Monday, December 23, 2013

Musings | Thoughts on 2013, Private Equity, Startups, PE_Feeds, and the Future

When you start a new chapter in your career, you don't ever expect it to fully engulf all aspects of your life. I left the private equity world as my primary gig to come into the tech and startups world, joining an award-winning team of mobile web and native app developers at Gist Digital with a CTO responsible for part of the software in the iPhone and a CEO who brought and Webex to the entire Cisco Systems global network. Why did I move? Because it gave me an opportunity to move into a world that I had gotten a taste during my PE days:

The startup world.

I've always been fascinated by startups. Some are meant to truly help us and some, well, have other purposes. That said, It's so impressive to me to see such talented minds collaborate on revolutionary products that they believe can change the ways we interact in our daily lives for certain aspects. One of my dream jobs was to run my own healthcare-focused investment firm dedicated to seed rounds for startups (hence the main move to pursue a Biomedical Engineering degree), but the more that I got involved with startups across various industries, I became more and more curious about the applications many apps and startups could be used for, well, mankind in general.

The past 5 months have been a wild ride in my frying-pan-into-fire transition from the world of PE (a world that took me quite a while to wrap my hands around) to the startup world (which I continue to enjoy learning more about). I've talked to agencies, labs, accelerators, incubators, VC firms, multi-startup founders (both seasoned and new), tech/startup/agency journalists, and the like to suck in as much information as I can. To make matters even more murky, private equity shops started investing in some of the more successful startups like RebelMouse and Refinery29 this year!

That last point is part of my 2013 Takeaway List of things I've seen in both PE and startups that have piqued my interest. I've also seen some interesting transitions among the PE_Feeds Twitter account, both great and rough:

  1. A Hopeful Deal Future. This year was another big one for the world of add-on acquisitions for private equity firms. They heavily outweighed standalone deals and it's been pretty even in terms of secondary transactions (PE to PE) versus original transactions (acquiring the company from a strategic buyer, taking it private from public, or taking it from the family). Many companies will hit the 5-year holding period on 2015 and 2016 so we'll probably start seeing a winding down of add-on deals
  2. IPOMG. It's also been a heck of a year for IPOs for private equity-backed companies. While it's usually been a limited IPO window in the past, 2013 seemed to be the year the window was propped up with a thin (but stable) branch to allow some of the most prominent and successful IPOs happen this year.
  3. A Heavier Focus on Dividend Recaps, All Over. Dividend recapitalizations (taking out a debt investment to pay the original private equity owners, and then their investors, a dividend) is not the most ethically sound instrument, its main purpose (to help keep a company for a long-term plan while keeping investors happy returns-wise) is still sound. With the aforementioned 5-year holding period not too far away, expect more dividend recaps done in 2014; I actually expect PE shops to hit a record on dividends raised. Am I proud of this? Absolutely not.
  4. SEC Reg Tag. The House of Representatives is working to stop private equity firms over $150MM in investments to be registered with the SEC. The original deadline for them to be registered was earlier this year so while it's an interesting push, it's honestly unnecessary for two reasons:
    1. While paperwork filing will be frustrating at first for PE shops (and the losers here really are lower middle market shops where internal budgets are tighter than most), it will be consistent enough. PE firms have internally policed themselves and others for decades so when a firm steps out of line, other PE shops will think twice about co-investing with them as well as potentially selling them companies they own.
    2. From key pensions like the top funds in Canada to CalPERS and CalSTRS, Limited Partners (aka the key investors into private equity funds) took a heavier move towards both demanding for more information about investment processes and management fee charges as well as investing directly into companies. While some funds have some weird conflicts of interest (e.g., CPPIB's deal with KKR), expect this movement to continue. Canada's funds pay quite well so it's far from the end in terms of their direct investments.  
  5. A Push to Help The Manufacturing Economy. While we see a heavy focus towards the USA becoming more of a service-focused economy, there are still gleams of hope that our manufacturing prowess will return. Many industrial-focused companies are backed by private equity firms and it will continue to grow, so I truly believe that private equity has a moral obligation to help kickstart the US's manufacturing strengths. It's obviously a positive PR move for the industry, but the ethics need to outweigh it. 
  6. General Solicitation = Meh. The ban on general solicitation for private equity firms was lifted this year and while it's a powerful moment, it's not going to matter...on a public basis. There has been one hedge fund so far that has openly advertised but one point that I have consistently made about this lifted ban is that the SEC should focus on a consistent template that PE shops could use as their prospectus. You'll definitely see an under-the-radar movement towards private banking individuals and high-net-worth clients and what would be interesting to see is if family offices would get move into the movement as investors.
  1. Creativity Has No Bounds. Everybody hears about the Facebooks, Twitter, Tinders, Snapchats, and the like. That said, after going through countless Meetups, tech demos, and pitches, it is so comforting to me to hear some creative and innovative pitches from ambitious men and women. 
  2. Helping Others: The financial services industry has been a notoriously cold and tough world. While social media and branded content has helped the industry create a more human touch, coming to a more friendly, open environment in the startup world where aspiring entrepreneurs helped and continue to help each other in providing advice, resources, and information was quite an eye-opening experience for me. It's quite wonderful especially when you see people from all walks of life entering the startup world with big dreams and bright ideas.
  3. Tech Journalists and Valleywag. Making the transition to the startup/Silicon Valley world from private equity, you move from one journalist and coverage base to another, and it's been an interesting change. PE journalists and tech journalists are extremely different, and while I've integrated my reading from publications like AllThingsD, Techcrunch, and Mashable to MediaPost, Digiday, AdWeek, and AdAge,  one publication that really pointed out to me is Gawker Media's online platform known as Valleywag. Run by Sam Biddle and Nitasha Tiku, it's a variance of dives into the ethics issues of Silicon Valley and the startup world. Sam has focused on the general news and ethics violations while Nitasha has done more deep dives and takedowns that are fantastic reads. I've visited the site so much that it's becoming a solid bookmark in my browser and I openly wonder what would happen if/when there would be a Valleywag-style site for private equity. 
  1. Ethics and Social Media. There have been many publications online like BuzzFeed that have touched on ethically wrong posts on social media. The most prominent example of this is when the world learned about ex-IAC PR exec Justine Sacco. Whatever your position on her tweet, it was by far ethically wrong and disturbing. That said, it was equally disturbing to see some of the terrible and shocking responses that the general public wrote in light of her. From this to anonymous commenters on forums, when one is given more power to wield their thoughts from semi-protective curtains, it is scary on how far people will go to say hurtful things. Remember when many of our parents told us that if we don't have anything nice to say, don't say it? It seems that that sage advice has been thrown off the top of the Empire State Building. (We're all culpable for this terrible mistake, including myself.)   
  2. Reflections. It's been a great year in the world of PE_Feeds; I've met some very interesting people and have had the pleasure of some wonderfully talented and influential men and women follow me. That said, every single person who follows PE_Feeds is very special to me. What started as an experiment in 2010 has grown into something big that I never thought could happen. That said, it's been a rough time this year as I feel I lost the trust of several people who did help me get to where I was. I pissed off two important people to me who were great influences on PE_Feeds due to the mess behind Freedom Group (the gunmaker). I've also pissed off a few people due to some of my actions. I take these things very seriously and it's honestly tough to live with them. As Michael Richards said to Jerry Seinfeld when the topic of his nightclub mess came up, it broke me. When you build up a platform and you try to stay as professional and informational as possible, you want to take your mistakes seriously and to those who I have offended, I am truly sorry.
I know I've missed a lot of specific points; it's been tough to focus on both the private equity and startup worlds this year since they're two different places. That said, it has been a blast to listen to various people pitch great ideas to me and while I will continue to find ways to help them on a development standpoint, it would be great to help them further on an investment standpoint and take their ideas to the next level. 

Here's to 2014, everyone.

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