A panel discussion about what’s happening on Wall Street sponsored yesterday morning by the San Diego Venture Group made it clear that venture investors are looking for pockets of light among the remains of last year’s market collapse. The general tenor of the conversation was that capital remains scarce and it’s going to take a long time for our financial markets to recover.
A defining moment in the discussion seemed to occur after the moderator and longtime technology analyst Harry Blount asked, where can companies go now if they start to run out of cash? The answers offered by the panel, which consisted of three experts in venture investing and lending, weren’t particularly encouraging.
But Zach Warren, a managing director of New York’s Guggenheim Partners, offered an interesting suggestion near the end of the breakfast session. After Blount asked the experts to identify sectors that are still attractive to investors, Warren seemed to get a lot of heads nodding when he said, “There’s an enormous opportunity to form new banks and broker-dealers—and just go out and take massive market share.” He mentioned that billions of dollars in federal bailout funding have gone to help prop up financial institutions considered too big to fail. Imagine what could happen, Warren suggested, if someone started a new bank with $3 billion in capital. “The opportunity is just too big to start a bank that doesn’t have the legacy problems these other banks have,” he said.
Glen Kacher, who oversees mostly software-related investments as a managing director in the Menlo Park, CA, office of Integral Capital Partners, said he oversees public companies such as Intuit and Adobe as undervalued opportunities. As a sector for potential venture investing, Kacher said he sees companies that specialize in software-as-a-service as “a major growth vehicle.”
Kacher later voiced skepticism about the cleantech and renewable energy sector, saying, Silicon Valley’s VC firms poured hundreds of millions into ethanol startups without thinking through to the billions of dollars required to finance production projects. “It’s easier to innovate on ones and zeros than it is on material sciences and physics,” he said.
Ric Spencer provided a different perspective, however, on the cleantech sector. Spencer, who oversees a global media and telecommunications investment banking group at Bank of America/Merrill Lynch in Silicon Valley, said he views cleantech innovation as a growth industry—especially with the federal economic stimulus package allocating $55 billion to develop such technologies. “There are too many dollars are being spent on the sector, and it just seems like there’s too big of an opportunity to ignore,” Spencer said.
As for the long-term ramifications of the stimulus plan, Warren said, “Conservatism now rules the day. The companies that can do bridge loans today are Verizon and Pfizer.” Spencer agreed, saying, “I think we’re in a period of extreme caution. Today, it’s much more about value, and there’s a thirst for yield.”
