The biggest challenge to the Venture Capital Industry today is the apparent lack of liquidity…
Stewart Massey an endowment consultant at Massey, Quick & Co. asserts, “… endowments and foundations are going through a period of restructuring where the foremost thing on their minds will be liquidity, even if that means giving up return and taking in some losses.” (1)
However, the traditional Venture Capital Industry has not been able to deliver on solving liquidity needs or addressing ways to mitigate the effects of illiquidity…
But it’s still not a good time for “exits,” as VCs call them, when they reap their returns, despite the uptick in mergers and acquisition and Wall Street offerings. Onset Venture’s Shomit Ghose put it this way: “For private equity, the exit market still feels a little like the Eagles’ “Hotel California”: You can check in anytime you like, but you can never leave.” (2)
Overall, venture-backed companies generated $17 billion in IPOs and mergers and acquisitions in 2009, down 34% from $26 billion produced in 2008, according to VentureSource. (3) And already 2008 was a bad year for exits in itself. And while Q1 2010 has seen 8 venture-backed IPOs, the market still seems very fragile to many – while the average 2010 IPO has risen 11%, many of these deals were completed well below their filing range.
And this in turn has affected investor sentiment…
According to the WSJ, “many investors are reluctant to put more money into venture capital, especially amid the liquidity crunch from last year’s market turmoil.” (4)
Investors, i.e., Limited Partners, want predictability in their investments’ liquidity, this is more important than ever before in these economic times.
This thinking and more has led to the liquidity-oriented investment strategy of the daVinci Capital Group. As seasoned, hands-on venture capitalists with strong operating experience, daVinci’s hallmark strategy in mitigating liquidity risk is to select and actively invest in public microCap companies and to drive strategic growth combinations with other public microCaps and late-stage private companies.
In this way, daVinci provides realizable value throughout the investment process, facilitating earlier and predictable liquidity. As well, by driving these microCaps into smallCap status any potential trade volume limitations are eased which further enhances liquidity. It is important to understand that these are established companies with proven technologies, tangible products and existing customers.
(1) February 17, 2010 Wall Street Journal article titled, “Harvard Tests Market for Its Property Bets”
(2) October 29, 2009 San Jose Mercury News article titled, “VC Confidence Flat, but What Does It mean?”
(3) March 9, 2010, Wall Street Journal article titled, “Venture-Capital Firms Caught in a Shakeout”
(4) November 29, 2009 Wall Street Journal article titled, “Venture Funds Sweetening the Terms”
