- If you invest, you’ll have to invest for the longer term -- people aren’t kicking in as easily with subsequent rounds. (Echoes earlier remarks by David Rose and others.)
- There’s so little surety in the market, that people aren’t wiling to say what a deal is worth, how many deals they’ll do, and have very little visibility into the future. “If Microsoft can’t predict next quarter results, how can we?” one banker told me. When I asked a panel to give any specific numbers -- from valuations to expected dollars to number of deals, anything they were wiling to share for what they saw in ‘09-- they instead said that the nature of the deals had changed.
- The previous assumptions and equations for measuring a deal’s worth are way out of whack. Steve Fletcher, Managing Director, GCA Savvian, said that while debt was previously measured at seven percent (the interest rate on a loan), it was now as high as 22 percent, and that equity risk, previously measured at 5-7 percent, was now “a much bigger number.”
- Money people have a more free time now. Jay MacDonald a partner at media bankers DeSilva & Phillips joked when there weren’t questions coming to his panel on media M&A: “Come on, we have time. Bring in some lunch.”
- Deal prices are down, investors are in a better position to demand better terms (Series B rounds at Series A pricing, for example.)
- At the same time, those looking to sell companies aren’t yet willing to sell at the lower valuations. “Six months ago you were ‘worth x’ and today you’re worth .5x. It’s tough to get your arms around .5x. It’s going to take a while for companies to rationalize that, says Tom Patterson, CEO, Wize.
- Early round investors “have to be prepared to invest every year for fives years,” says Bob Greene, Partner, Contour Venture Partners. (The angels, to make their original investment pay off, will keep investing in a business that can grow.) see point one, above.
- Businesses that are doing well in this environment are ones helping generate sales -- sales leads, targeting, and the like, “business models able to deliver highly qualified leads in a marketplace where people want to be very efficient with their spends,” MacDonald said.
More on Media Money
A few consistent themes over two days at the AlwaysOn, OnMedia conference yesterday and today from venture capitalists, bankers and other investors: