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 Can You Afford To Keep Waiting?
I have had many conversations lately about the state of early stage capital, the prospects for exits and the real performance of companies in 2009. The first half of 2009 is behind us and put together with the last quarter of 2008, we can safely say it won’t get worse. But everyone remains nervous about the future. We giggle when someone says, "flat is the new up" regarding our sales or profits. But it’s not funny. Really. Anecdotally, here is the summary of what I have heard through June:
- Early stage capital is still on vacation. While there are rumblings of new deals around town, closing them is taking longer. Average time it has taken to raise capital from day one (start re-write of business plan) to closing: six months to never or somewhere in between.
- Prospects for healthy exits are low as the buyers are complaining that the sellers have unrealistic views on value and keep pointing to the fantasyland of 2007 for comparables. The sellers are complaining that the buyers are too focused on getting "a deal" on valuation that is unpalatable to previous investors and shareholders. When there is this much whining from both sides... deals don’t get done.
- Performance of companies has been healthy, if not quite robust. Almost to a man, the technology companies I have been talking to are beating their lowered expectations for 2009. Either the budgeting was too draconian or things aren’t as bad as they have seemed in the news. But being happy beating your lowest growth expectations is like hitting a home run off the worst pitcher in the league... not really too affirming.
I spoke with a colleague looking for work. They said that the field they were looking in (could be any of the sectors in technology) was awash in nervous CEOs that had cut expenses and were not hiring marketing or sales people, "until things turn around". At the pace at which the US and Canadian economies are losing jobs, the "turn around" may be 2012. Does that mean no jobs? It shouldn’t. The investment made now in finding and hiring good people (as well as protecting your best) is a bold, but necessary move if you want to win more market share.
All of your competition is hunkered down with you wallowing in uncertainty. Perhaps it’s time to attack! Invest in more productivity with IT spending and invest in better higher quality personnel with a specific market plan in mind. Go grab the land while its cheap. If you are hitting your goals in 2009, raise your goals for 2010 and get people in place to make it happen. It’s better than sitting back and waiting...
By Brent Holliday, Technology Practice, Capital West Partners. Brent can be contacted at brent@capwest.com
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