That’s the word from Businessweek in a profile on Allegis Capital, a 12-year-old VC firm that’s put together an impressive track record. In July, 2008, Allegis sold Ribbit, a telecommunications provider it backed, to BT Group for $105 million. The year before, the firm unloaded computer security company IronPort Systems to Cisco Systems for $830 million. Allegis has reportedly sold a total of $2.1 billion in portfolio companies in the past six years, leading Robert R. Ackerman Jr., Allegis Managing Director and co-founder to remark, “Venture capital is not broken … Innovation is alive and well.”
Despite the slowdown in IPOs that we’ve commented on in this blog, a few small VC firms like Allegis continue to invest and proper. One reason might be Allegis’ strategy. Rather than raising huge amounts of capital and swinging for home runs, the firm has a $110 million fund that typically invests a few million dollars in startups and targets a 20% ownership stake, aiming for a few base hits instead.
During a quiet period early this year, when many venture capitalists were hoarding their cash, Allegis was part of a group that invested $10 million in IMVU, an online 3D community. And in March, it lead at $5.3 million investment in DriverSide, a Web site that helps car owners lower their costs, by recommending garages and expected payments for parts and services.
Chief executives recruited from outside the company tend to perform better, and those with experience in venture capital and private equity did the best. That’s according to a new study by Vell Executive Search of CEOs that focused revenue growth among 51 publicly-owned technology companies in New England with $100 million or more in annual revenues.
The study, reported by Forbes, shows that externally-hired CEOs brought in a median three-year revenue growth of 99%, compared to 35% for their internally promoted counterparts.
CEOs with prior experience in venture capital and private equity achieved a median revenue growth of 200% versus 82% in general. Their advantage, according to Vell was that VC and PE executives have often analyzed many companies from the inside out, and learned first-hand what works. Someone with that kind of experience may be more likely to pick a winning company to work for, in the first place. Venture capital was also described as the “decathalon” of CEO training.
Some of the study’s other highlights reveal that younger CEOs tend to produce better results than older ones, as did Ivy League grads, MBAs and CEOs with prior chief executive experience.
Tough times have historically been better for startup companies than most people think says Jim Verdonik in an article in Portland’s BizJournal online. Granted, entrepreneurs tend to see the glass “half full” more often than most people. But there are solid business reasons why new ventures flourish in the worst of times.
First, there’s necessity. Since many big companies have slashed their work forces, laid-off workers have to focus on starting over. Some of them are naturally going to want to be their own boss, or pursue that entrepreneurial opportunity they’ve been dreaming about for years. There’s less competition in the marketplace. Plus, talented people are easier to find and hire during a downturn.
Current market conditions are irrelevant to many new companies as well, since they often need 1-2 years of market research and product development before they’re even ready to launch. Since most downturns last less than two years, a new company starting now would be ready to launch just as the economy starts climbing again.
Then there’s ROI. Verdonik says venture capital investment return data over the past few decades shows that ROI is actually higher for investments made during poor economic times, versus boom periods.
That’s because ROI depends on valuations when the investment is made to the time of the exit date. Since valuations are usually lower during bad times, downturn investors start off with a substantial advantage which can result in higher exit ROIs. Call them value or vulture venture capitalists. Either way, they often produce higher returns.
One final bonus: during the good times when money is easy to get, companies tend to burn through it faster. Downturn companies tend to be more frugal and get a bigger bang for their buck. And downturn companies raise less money, because they spend less. Another reason they often provide better ROIs.
