Media And Tech Dealmaking Charges On

Today I'm reporting from the Montgomery Tech Conference in Santa Monica Ca, and it's surprising and refreshing to find such an excited and optimistic assortment of startups and potential investors. The buzz throughout the Fairmont Miramar Hotel seems entirely disconnected from the grim reality on Wall Street; a number of investors here tell me they're hopeful it's these entrepreneurs who will lead the economy out of recession.

The stock market may have — according to Warren Buffett— dropped off a cliff, but private equity and venture capital investments continue to chug along. It's much harder to raise new capital these days, to say the least. But believe it or not, private equity and VC players still have billions of dollars, raised over the past few years, to invest.

Montgomery & Co, a boutique M&A bank which specializes in media and tech deals is connecting 165 startups presenting at the conference with hundreds of VC and private equity funds as well as media and tech giants, from Microsoft and Intel, to Disney and Fox, all of whom have sent representatives. The conference features presentations from each startup, and perhaps even more importantly, is coordinating over one thousand meetings between potential investors and startups, twice the number scheduled at this same conference last year.

Needless to say, the bar is higher and the types of investments are different. Just $3.4 billion in venture capital was raised in the fourth quarter of 2008, down from $11.7 billion in the year-earlier quarter. So while companies still have war chests left to spend, the tighter capital pool is pushing everyone to adjust. Investors are demanding profitability and investing smaller amounts, and startups are cutting back on overhead costs and buckling down. Investors aren't thinking about IPOs, instead the exist strategy is a sale to an industry leader, and they're willing to hang on for longer. (Gone are the days of dot-com Foozball tables and $1,000 Aeron chairs. Products need to be work and be indispensable in this recession.)

The Carlyle Group's Growth Capital Fund still has some over $300 million left to invest, which it plans to do in $30 million increments. Now more than ever its target companies need to be profitable, with revenue in the tens or hundreds of millions of dollars, and the potential for real growth, Bob Grady, managing director at Carlyle, who oversees the growth fund, tells me that he's increasingly investing in or acquiring companies that are complementary for the company's current portfolio companies. Rather than own the number ten player in a certain market, he'd rather merge two companies to create a real contender in a certain industry.

Draper Fisher Jurvetson, a VC firm that invests smaller amounts in earlier-stage companies is hopeful about the opportunities this recession is creating. In an interview, Managing Director Tim Draper said that the terms on their investments are better-- as the valuations of companies come down they're getting bigger pieces of ownership for less. He's also incredibly optimistic that entrepreneurs will react to the restrictions of limited capital and exit strategies, with more creativity than ever. Draper believes entrepreneurs will be the ones to lead the economy out of this recession, and he wants to be sure to own a piece of the companies at the cutting edge.

For more on the companies and sectors generating particular buzz, check out my next blog.

Questions? Comments? [e-mail]