The Future of Finance: How Private Equity and Venture Capital Will Shape the Global Economy PDF
Preview The Future of Finance: How Private Equity and Venture Capital Will Shape the Global Economy
The Future of Finance How Private Equity and Venture Capital Will Shape the Global Economy The Future of Finance How Private Equity and Venture Capital Will Shape the Global Economy DAN SCHWARTZ John Wiley & Sons (Asia) Pte. Ltd. Copyright#2010JohnWiley&Sons(Asia)Pte.Ltd. Publishedin2010byJohnWiley&Sons(Asia)Pte.Ltd. 2ClementiLoop,#02-01,Singapore129809 Allrightsreserved. Nopartofthispublicationmaybereproduced,storedinaretrievalsystem,ortransmittedin anyformorbyanymeans,electronic,mechanical,photocopying,recording,scanning,or otherwise,exceptasexpresslypermittedbylaw,withouteitherthepriorwrittenpermissionof thePublisher,orauthorizationthroughpaymentoftheappropriatephotocopyfeetothe CopyrightClearanceCenter.RequestsforpermissionshouldbeaddressedtothePublisher, JohnWiley&Sons(Asia)Pte.Ltd.,2ClementiLoop,#02-01,Singapore129809, tel:65-6463-2400,fax:65-6463-4605,e-mail:[email protected]. Thispublicationisdesignedtoprovideaccurateandauthoritativeinformationinregardtothe subjectmattercovered.Itissoldwiththeunderstandingthatthepublisherisnotengagedin renderingprofessionalservices.Ifprofessionaladviceorotherexpertassistanceisrequired,the servicesofacompetentprofessionalpersonshouldbesought. Neithertheauthorsnorthepublisherareliableforanyactionspromptedorcausedbythe informationpresentedinthisbook.Anyviewsexpressedhereinarethoseoftheauthorsanddo notrepresenttheviewsoftheorganizationstheyworkfor. OtherWileyEditorialOffices JohnWiley&Sons,111RiverStreet,Hoboken,NJ07030,USA JohnWiley&Sons,TheAtrium,SouthernGate,Chichester,WestSussex,P0198SQ, UnitedKingdom JohnWiley&Sons(Canada)Ltd.,5353DundasStreetWest,Suite400,Toronto,Ontario, M9B6HB,Canada JohnWiley&SonsAustraliaLtd,42McDougallStreet,Milton,Queensland4064,Australia Wiley-VCH,Boschstrasse12,D-69469Weinheim,Germany LibraryofCongressCataloging-in-PublicationData ISBN978-0-470-82511-2 Typesetin10/12ptSabonbyThomsonDigital PrintedinSingaporebyToppanSecurityPrintingPte.Ltd. 10 9 8 7 6 5 4 3 2 1 Formydaughters,AllisonandDana,andtoKaren, whotookcareofthemwhileIwasaway. Contents Foreword ix DavidRubenstein Acknowledgments xi CHAPTER1 TomorrowWillBeDifferentthanToday 1 CHAPTER2 PrivateEquityandVentureCapital:APrimer 13 CHAPTER3 2009:AVeryChallengingYear 39 CHAPTER4 2010:PrivateEquityandVentureLeagueTablesandNiches 79 CHAPTER5 PrivateEquityandVentureCapitalinMarketsAround theWorld 105 CHAPTER6 IndustryIssues 133 CHAPTER7 TheNextDecade:AFutureScape 165 CHAPTER8 TowardaNew‘‘CorporateNorm’’ 185 vii viii CONTENTS Notes 203 TheClassof2010(PeopleInterviewedintheBook) 207 Index 217 Foreword F rom embryonic starts in the United States in the 1960s and 1970s, the separate,butinextricablylinkedinvestmentdisciplinesofventurecapital andprivateequitygrew,bytheearlypartofthetwenty-firstcentury,intoa significant,global(andattimescontroversial)industrymanagingtrillionsof dollarsandemployingtensofmillionsofworkers. The good times for these firms—and their ever-growing set of institu- tional and individual investors—seemed likely to extend for many years, if notdecades,intothefuture. And then came the Great Recession of 2008–2009, with its devas- tating effects on so many of the largest, most vibrant economies in the world. Although the venture capital and private equity industries were gener- ally not blamed for causing the Great Recession, they were nonetheless severely and adversely impacted by it—to the point that many serious observers openly wondered whether these once seemingly infallible invest- mentforcesmightbecomearelicofthepast. Their magic was gone. Their investor allure had waned. Their images hadbeenimpaired. How had this happened—and so quickly? Could venture capital and private equity recover, perhaps by reinventing themselves as they had fol- lowing previous,though farless severe, economic downturns? And what if they did not? Who in the future might provide entrepreneurial capital for innovationorenhancedcorporateproductivity? The answers tothese questions and related ones are still unknown,for the Great Recession is only beginning to recede, and its full, and perhaps permanent impact on the world of investing—especially in the higher-risk buthigher-returnareasofventurecapitalandprivateequity—isdifficultto accuratelypredict. Tobesure,manyofuswhohaveworkedthroughpriorupsanddowns in the investment cycle believe that venture capital and private equity will indeed return, and in many ways stronger than ever—chastened by earlier excessesandfocusedanewonhelpingentrepreneurs,managers,andinvest- orsachievetheirgoals.Butthatisadmittedlyabiasedperspective. ix x FOREWORD Tothosewhohavenotlivedinthetrenchesofventurecapitalandpri- vateequity,butwouldnonethelessliketohaveanswerstothekeyquestions about the future of venture capital and private equity, a less biased—but fully informed—perspective might be in order. And that is precisely what DanSchwartzhasprovidedinTheFutureofFinance,abookthat,because oftheauthor’sclearobjectivityandunquestionedknowledgeofthesubject, iscertaintobewidelyreadandthoroughlycommentedon. Oneofthemanyproblemsthatventurecapital,tosomeextent,andpri- vateequity,toagreaterextent,havefacedinrecentyearsisthegeneralpub- lic’sgenerallackofunderstandingofthesedisciplines:howtheywork,why theyhavegrown,whattheyachieve,andwhotheyimpact.Regrettablyfew works by well-informed writers have appeared in recent years to provide answerstothesebasicquestions.Andthemostrecentturmoilintheventure capitalandprivateequityworldshasnodoubtexacerbatedthisgenerallack ofunderstanding. Dan Schwartz has therefore provided a real public service by not only carefully researching and skillfully writing this book, but by doing so in a waythatcantrulyinformthelayperson,aswellasinvestmentprofessionals, about what has happened, is happening, and is likely to happen in the in- creasinglyimportant—butrapidlychanging—worldsofventurecapitaland privateequity. Andtheauthorhasdonethiswhileholdingdownadayjobofrunninga businessheheadedformorethan15years—theAsianVentureCapitalJour- nal,whichhasgrownfromitsmodestbeginningstoapositionofenormous influenceintheburgeoningAsiaventureandprivateequityworlds. ThatperchhasputDanSchwartzintofrequentcontactwiththeleading professionals in both the Asian and the global venture capital and private equity industries. This is made abundantly clear in The Future of Finance, fortheauthorhasbeenabletoobtainmanyfrank(andinvaluable)observa- tionsandinsightsfromthoseprofessionals. Statedsimply,anonprofessionalinterestedinlearningabouttheseem- ing mysteries—and likely future—of venture capital and private equity would be hard pressed to find a more useful, up-to-date primer than The FutureofFinance.But,totheauthor’scredit,hehasalsowrittenabookthat providesagreatdealofinformationlikelytobeunknowntoeventhemost seasoned of venture capital and private equity professionals. And they are therefore likely to benefit as well from reading The Future of Finance. Ialreadyknowonewhohassobenefited. DavidRubenstein CofounderandManagingDirector TheCarlyleGroup Acknowledgments A sanyonewhohasdonesowilltellyou,writingabookisnosmallfeat.It hasoccupiedthegreaterpartofmyattentionforthepastyear,andIhave enjoyedtheprocess.Anumberofpeoplewhoassistedwiththeprojecthave madeiteasier,andIwishtothankthemprofusely. First,Iwouldliketothankthosewhoagreedtosharetheirthoughtsfor thebook.Notonlydidtheyspendtimespeakingwithme,buttheychecked quotes,foundphotos,andsignedforms.Despitebusydaysandhectictravel schedules,theirtimeonthephoneorinpersondiscussinganddescribingthe industrywasmostappreciated.Youweregreat.Ihopethebookmeetsyour expectations. MostofthosewithwhomIspokeormethadpersonalassistants,secre- taries,orsignificantotherswhomadeitallhappen.Yournamesdonotap- pearinthebook,butyouknowwhoyouare.AndsodoI.Thankyou! Next,IwouldliketothankDavidRubensteinforwritingtheForeword. Heisabusyman.Histakingthetimetowriteasubstantiveintroductionis muchappreciated.ThosewhoknowDavidandarefamiliarwithhisreputa- tionasahard-workingandinsightfulmanwould,ofcourse,expectnoless. IwouldliketothankmyassociateattheAsianVentureCapitalJournal, HarmonyHeung,forherassistanceinputtingthisbooktogetheraswellas everything else she has taken care of for me in Hong Kong over the past 18years.Youhavebeeninvaluable.ManyothersatAVCJhavealsohelped, including Allen Lee, Anil Nathani, Paul Mackintosh, Ying Jiang, Amelie Poon,andHelenLee.IwouldalsoliketothankJonathonWhiteleyandhis Incisive Media colleagues. They purchased the company in 2006. Good luck,anddon’tforgetusinAsia! Iwishtoextendmyappreciationtothemanyothersforyourindulgence over the past year as I lugged my laptop around the world to talk, gather information, and to write. That includes my family, girlfriend(s), and friendsfromalloverwhograciouslyallowedmethetimeandspacetothink andwrite. Finally,mysincereappreciationtoNickWallworkandthecrewatJohn Wiley & Sons (Asia) in Singapore, who have agreed to publish this book. Mayitbeawinner! xi xii ACKNOWLEDGMENTS Thebookcontainsalotofinformationandfacts.Ihavedonemybestto ensure thatthey arecorrect andtimely. Mistakes willhappen,though,and forthese,pleaseacceptmysincereapologies.Theyaremyown. DanSchwartz HongKong January2010
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