Well... yes and no. One of the cool things about a system that lets one person create and grow a company, and another take over and grow it more, and another manage it for stability later on, is that it plays to everyone's strengths. The stability guy might be completely lost in a startup environment, and the startup guy might get bored at a big, stable company.
this often time requires skill/knowledge of a market, that frankly, many technologists don't have.
the company where I work does software for Natural Gas Companies -- no matter how great of a hacker one is, if you don't know Viscosity, dew point calculations, flow rate conversions and a number of Petroleum Engineering-related equations and problems, you couldn't do what we do.
oh, and the software goes for $5k a copy -- definitely not ad-based.
although tons of small start-ups are doing facebook apps, have they thought about solving the problems of the Universities who won't trust Facebook/ social networks further then they can throw them. CMS, Housing management software, etc. Universities pay hundreds of thousands of dollars for that stuff.
"no matter how great of a hacker one is, if you don't know Viscosity, dew point calculations, flow rate conversions and a number of Petroleum Engineering-related equations and problems, you couldn't do what we do."
combining hacking skills with deep domain knowledge (petroleum engineering in this case) would seem to be the alternative path. Of course you need to spend 3-4 years learning petroluem engineering, which may be a bit of a disincentive. But I think the point remains valid . Hacking skills + investment banking/chemical engineering/medicine/choose_your_domain knowledge would be a killer combination.
"oh, and the software goes for $5k a copy"
I am not surprised. I guess you keep upgrading it all the time for even more $$?
upgrades, new releases, and support ... it could eventually go SaaS I guess, but the Oil/Natural Gas Industry are not exactly forward thinking in how they want to spend their $$
Cool post. Should be titlted, "A New Path to Liqudity" because of the interesting "private liquidity markets" - I've never heard of one. And it seems these have not been discussed before on news.YC. (at least, GSTrUE, oaktree, or OPUS-5.)
Does anyone have experience with these markets? What size company does one need to interested a private equity investor?
ps - If these markets look to be a major pathway to liquidity, it would be great to hear about them at startup school. :)
Private equity usually requires actual profits -- their plan usually is to take a profitable (or at least revenue-generating) company, cut costs and increase revenue by good management, then turn it out to another private equity firm or hold it and operate it for the income stream. Sometimes they'll spin out a company to take it public, but not at the same huge premiums that VCs want.
You have to be a reasonably mature company for a private equity deal to make sense. They usually want steady income rather than the 10x growth that a VC pays for, and the valuations reflect that.
I've always wondered if Nasdaq Portal is an adequate alternative. It lets you issue shares to qualified institutional buyers (anyone with over 100 million dollars) for 2,000 to 3,000 dollars in signup fees. I don't know much about the process, so I wonder: is there a reason nobody talks about it? Is it a reasonable way to get an IPO-like event?
You can raise equity through private securities that "trade" (with little liquidity) on these markets through rule 144A offerings. I've never heard of a 144A being done for less than $75 million, although I haven't followed the tech markets. After all, it costs money to market your company to the kinds of firms that invest in private securities.
"The idea behind both of these new emerging (and currently illiquid) markets is to provide a place for private equity investors to trade securities with each other. The companies remain private, do not have to file with the SEC, and do not trade daily like public stocks do. When an entrepreneur or investor wants liquidity on a position they own, they come to these private markets, offer their position or part of their position for sale, and a trade is made."
Basically, it's a market where investors that own shares in private companies can get cash for those shares from other private investors without taking their company public and being subject to all the bureaucratic rules that apply to public companies.
In theory, you could also do this by simply trying to find an outside investor yourself, but the hope is that by creating a market, it will be a more efficient process.
Fred Wilson is complaining about not having enough ways to make money - an old problem. Companies he invests in can't go public because of Sarbanes Oxley or a tough market. Acquisitions are apparently anti-climactic.
Making money is hard. Unregulated (liquid!) markets in which to do so are probably a bad idea.
When companies create substantial value for shareholders, investors will be able to "get out" easily. And probably not until then.
As always, the really interesting stuff is in the comments. Ideas around non-synergistic acquisitions, dividends and why they're not suitable for VC investments, "late-stage incubators," etc.
