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Hi, I’m Brad Feld, a managing director at the Foundry Group who lives in Boulder, Colorado. I invest in software and Internet companies around the US, run marathons and read a lot.

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Modest Deals, Happy Deals

Comments (4)

I was talking to a friend yesterday about exits.  In it, he suggested that the tech M&A market had shut down just like the tech IPO market had.

This didn’t square with my experience.  I’ve seen plenty of modest M&A in the last two months (which I categorize as sub-$100m deals.)  Two popped up today – AOL acquired Sphere for a reported $25m and someone is rumored (possibly Expedia) to have acquired Farecast for $75m

While these are modest acquisitions, they are not distressed deals (e.g. company that is struggling gets bought for very little by other private company, usually for private company stock.)  There are plenty of distressed deals happening – they are usually pretty easy to recognize.

While modest deals aren’t the end game of a VC investor, they are definitely a key part of the diet.  Everyone knows that "singles and doubles" don’t turn a VC fund into a winner, but they are needed to fill in the holes.  So – it’s good to see a steady tempo of these modest deals continuing.  Plus, it makes for good copy.

  • Rob Freeborn

    While the values of these deals aren't too high – how do the multiple's rank for what you are looking to do?

    In the case of Sphere they had taken in $3.5mm in two rounds (don't know % equity or valuations at these points) but at face value turning that investment into a $25mm buyout in ~ 2 yrs can't be too bad.

    Farecast, well, not as high of a multiple by taking ~ $20.6mm and tripling that.

    The first thing I thought when reading your post was that there was a disconnect between the now common thread of “build it faster, lighter, cheaper” and the you're first measure of a sub $100mm deal being of modest size. In the end, isn't it the % return that counts the most?

    • http://www.feld.com Brad Feld

      What matters (at least to me and the investors in our fund) is cash on cash return. This then links back to fund size. If a deal returns 3x and is 30% of the cash in the fund, then it's a big deal. However, if it returns 3x and is 2% of the cash in the fund it's a nice, but modest deal.

      As a result, the broad classifications of small, medium, big probably don't work well. “Modest” in my book is sub-$100m, but I'm always happy when I have a company that is acquired for any amount that generates a positive return!

  • http://buzzpressure.com Jeff Fedor

    Like Rob who comments above, I am puzzled by sentiment like your friend's. Sadly it isn't isolated to him either.

    In my book, anything above a 5X return isn't too shabby. Now, I know managing a portfolio takes time and suddenly doubling the number of companies you can invest in is a blessing and a curse. So I can understand from a VC's perspective that if a company only potentially requires $5MM over its lifetime it does pose a challenge to the fund looking to place $5-10MM.

    Other than that I really don't see what there is to be concerned about..

    • http://www.feld.com Brad Feld

      My “multiple” thresholds are 1x-3x = good; 3x-5x = great; 5x-10x = superb; >10x jumping up and down with delight. And once you've had a >50x, you never look back.

  • Jeff Fedor

    Like Rob who comments above, I am puzzled by sentiment like your friend's. Sadly it isn't isolated to him either.

    In my book, anything above a 5X return isn't too shabby. Now, I know managing a portfolio takes time and suddenly doubling the number of companies you can invest in is a blessing and a curse. So I can understand from a VC's perspective that if a company only potentially requires $5MM over its lifetime it does pose a challenge to the fund looking to place $5-10MM.

    Other than that I really don't see what there is to be concerned about..

  • http://intensedebate.com/people/rob_freebor8945 rob_freebor8945

    While the values of these deals aren't too high – how do the multiple's rank for what you are looking to do?

    In the case of Sphere they had taken in $3.5mm in two rounds (don't know % equity or valuations at these points) but at face value turning that investment into a $25mm buyout in ~ 2 yrs can't be too bad.

    Farecast, well, not as high of a multiple by taking ~ $20.6mm and tripling that.

    The first thing I thought when reading your post was that there was a disconnect between the now common thread of "build it faster, lighter, cheaper" and the you're first measure of a sub $100mm deal being of modest size. In the end, isn't it the % return that counts the most?

  • http://intensedebate.com/people/bfeld bfeld

    What matters (at least to me and the investors in our fund) is cash on cash return. This then links back to fund size. If a deal returns 3x and is 30% of the cash in the fund, then it's a big deal. However, if it returns 3x and is 2% of the cash in the fund it's a nice, but modest deal.

    As a result, the broad classifications of small, medium, big probably don't work well. "Modest" in my book is sub-$100m, but I'm always happy when I have a company that is acquired for any amount that generates a positive return!

  • http://intensedebate.com/people/bfeld bfeld

    My "multiple" thresholds are 1x-3x = good; 3x-5x = great; 5x-10x = superb; >10x jumping up and down with delight. And once you've had a >50x, you never look back.

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