I'm at the AlwaysOn Venture Summit today where investors and startup CEOs gather to discuss the current situation and upcoming trends. The first panel is moderated by Lisa Buyer, Founder of Class V Group. She's asking the panel to discuss the current state of affairs in the investment sector.
Leslie Pfrang, Managing Director Deutsche Bank Securities: This is the most difficult time in the market. The only thing that worked are "accidental heroes."
Jeff Matthews, General Partner, RAM Partners: The worst market I've ever seen and the worst since the 1970's. Back then, Metthews says, one smart investor from Omaha bought all the stocks he could--Warren Buffet--and he became one of the greatest investors. Matthews just published a book about Buffte's success.
About Cash
Pfrang: We could see cash flowing back into equity. Selling has dried up.
Matthews: Even large hedge funds that thought they had enough cash and were prepared; they are still faced with redemptions even at the November 15th deadline.
John Rende, Partner, Prism Partners: Markets are driven by sediment, redemptions...but there could be a tremendous amount of money on the sideline. The world hasn't ended as it may appear. You're seeing very high quality companies trading at steep discounts--what typically is the definition of a bear market compared ot what we saw in 2002--now can be looked upon as a correction for the previous years.
Chris Nawn, Partner, Integral Capital Partners: We've seen stocks that are going to prices we didn't think were possible.
The Last 30 Minutes
Pfrang: People get their redemption notices and they program sell to raise the necessary amount of cash. There's so much cash on the sideline and volatility on the market that there's a lot of chasing too which accentuates the move that wouldn't have otherwise happened.
Things are still getting worse. First call estimates are not even reflective of what the buy side or sell side have been reflecting. Buy side models are below street and first call. It becomes an expectations game at some point. Big cuts for 2009 are already in expectations. Valuation may be higher than people are thinking they are.
Matthews: We haven't seen the worst of it: we still have the last 2 weeks of the quarter to go. Late August September had tremendous fallout. People could not believe what was happening. Do you take numbers down based on a month, or wait to see what happens. That might explain the delay--large corporations like Intel and DuPoint came out later and in one day cut their numbers.
What About Hedge Funds?
Matthews: There will be a lot fewer of hedge funds in '09.
Pfrang: Still a high value proposition for endowments and pension funds.
Nawn: Hedge fund allocation isn't as dramatically over weighted as it is in private equity. You'll see some hedge funds who have come into the private equity road existing. Mutual Funds are probably not going to enter private equity and you'll see mergers in mutual funds.
What are we going to see with IPOs?
Pfrang: IPO in the online education space. That space has been performing very good. We happen to believe there's going to be growth in the second half of '09. People don't have trust in the numbers. They're looking for stability.
Nawn: We believe IPOs are going to stay low for a while. The bubble of 2000 you saw about 400. We look at the IPO market as a tool to let us know what we need to do about shorting.
It's going to be brutal: If you're the 6th or 7th player out there, you're not going to survive- especially if you're burning cash. MSFT came out early because they wanted to take advantage of a tax situation. The good ones will get out. The banks doing the bidding but the balance needs to move so that the pricing mechanism needs to move so that it benefits both buyers and sellers.
Matthews: Quality: There are many good public companies we can invest in, why risk investing in small, untested companies? Google is selling at X10 X12 times the earnings. Why take a risk on an untested IPO when I can buy Google which I understand completely.
Pfrang: In the short term, investments in new technologies is at a stop. Investments are directed more toward proven and tested technologies. We're looking into SW As A Service (SAAS), cloud computing, green and cleantech, and into smarter, faster networks.
Matthews: Also looking into iPhone as a software platform.
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