In a new study by the Latin American Venture Capital Association (LAVCA) and The Wharton School, over 100 private equity and venture capital firms reported making 184 investments in Latin America in 2008, totaling over $4.4 billion. Five countries (Brazil, Mexico, Colombia, Peru and Chile), all of which have achieved or neared investment grade status in recent years, dominated the regional private equity landscape by being the home to almost 80% of the companies that received Private Equity investments in 2008.
Fundraising in the region for the year totaled $6.4 billion, with 45 private equity and venture capital firms reporting new capital commitments. The majority of capital raised for Latin America went to regional funds (21%) and to fund managers based in the two largest markets; Brazil captured 48% of funds raised, and Mexico 15%. Peru and Colombia were also represented, with three new funds raised in each of those two markets and several managers aiming to close on commitments in the first half of 2008.
Additionally, there were 54 reported exits by Private Equity firms in Latin America for 2008.
A new report from the University of New Hampshire’sCenter for Venture Research details the give and take for Angel Investors in the U.S. for 2008. Emphasis was placed on “give and take” because the Angel market saw considerable contraction in total investment dollars from the previous year, but exhibited little overall change in the number of investments made. 2008 Angel investments were valued at $19.2 billion, a drop of 26.2% compared to 2007. A possible silver lining to the situation is that a total of 55,480 entrepreneurial ventures received angel funding in 2008, a modest 2.9% decline from ‘07. These numbers combined to see average deal sizes shrink by 24% for the year.
All this means is that in a severely slumping economy, Angels are being more cautious in how and where they invest their money (further backed up from the lack of people fleeing the Angel world. The number of active investors in 2008 was 260,500 individuals, virtually unchanged from 2007). This is important to note because Angels have, in large part, taken over the investment niche that Venture Capitalists held twenty years ago before VC became more-or-less institutionalized and moved farther along the investment cycle into later stage ventures, thus avoiding the increased levels of risk associated with seed investing and helping to allow their LPs to sleep a little better at night.
A sector breakdown of the investments shows Healthcare Services/Medical Devices and Equipment accounted for the largest share with 16% of total U.S. Angel investments in 2008, followed by Software at 13%, Retail with 12% and Biotechat 11%. Industrial/Energy accounted for 8% of investments (reflecting a continued appetite for green technologies), and Media with 7% of Angel investments rounds out the top six investment sectors.
Annual returns for Angel’s exits (mergers and acquisitions and IPOs) were 22%, however, these returns were quite variable. Exits were broken down into mergers and acquisitions at 70%, IPOs at 4% and bankruptcies accounting for the remainding 26%. Angel investors invested in 10% of the opportunities they were presented.
Frédéric Lemoine (HEC.1986), non-executive chairman of French nuclear group Areva and a senior adviser at McKinsey, was appointed on Wednesday night by the board of Wendel Investissement to replace Jean-Bernard Lafonta as CEO, putting an end to more than a year of family in-fighting over leadership and investment strategy. Much of the controversy stemmed from the questionable decision to take a 21.5% stake in staid French manufacturer Saint-Gobain. Best of luck Frédéric!
From earlier this month, here is a talk at the Japan Society in New York hosted by Jeffrey Shafer, Vice Chairman, Global Banking and Senior Asia Pacific Representative in New York for Citi, with Stephen Schwarzman, Chairman & Chief Executive Officer, The Blackstone Group. Schwarzman offers his view of the marked changes private equity has undergone in the current turmoil and shares his thoughts on where opportunities lie for his investors.
In the following segment, Steve takes a rare break from bemoaning FAS 157, to demonize his second greatest foe, the dreaded rating agencies:
Here’s a good post by A VC, Fred Wilson, of Union Square Ventures on what constitutes a good VC return. For all the aspiring VCs pondering the question he says:
our target batting average is “1/3, 1/3, 1/3″ which means that we expect to lose our entire investment on 1/3 of our investments, we expect to get our money back (or maybe make a small return) on 1/3 of our investments, and we expect to generate the bulk of our returns on 1/3 of our investments.
If you do the math with that batting average, and assume the return is 1.5x on the middle third, then you need to average 7.5x on the 1/3 of the investments that make the bulk of the returns.
Just a quick reminder to all the HEC alumni working in Private Equity, that tomorrow, Monday March 23rd, is the First HEC Private Equity Alumni Networking Event. It kicks off at 18h30. I look forward to seeing many of you there!
There’s been much talk in the States about the carried interest tax “loophole” being closed. It currently stands at 15%. Andrew Ross Sorkin wrote an editorial recently (my favorite part of the piece was the Private Equity Council’s Douglas Lowenstein calling into question the bias that venture capital investment is somehow seen as more virtuous than buyout investment money) which was followed up by a call for taxation compromise by Joseph D. Ament, a principal at Chicago law firm Much Shelist Denenberg Ament and Rubenstein.
His proposal is to amend Internal Revenue Code Section 1256 to add carried interest as another type of Section 1256 contract. Thus carried interest would be taxed 40% as a short-term capital gain or loss, and 60% as a longterm capital gain or loss. However, any gray area of compromise will ultimately prove arbitrary. Some figure will be decided on as an increase is certain to come, but it will be in the haggling and positioning that occurs over that final number that will prove interesting. This could be a vital moment for the Private Equity industry to show in the public spotlight it’s long-term objectives.
Of course, depending on how you look at the issue you may be of the mind that there is in fact no gimmick to be fixed, and that it’s simply a tax increase. The Obama administration predicts it will generate $14.7 billion through 2014. That number seems quite high given that the current drought of dealmaking. Also important to consider is whether or not it’s wise to take away some investment incentives at a time when private capital is needed most. Unfortunately, this last point is being lost among the populist outcry.
The content, views, and opinions expressed on this website/blog are mine and mine alone and do not in anyway represent those of HEC Paris, it's faculty, staff, or administration. This blog is meant to act as a means of communication and information exchange for the HEC Private Equity and Venture Capital Club and it's members. Thank you for understanding.
Posted by hecpevc 
Posted by hecpevc 
Posted by hecpevc 