VC Ackerman: Firms That Didn’t Syndicate Are SOL
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By Connie Loizos
PeHub
December 9th, 2008
Last Friday, I caught up with Bob Ackerman, who co-founded early-stage venture firm Allegis Capital back in 1995.
Allegis is a low-flying operation that has enjoyed a few exits in recent years, including IronPort Systems, which raised $94 million and sold to Cisco for $830 million, and the telephony software company Ribbit, which raised $23 million before selling to British Telecom in July for $105 million.
Ackerman himself is no shrinking violet, however, and he’s certainly not shy when discussing his views on the industry. Here’s part of our conversation:
You position yourself as a “value investor.” Are you in the middle of a shopping binge?
We’ll seize on depressed valuations, definitely. What’s interesting this time around is how quickly valuations have fallen. Between 2001 and 2002, it took five quarters for it to happen. There was this rolling denial that worked its way through the venture community. This time it has happened in six weeks.
Where have valuations taken the biggest hit?
This time, the Series Bs and Cs have collapsed. Basically, innovation is on sale. I mean, if there’s no apparent difference in valuation or a minimal difference [between a Series A and Series B deal], why not take advantage of company that’s farther down the road and got there using someone else’s money? The risk is that fewer raw startups get funded, but those that do are of very high quality.
You used the word “collapse.” What does that mean exactly? Ron Conway said last week that Series A valuations have dropped by roughly 25 percent. Is that what you’re seeing, too?
I’d say it’s even a bigger drop than that. Depending on the situation, you’re seeing pre-money valuations come down from 25 percent to 50 percent [for Series A deals]. Then Bs and Cs have collapsed entirely because the capital in the pipeline isn’t moving.
Yikes. So what’s fueling the breakdown of these rounds? Valuations that were grossly overinflated? Skittish LPs?
Both, but also frankly a lot of VCs are going out business — I’d say 25 percent of them will disappear.
Meanwhile, some others don’t like to syndicate. They’ve raised these big funds, they’ve been greedy, and they’ve been under pressure to deploy the money on a three-year schedule, writing bigger and bigger checks. The problem is that the music has stopped, and now those firms have to be prepared to provide all of a company’s capital. Many of them are asking: how do I manage this? Their cash reserves are under pressure. All of it has people panicking.
You’ve said before that you help build companies to be acquired. You’ve given up entirely on the IPO market?
What’s very clear is that I have no idea what the public market will look like five or six or seven years from now. So what does that mean? It means don’t assume an IPO exit. If you’re creating value, there should be a corporate buyer for that value. |
