Technology managers and venture investors by their nature are generally optimists.  When a company struggles due to either market or internal issues, it needs an injection of fresh perspective and assistance.  Institutional private equity players and corporate management of smaller remote divisions are often too busy, conflicted or just unable to provide hands on help to struggling companies.  LP surveys in late 2002 estimate that the “class of ‘99” venture funds will return on average only 50% of capital invested. A reset of expectations and a fresh look on behalf of management teams, GPs and LPs becomes essential in today’s environment.  Management incentives and skill matching are being revisited.

Companies that are characterized as “ the public walking wounded” or private firms with multiple preferred financing rounds that have missed plans often have conflicting investor and management goals and responsibilities.  There is often great value that can be achieved by a new direction, enhanced management, a fresh start and a reinvigorated Board.  The robust technology M&A activity of the past 10 years has also left many companies with non-strategic and under-performing units that need change.

Within the Abilene Management Group's market focus, the institutional venture community funded over 10,000 new technology firms over the past several years.  Add to that the participation of other private and public firms, and couple that with the available IPO market in even the best of times, it is clear that a substantial gestation period and repositioning for many firms is a necessity. 

Sarbanes-Oxley and the associated NYSE and NASDAQ requirements are just at the early stage of being implemented.  While arguably targeted at the largest firms in the US, an entire new body of law and practices will evolve over the coming years that will trickle down and affect the smaller public sector and with it a portion of aggressive private firms.  Many of these firms are VC backed and have relied on the public markets for growth.  The requirements for “real time” disclosures, changes in option plans forced by regulation and large public investors, coupled with the new law that a company MUST be in full compliance upon the filing of the initial S-1 with the SEC means substantial infrastructure changes.  The company planning an IPO needs to get its board committees set and staffed by “Independents”(which many VC board members will fail to meet), and have internal financial controls functioning a good year before filing. For both private companies and existing public firms, the minimum size for a viable quality IPO and liquid market has gone up.  This change is a result of the substantial costs of new compliance rules and D&O insurance. 

Along with a path to building value and liquidity, acquisitions will help smaller firms get the scale and breadth of customers to enable lower disclosure financial risk, a critical concept on which the new regulations focus heavily.  To manage the risk effectively, a SWAT team approach including management and outside independent assistance is a likely necessity to provide proper execution and compliance with audit committee guidelines. Success as VCs in the next decade will not be simply predicated on a return to the past practices but incorporate the new realities of the public market that are forever changed by responsiveness to the customer.  The expectations of large investors, including the parent entities of leading LPs of VC funds, along with SEC oversight, have changed overnight and they have become a more informed, active and demanding group. 

Our principals have successfully navigated firms through meltdowns, restructurings, acquisition integration and startups to create value. We have significant experience in the new governance environment and the resources to navigate through the pathway. The next decade will see an increase in the opportunities for superior returns for management and investors - requiring remediation of many existing firms particularly those with ”hard” technology and IP in the areas of communications, optics, systems, Internet services and software.  We selectively work with companies and Boards that have a core set of assets and capabilities for IP realization, remediation and will help manage the company through the transformation process.