Words to the Wise When the Exits Are Closed

5/14/09Follow @bvbigelow

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 … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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