Words to the Wise When the Exits Are Closed

If you’re the CEO of a venture-backed company, what can you do when the exit doors remain closed for IPOs, and the collapse of capital markets has slowed mergers and acquisitions to a trickle?

That may be the question of the hour, or perhaps the year. But preserving your options, and creating new ones, was key to the answers that three venture investors and a San Francisco software company CEO offered yesterday at the Red Herring North America 100 conference in downtown San Diego. John Malloy of BlueRun Ventures in Menlo Park, CA, said he could think of two words that epitomize the situation for many startup ventures. One is constraint, and understanding this is a new world of constraints. The other is optionality. “Remember there are multiple ways to solve a problem,” Malloy said. “You certainly shouldn’t believe just what your bankers tell you.”

Just how startup CEOs can work to maintain their options and generate new ones, of course, was the hard part. But the participants in a panel discussion had a number of decent recommendations, along with some interesting observations. For example:

—It’s unclear whether the IPO market will open anytime soon, said Bob Ackerman, co-founder of Palo Alto, CA-based Allegis Capital. “We’re in a market where there’s a lot of chop, a lot of back and forth,” Ackerman said. But the burly venture investor added that mergers and acquisitions activity will likely resume sooner rather than later because “the big companies have pulled in their internal innovation,” as a way to cut their costs. “Now they are going to an external innovation model,” which means acquiring the startups that have been developing innovative technologies.

—Become extremely efficient. Cash-starved companies are better run, and keeping tight control of operations is crucial to survival. “We tell our companies to get to profitability and you can control your own destiny,” said Paul Ferris, a general partner with Azure Capital Partners, which has offices in San Francisco and Menlo Park, CA.

—“We’ve taken time to get a handle on our metrics,” said Brian Gentile, CEO of Jaspersoft, a San Francisco company that develops business intelligence software. “In the downturn, we saw an opportunity to take market share… It wouldn’t have been an opportunity, though, if we

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Author: Bruce V. Bigelow

In Memoriam: Our dear friend Bruce V. Bigelow passed away on June 29, 2018. He was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Bruce Bigelow joined Xconomy from the business desk of the San Diego Union-Tribune. He was a member of the team of reporters who were awarded the 2006 Pulitzer Prize in National Reporting for uncovering bribes paid to San Diego Republican Rep. Randy “Duke” Cunningham in exchange for special legislation earmarks. He also shared a 2006 award for enterprise reporting from the Society of Business Editors and Writers for “In Harm’s Way,” an article about the extraordinary casualty rate among employees working in Iraq for San Diego’s Titan Corp. He has written extensively about the 2002 corporate accounting scandal at software goliath Peregrine Systems. He also was a Gerald Loeb Award finalist and National Headline Award winner for “The Toymaker,” a 14-part chronicle of a San Diego start-up company. He takes special satisfaction, though, that the series was included in the library for nonfiction narrative journalism at the Nieman Foundation for Journalism at Harvard University. Bigelow graduated from U.C. Berkeley in 1977 with a degree in English Literature and from the Columbia University Graduate School of Journalism in 1979. Before joining the Union-Tribune in 1990, he worked for the Associated Press in Los Angeles and The Kansas City Times.