Private Equity & its Economic Role

On Friday, UoC and UoI hosted their annual Private Equity Conference. Steve Kaplan, the primary organizer from UoC, did a masterful job pulling together quite a few interesting panels with panelists from leading universities such as UoC, Northwestern, UoI and Berkeley as well as numerous participants from the general partner ranks. Topics included:
-- Agency costs of VC Control
-- How Smart is Smart Money? (yes, there was some modest value uncovered...)
-- Friction points in the GP/LP relationship
-- Networks in VC Firms
-- Use of Leverage in Buyouts

Prof Yael Hochberg, one of Northwestern's rising stars, presented her paper on Venture Capital Networks and their impact on Performance. I provided some commentary and perspective from the trenches. Some of the more interesting elements of her presentation (file attached and downloadable) included:
-- VC's clearly rely on their networks & relationships with each other to drive superior performance
-- She & her collegues looked at various venture firms based on the number of deals they were invited into and the number they invited others into.
-- VC firms with more experience tended to have larger networks and higher performance
-- Those with networks had higher exit ratios (IPO/sale) and more follow on rounds
-- Supporting Kaplan's work, successful VC's performance persisted across funds raised
-- Commented that perhaps there is a cycle that success leads to better networks which in turn leads to more success and so on...persistence
-- a high profile exit/IPO has a disproportionate impact on a fund's reputation & network
-- VC networks in a region can create a significant barrier to entry and more attractive pricing

Well done, Steve, Michael, Morten, Yael and others!

Download hll_slides_for_gleacher_042806.ppt

Comments

[Aditya Kapil]

I went through the presentation and even downloaded a paper from the group. Apart from quantifying some of these aspects ... I fail to see what the new learning is here. Is this study not just confirming what is fairly intuitive?

[mbmccall]

There are quite a few unexpected findings such as the fact that very few of the companies actually dramatically changed strategy and a higher than expected % of CEO's made it all the way through the process. The expectation in the former was that great management zigs and zags to find the right strategy for the business...in reality, there isn't as much strategic change as expected.