned around 20 percent of all small businesses, but today that number has dwindled to about 12 percent. Consequently, the U.S. Congress, through the SBA, has approved several programs to help veterans become entrepreneurs.
Here are three of the most popular:
- Patriot Express Pilot Loan—This program is for all veterans and active-duty military people, including their spouses. However, this is a SBA “guaranteed” loan, which means the loan is made through a bank—thus requiring that you have a good credit history. Vets can borrow up to $500,000 with 85 percent of their loan guaranteed by the SBA. And since it is an “Express” loan, you will know within one day if you are approved. For more information, call your local SBA office or visit http://www.sba.gov/vets
- Military Reservist Economic Injury Disaster Loan—This special loan is for the small business that has a key employee, or the owner, called up for active duty. The concept is to loan the business additional operating money to help it either get through the period of absence, or recover from the temporary loss of a key individual. You have a year after the return of the key employee to apply for the loan, or you can apply immediately upon the notice of call-up (a good idea if it is the business owner). For more information, call your local SBA office or visit http://www.sba.gov/vets
- Veterans Transition Franchise Initiative—This is not a loan program; it is a government-sponsored program that gives ten to 20 percent off franchise fees at almost 400 different franchising companies. This program works well for the vet who either has the additional money, or can raise it, to cover the remainder of the franchise fee, plus any operating capital requirements, and who prefers to work within the structured franchise model. For more information, visit http://www.vetfran.com
These are special programs set up to help veterans returning from active duty, or while on active duty, so don’t hesitate to take advantage of them if entrepreneurship is in your future.
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