Andrew Lark

The IPO Market

I was asked on my recent trip to New Zealand about the US IPO market. Somewhat fortuitously I received an email from America's Growth Capital with a good summary. Here is the rub:

The U.S. IPO market thrived in the 1990s, averaging more than 500 IPOs per year over the entire decade.  However, as we entered the new millennium, the once vibrant IPO market drastically shrank, not only because of the implosion of the Internet bubble, but also due to the following reasons: i) the market cap threshold of targeted investments for mutual funds increased as these funds ballooned; ii) the most active IPO underwriters either disappeared or moved up-market; and, iii) overzealous regulation and costly litigation significantly deterred both executives and private equity players.

These factors led to the dip in IPO volume that we saw from 2001 - 2003; however, the U.S. market has clearly rebounded with a strong finish in 2006.  In Q406, 89 IPOs were priced- the highest quarterly total the market has seen in recent years.  228 IPOs were priced in 2006 on U.S. exchanges, compared to 202 in 2005, an overall increase of 13%.  So far in 2007, 48 IPOs have priced, compared to 40 IPOs at the same time in 2006 (as of March 16). The tech IPO market saw 41 deals priced in 2006, the same number as in 2005.  Tech IPO filings increased by 35% from 2005 (51) to 2006 (69).  Expect substantially more tech IPOs in 2007-2008 compared to the post-bubble doldrums of 30-40 IPOs a year.

We believe that this increase can in part be attributed to an influx of private companies that sat on the sidelines during unfavorable market conditions and are now considering going public.  Most are successful later-stage companies with $30-100 million in revenues.  While many of these companies need capital for growth or liquidity, they may be unwilling to raise another round of private equity due to unattractive private valuations and often onerous liquidation preferences.  In other cases, these companies do not yet want to sell to a strategic acquiror or have not generated a compelling offer.  In early 2007, there is now an abundance of private companies that are proven with strong market penetration, established customer bases, and demonstrable growth and profitability (or near-profitability).  However, these private companies do not meet the minimum IPO criteria as determined by the bulge bracket banks and traditional large fund IPO investors.

An Economist's Courtroom Bonanza

Great profile on Kiwi David Teece. The one thing it doesn't mention is the incredible job he did with Stephen Tindall in creating KEA.

Meet David Teece, renowned expert on lots of things and pioneer of a lucrative consulting niche that has transformed business litigation. The University of California, Berkeley, business-school professor is one of America's busiest expert witnesses, billing corporate clients as much as $850 an hour for his insights. He has built a publicly traded 1,300-person research shop, LECG Inc., that does much of the legwork for him and other economists, so they can zoom through more assignments.

And this made me smile... "And his New Zealand accent worked nicely on the witness stand; it made him sound erudite without being pompous."

Move over SV, here comes NZ....

It's time we heard this said of NZ's start-ups!

Several organizers noted that Silicon Valley's original success as an innovation center was largely because of business and social networks developed over several decades in a community of venture capitalists and technologists.

The Net's level playing field
Now, they said, with the Internet supplementing and replacing traditional face-to-face social networks, Silicon Valley might be losing its competitive advantage.

"The epicenter was Silicon Valley, but that has created a wave of innovation that has now reached the entire world," said Yossi Vardi, an Israeli entrepreneur and investor who financed his son's development of ICQ, an early Internet chat program later sold to America Online.

Also, some interesting stats on Skype:

Like many participants here, Zennstrom voiced the opinion that Internet-based commerce would accelerate in its disruptive effect on traditional businesses. Skype, for example, now says that it carries 4.4 percent of all worldwide long-distance calling.

Kiwis urged to turbo-charge start-ups

Some comments from me on what Kiwi's can do to drive their start-ups to new levels. At the end of the day I believe that NZ's lifestyle is not a negative influence on entrepreneurship. In fact, it's an advantage as this post from Rod points out.

We need a deeper shift in thinking and approaches to occur. I also don't think that this should be viewed in a negative light but rather as part of the natural evolution of entrepreneurship in NZ.

I haven't met a great entrepreneur that doesn't think they could be working harder or smarter. I've met plenty of Ok entrepreneurs with lots of reasons why they didn't go the extra mile.

New Zealand's lifestyle is a competitive advantage. New Zealand entrepreneurs should revel in it and use it to attract talent. What we shouldn't do is confuse working long hours with productivity and output. While there is no short-cut to building great companies, they do require a combination of working hard and working smart. Platitudes aside, it's the smarts we have to build. Plenty of Kiwis are willing to work hard.

We also need a shift in the DNA that can only come from experience and role models. As new bars for creating value get set, a new generation of Kiwis will rise to that bar. Look at what we have seen in the past few years with Aftermail, 42 Below, TradeMe and Endance. These entrepreneurs will excite and inspire more to follow in their steps.

Longer-term we need to get more entreprenurial training and skills into our Education system. And that Education system needs to encourage students in disciplines like engineering, sciences and software development. If we don't do that we will face a worsening skills shortage that can't easily be corrected through immigration policies.

New Zealand is at a really exciting juncture. The Internet is a terrific leveler, getting about the planet has never been easier, and new models and standards for entrepreneurship are emerging in New Zealand. There is lots to be positive and excited about.

Choose Thrift...

There is a clear impression among NZ entrepreneurs that Silicon Valley-based start-ups get big cash from VCs and spend like crazy. Reality couldn't be more different. The WSJ this morning throws light on prevailing the "thrift" is good mentality.

Some great quotes throughout:

"Cash is queen these days," says Mr. Thomas, who estimates Sharpcast can last another two years even if it doesn't produce any revenue. "Fiscal discipline is harder to teach later in the life of a company, and we want to be the last guy standing."

"Indeed, while tech start-ups are raising less funding these days -- an average of $8 million each time, down from $11 million in 2000 -- they are making the money last longer. According to research firm VentureOne, tech start-ups in Silicon Valley now survive an average of 17 months on a single round of funding before needing to raise more money, up from just 10 months in 2000. (VentureOne is a unit of Dow Jones & Co., publisher of this newspaper.)"

Made From NZ

Cool site promoting NZ. Like the PR stunt with the Silver Fern!


Technorati Tags: NZ

Do Start-Ups Need A Business Plan?

Yes! The WSJ also has some other thoughts -subscription required. I look at lots of business plans in my other life as a VC. My main message keep them simple and focus on illuminating the idea. Only include data you really understand. Some highlights:

• Matt Coffin, founder and chief executive of LowerMyBills.com, a Web site sold to Experian Corp. in 2005 for $330 million, says he used a 10-page PowerPoint presentation that he spent four to six months gathering research for instead of a formal business plan when pitching his idea to investors in 1999. He succeeded in raising $4 million in venture capital by convincing them that the market for people needing a one-stop place on the Internet to refinance was ballooning.
• Tim Petersen, managing director of Arboretum Ventures, a health-care venture-capital firm in Ann Arbor, Mich. says he generally prefers getting five-to 10-page summaries of business ideas or PowerPoint presentations over lengthy business plans.
• Benson Honig, a professor at Wilfrid Laurier University in Ontario, Canada, says his research of 396 nascent entrepreneurs in Sweden from the late 1990s also found no correlation between business planning and profitability. Instead, his study found the biggest predictor of success to be knowing customers in advance. Mr. Honig says he teaches "contingency planning" to his students -- or thinking about a business as constantly progressing, changing and making decisions based on the market climate -- instead of traditional business planning.

The WSJ also includes links to some relevant research:

Plans and Performance

Study: "Pre-startup formal business plans and post-startup performance: A study of 116 new ventures" by Julian E. Lange, Aleksandar Mollov, Michael Pearlmutter, Sunil Singh, and William D. Bygrave (all Babson), June 2005.

Summary: The study compares the success of 116 ventures started by Babson College alumni between 1985 and 2003, using performance measures such as revenues, employee numbers and net income. Researchers found no statistical difference in performance between those businesses launched with formal business plans -- roughly half of the 116 -- and those started without them, and concludes that "there is no compelling reason to write a detailed business plan before opening a new business" unless the entrepreneurs needs to raise substantial amounts of start-up capital. Instead, the researchers say start-up entrepreneurs should generally just make some financial projections, especially cash flow, and open the business.

You'll need a plan to get funded but it's like the old saying about memos "I didn't have time to write a short memo, so here is a long one". Make the time.

Leave The Squid Alone...

If they ever do find the giant squid, I wonder how they squid will feel about it. Giant squids don't seem to be the kind of creature you really want to disturb...

Marine biologist Peter Batson says he plans to try photographing giant squid at a depth of 3000m off the coast of New Zealand.

Dancing With the Stars, of Rugby - New York Times

The New York Times now takes on the Haka and like those before it gets a little confused. This time round mixing one haka - "Ka Mate! Ka Mate! Ka Ora!" with another - "Kapa O Pango" (Team in Black)

The new haka (Kapa O Pango) was developed partly in response to an challenge related to the ownership of "Ka Mate!". The new war cry was written for the team by Ngati Porou's Derek Lardelli. The response was immediate. One one side you had the Sth Africans:

"It was fantastic. It's always awesome to stand in front of the haka," says South African captain John Smit. "It's probably one of the most special things about playing the All Blacks."

On the other you had those offended by the throat slitting motion at the end of the Haka. If they'd taken the time to understand the symbology they might have been less offended. It isn't about slitting the oponents throats (although one could certainly read that into the motion), it is about releasing the warrior (performing) the Haka's spirit in battle. Frankly their is a ton of confusion over the gesture, not helped my multiple explanations by the Haka's composer who once said the motion was intended to describe:

"Playing rugby at this level, with this intensity, is the cutting edge of sport. "The players are on the knife edge. They are gladiators in the arena. If they win they are heroes, if they lose they are taken apart."

The New York Times cconfuses the issue suggesting that this is what caused the stupid decision by the Welsh Rugby Football Union. It wasn't that Kapa O Pango was going to be performed. In fact, The All Blacks performed "Ka Mate" which features no such motion.

It was about grandstanding, cultural insensitivity and disrespect that ultimately deprived fans of something they wanted to see.

The Haka is a point of pride and identity on the world stage for all New Zealanders no nation gets to dabble with it at their leisure.

Link to Dancing With the Stars, of Rugby - New York Times (subscription required)

We Forget How Lucky We Are

Just got off an email exchange with my Mum who has moved from Tauranga in NZ to Rotorua - both reasonably large New Zealand towns. Her Internet provider (Clear) has told her that she will need to go onto an indefinite waiting list as they don't have any more broadband connections left.

At first I laughed - they have to be joking right? You actually have to wait for broadband? A list? Any Mayor of any city in New Zealand that can't readily offer it's citizens and business high-speed connections on the spot should be desperately concerned for its future. I know there are other pressing matters. But this is one of them. Broadband is a source of economic, cultural and developmental advantage.

Which leads me to a question I have posed before. Why is NZ such an appalling broadband backwater? Why is high-speed Internet so incredibly over priced and affordable only to the elite and privileged?

Now, there is the obvious frustration and disappointment of my Mum not being able to see her Grandaughter each week via the web. We will sort that out. But I do really wonder though if community and business leaders realize that this is their problem. Unless they demand and orchestrate the access to the Web and all the benefits afforded by modern technology they are not likely to get it. Citizens will leave. As will businesses. Children will not get educated as they should. And high net worth tourists will not come.

Not a pretty picture.