Middle Market Deals and how to buy, sell and raise capital from $5 to $500 million

This afternoon I had the privilege of leading a panel discussion on future trends in venture capital, as part of Brad Bertoch's Investors Choice Conference hosted by the Wayne Brown Institute (read Tim Stay's extensive coverage of the event on VCSmart).  We had hoped to get some clear vision into the future, but at least we came away with a fair image of the present and a good picture of the recent past.

The real question that we wanted answered is what is the next big thing?  Corley Phillips of American River Ventures responded jestingly, by quoting a notable VC, that "I wouldn't answer that if you were my mother."  Of course, every VC's hope is to find the next big thing--all alone--and to make that 100 fold return--just once (or twice).

We did discuss some arenas like VOIP, nanotechnology and web 2.0.  These are areas where lots of money has been made, begging the question are there any opportunities remaining?  The point was made in response that venture capitalists are unlikely to back another Skype or Vonage, but that doesn't mean that there aren't opportunities to develop VOIP related technologies that will move the migration of Internet telephony forward.  The key for entrepreneurs is to find a relevant spot on which to push.

One interesting aspect of the discussion, which also included Len Rand of Granite Ventures, was a discussion of relative geography.  Specifically, the question was asked, "Should I move my company to get a VC to fund it?"  The VC panelists agreed that entrepreneurs must be true to their companies and do what is best for them.  While this may mean moving the company, it more likely means finding a different, better suited venture investor.  The key is to be in a location with the required human and other resources the company needs to succeed.

Another interesting discussion topic was exits.  I've always believed that VC's are focused primarily on achieving a successful exit and that by extension, an entrepreneur needs to focus on that as well.  Tom Simpson of Northwest Venture Associates, reiterating and expanding on a comment by Len, noted that entrepreneurs need to be focused first and foremost on building a sustainable, profitable, cash flow business.  If an entrepreneur does that, he suggested, the exit will take care of itself.

Other keys to venture funding suggested by the panel, included having a great team and a validated market (noting specifically that a Gartner report does not validate a market).

These VC's are interested primarily in disruptive technologies that are revolutionary and not merely evolutionary. 

Chris Traylor, of Flywheel Ventures, noted that firms interests also vary in accordance with the size of their respective funds.  His interests as a manager of a $30 million fund are quite different from Lens, managing a $350 million fund.

Overall, the panel left the impression that there is venture capital available for quality projects.  One even referred to a bubble like frothiness in the market in some sectors. 

I'm reminded of a bumper sticker I saw on an old pick-up truck in Eastern Utah, an area with Saudi-scale oil reserves in the form of oil shale and tar sands, that billions of dollars were spent on developing in the late 70's and early 80's during and following the run up in crude oil prices in the 70's.  The bumper sticker read, "Please, God, give us one more boom.  We promise not to blow it this time!"