Ramen noodles anyone?

Here at Arena Capital Advisors, we focus on sell-side M&A and exit strategy consulting.  We get requests from time  to time asking for help in raising venture capital, and used to consider these but no more.  The latest data suggests we are wise to decline.

According to a news release today from Thomson Reuters and the National Venture Capital Association, there were just 17 venture funds that raised money in the third quarter of 2009, the smallest such figure in 15 years.  Consider these VC fundraising figures:

     2004             –  218 funds  –  $19.2 billion

     2005             – 242 funds  –  $29.0 billion

     2006             –  242 funds  –  $31.9 billion

     2007            –  251 funds  –  $36.1 billion

     2008            –  224 funds  –  $28.6 billion

     2009 YTD       – 87 funds  –     $8.4 billion

     2009 Q3     –    17 funds  –     $1.6 billion

In an unenthusiastic attempt to find a positive spin, NVCA president Mark Heesen is quoted in the release as saying, “Anecdotally we are hearing that fundraising activity is accelerating as more firms that were waiting for economic recovery are beginning to formally seek commitments.”  Anecdotally?  Hearing?  Waiting?  Recovery?  Beginning?  Formally?  That’s quite a string of qualifiers there, Mark.

So on to the VC exit data, which is equally bleak.  First a few figures (from Thomson Reuters and NCVA’s press release dated 10/1/09):

     2003             –  284 M&A exits  –  29 IPO’s

     2004             –  346 M&A exits  –  94 IPO’s

     2005             –  351 M&A exits  –  57 IPO’s

     2006             –  369 M&A exits  –  57 IPO’s

     2007             –  372 M&A exits  –  86 IPO’s

     2008             –  342 M&A exits  –    6 IPO’s

     2009 YTD      –  189 M&A exits  –    8 IPO’s

Perhaps more insightful is the fact that of the 2009 M&A exits where values were disclosed (about 1/4 of the total), fully 65% had an exit value that was less than the total venture investment, while only 13% delivered a 10x or better return.

Some candor from Mr. Heeson:  “The fact that many in the media are classifying three IPO’s (in the 3rd quarter) as resurgence is evidence of how low our expectations have become.”  And then:  “On the acquisitions side, both volume and average disclosed value declined in the third quarter which is not the direction we hoped to see.”  Duh.

Finally, just to add insult to injury, here comes an angry blog post from Jason Calacanis (click here) offering to wage war on angel investor groups that are charging entrepreneurs for the privilege of pitching to them.  Apparently some angel groups are now charging the starving artisits $1,000 – 6,000 for a 10-15 minute pitch slot.

Perhaps that explains the recent popularity of the term “ramen profitable” referring to startups that make just enough money to keep the lights on and pay the founders’ living expenses (assuming they are willing to eat lots of cheap instant ramen noodles).

If you think you need outside capital, you better have a plan (call it Plan A, not B) to get to ramen profitability as well.  And fast.  Ramen noodles anyone?

—  David Bass



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