My friend politely informed me that Bain Capital was not a venture capital firm (at that time), rather they were a leveraged buyout (LBO) firm. I started to learn about what LBO firms do. These traits would be true more generically of any LBO firm relative to any VC firm. Bain Capital, as a proxy for the LBO industry, principally relied on sound financial engineering to generate returns. I came to appreciate that the VC and LBO worlds were two very different worlds. MORE

This category of firms is a superset that includes venture capital, buyout-also called leveraged buyout (LBO)-mezzanine, and growth equity or expansion funds. PRIVATE EQUITY. Private equity is a term used to broadly group funds and investment companies that provide capital on a negotiated basis generally to private businesses. The industry expertise, amount invested, transaction structure preference, and return expectations vary according to the mission of each. MORE

Also in the 80’s, the megafunds were created (at the time defined as $100 million plus); the LBO sector outperformed venture through financial engineering; asset gatherers, such as Blackstone, were created. In January, Jerry Neumann wrote a long and detailed analysis of his view of the VC industry in the 1980’s titled Heat Death: Venture Capital in the 1980’s. While I don’t know Jerry very well, I like him and thought his post was extremely detailed and thoughtful. MORE

These days – it’s hedge funds and private equity (VC & LBO). Take a look at the middle tier of most Boston VCs – and what will you find in abundance? Harvard Business School (HBS) grads. Here’s a smattering of folks you can find with HBS degrees, including two of our own: Rob Go, Spark Capital. Jon Lim, Polaris Venture Partners. Ryan Woodley, Polaris Venture Partners. Irena Goldberg, Highland Capital. Amanda Herson, Highland Consumer Fund. Jesse Feldman, Battery Ventures. MORE

Internet Uncategorized Venture Capital Web/Tech asset allocation asset management LBO VC Venture[Follow Me on Twitter] Many are speculating that the year two thousand and nine represents a fundamental turning point for the venture capital industry. Some are arguing that the industry is in dire straits after years of poor performance. Others have argued that the math simply does not work for the industry’s current size. MORE

The problem was billions of dollars of debt incurred by a private equity firm extracting capital via an LBO. Does the morning grind fill you with inordinate amounts of dread? MORE

Given Marc Pincus’s voting control, being acquired is presumably not in the cards for Zynga and a take private or LBO would be nearly unthinkable in the near term so there’s little chance of an M&A situation to arbitrage. Draw something… other than this painful chart. MORE

By now dealmakers are no doubt familiar with the "go-shop" which gained popularity during the 2006-2008 LBO boom as an alternative formulation to the traditional "no-shop" in sale agreements for public company targets. By Daniel E. Wolf and David Fox of Kirkland & Ellis LLP Introduction. MORE

The surge of capital into funds styling themselves as venture funds, and the fact that a number of erstwhile venture funds now are closer, in their appetites for deals, to buyout funds means that the VCs are seeking ways to mimic the buyout/M&A protective provisions: "no shop, no solicitation" clauses with teeth in them MORE

He argues that transactions (ie motion), transaction fees, and transaction agents (bankers, LBO funds, consultants) are transferring wealth from shareholders to service providers and threatening the future value of shareholder holdings. Warren Buffet's recent letter to shareholder contains a few gems. In reading the letter, I am struck by his ability to simply and clearly articulate highly complex and challenging subjects - like insurance, derivatives, and signal rather than noise. MORE

Section 351 postpones gain or loss on the contribution of appreciated property to a corporation in exchange for stock, assuming certain rules are followed. Section 351 is usually thought of in connection with the organization of unseasoned start ups MORE

One obvious gambit to eliminate tax at the corporate level is, in the appropriate instance, for the Target to be or convert from a taxpaying C Corporation to, an S Corporation, a so-called, pass-through entity in that tax is not imposed on income at the entity (in this case the corporate) level. Another option could be that since a partnership, like an S Corporation, is a pass-through entity for tax purposes, there may be advantages to organizing Newco as a partnership MORE

Whether this sale is going to be an LBO or a Private Equity transaction, or a sale to a strategic buyer, the process of selling to the buyer is critical, and overlooked. Whether this sale is going to be an LBO or a Private Equity transaction, or a sale to a strategic buyer, the process of selling to the buyer is critical, and overlooked. Startups and angels: Along the way to success. By Tim Keane, Angel Investor, Golden Angels Investors, LLC. Archives. Profile. Subscribe. MORE

You can either arrange an LBO of their business, or a mutual partnership that can benefit both firms. Getting your start-up through its initial phase of the business cycle is a tough challenge for small business owners. MORE

Peter Rip posted an interesting analysis of an emerging alternative asset model – the platform strategy, whereby a single firm offers LPs exposure to a full range of public and private equity asset classes – early, mid, late, PIPE, LBO, public, etc. MORE

Many highly leveraged capital structures associated with pre-recession LBOs proved unsustainable in the down-cycle and the ensuing restructurings and bankruptcies led creditors and debtors in possession to seek to recover payments made to selling shareholders as part of the LBO ? In this past economic downturn, an increasing number of private equity sponsors have seen their portfolio company sales come under challenge on the basis of an alleged fraudulent conveyance. MORE

Posted by: dave mcclure | Wednesday, October 15, 2008 at 07:39 PM Dave, The private equity guys can't borrow money to do an LBO cause the credit crisis has dried up all sources of credit. Master of 500 Hats A blog about Geeks, Entrepreneurs, & Startups in Silicon Valley, by Dave McClure. The Internet Revolution, Act III. MORE

As a VC who typically builds with entrepreneurs to strategic M&A or IPO, it was interesting to hear how other firms have sold their positions to private equity/LBO/hedge funds. It's been a couple weeks since my last post and I feel really bad about it. MORE

A taxable sale of assets is treated for tax purposes as, in effect, a sale of each individual asset or group of assets, requiring that the consideration paid be allocated across the assets being sold for purposes of calculating the character of the income and the basis of the assets in Newco's hands MORE

In the LBO world, PIK notes are very favorable for the debtor because it allows the debtor to essentially change the terms of his loan if his cash flow is thin. Many market commentators have been predicting that commercial real estate is the next shoe to drop in the credit crisis. I've seen a handful of presentations with whopping statistics on the amount of outstanding debt that will need to be revolved in the upcoming years. MORE

If the Host purchases the Target's assets for cash, debt, and/or stock, the tax treatment depends, in large part, on whether the Target then liquidates. In either event, a tax is imposed on the gain at the Target level, with installment sale treatment potentially available for notes MORE

While the LBO recruiter might drool over a candidate’s investment banking background, we tend to get more excited by leadership experience such as starting a new successful club at your school or being the captain of your sports team. A couple of months ago, I posted on my blog that Bessemer was looking to hire a new pre-MBA Analyst. More than 650 resumes later, we are thrilled to announce that Brian Feinstein has accepted our offer to join us as a full time Analyst. Welcome, Brian! MORE

Think about the LBO business. The Standish Group , which analyzes IT projects, reported that in 2004 only 29% of IT projects succeeded, down from 34% in 2002. Cost over-runs from original budgets averaged 56%, and projects on average took 84% more time than originally anticipated. Put another way, 71% of projects did not succeed, 44% came in on budget, and only 16% came in on time. MORE

Growth Equity Venture Capital foundations LBO pensions private equityWhere does the money come from that private equity (venture capital, growth equity and buyout) firms invest? It might indirectly come from you. Key constituents include the likes of government employees, employees of large corporations, trade organizations (e.g. teachers) and wealthy families. Here’s the quick synopsis: Wealthy Families / Foundations. The original investors in venture capital firms were wealthy families. MORE

Think about the LBO business. The Economist recently ran a wonderful piece on the sorry state of project management. The Standish Group, which analyzes IT projects, reported that in 2004 only 29% of IT projects succeeded, down from 34% in 2002. Cost over-runs from original budgets averaged 56%, and projects on average took 84% more time than originally anticipated. Put another way, 71% of projects did not succeed, 44% came in on budget, and only 16% came in on time. MORE

Recapitalizations accomplish several of the purposes of a leveraged buyout except for an entire change in ownership. Thus, existing shareholders retain a share of the value inherent in the leveraging process the upside potential when, as and if acquisition debt is paid down from post-closing cash flows and asset sales MORE

LBOs and other restructurings generally involve taxable exchanges-cash or cash and notes to the sellers in exchange for their shares or to the Target in exchange for its assets MORE

According to a celebrated authority, "fiduciary duty" means a duty, implied in law, of "the finest loyalty" to another party in certain business relationships. Judge Cardozo's opinion in the landmark case, Meinhard v. Salmon, set forth two general themes of fiduciary analysis: (1) fiduciary duty is a moral principle of the highest order, and (2) the duty is strict, with few exceptions MORE

The emergence of Southland Corporation from Chapter 11 after six months in the bankruptcy court brings to the fore an old, but until the late 1980s little used, strategy of bankruptcy practice: the so-called "prepackaged plan." " (In Southland, since the prepackaged plan had to be resubmitted post-bankruptcy, it is actually an example of a pre-negotiated plan MORE

Facing overpayment risk due to excessive competition among potential financial partners, the LBO funds have adopted a variety of strategies to counteract this problem, including searching outside the borders of the United States for opportunities. MORE

The lure is that LBO firms are buying highly profitable companies with consistent cash flows, levering up the balance sheet, and ultimately trading the business while covering the debt for multiples on its equity. The challenge with the model is that the equity of the LBO firm is not the senior security on the cap table. Every LBO investment is a bad quarter away, a tripped covenant away, or a bad economic cycle away from being under water from an equity perspective. MORE

In the "modern era" of venture capital (1970 and beyond) the so–called anti–dilution provisions have become increasingly important. Like so many words in the glossary of venture capital, "dilution" has multiple meanings. The core concept, however, arises from a central fact: any new claimant to the assets and/or income of a firm reduces the percentage interests of the existing claimants MORE

A leveraged buyout (LBO) is an acquisition of a company or division of another company financed with a substantial portion of borrowed funds. In the 1980s, LBO firms and their professionals were the focus of considerable attention, not all of it favorable. LBO activity accelerated throughout the 1980s, starting from a basis of four deals with an aggregate value of $1.7 BUYOUT FUNDS. MORE