Last month, San Diego-based venture capital firm Mission Ventures (www.missionventures.com) sold its portfolio firm, Carlsbad-based 3E, just the latest in a string of exits for the firm, which also included an IPO in Maxlinear earlier in the year. To get some insight to how venture capitalists are viewing the market, and how mergers, acquisitions, and IPOs are affecting the business, we chatted with Dave Ryan, Managing Partner at the company.
Dave, thanks for the time today. What do you make of the exit opportunities nowadays, and how has your firm been doing?
Dave Ryan: It's been a reasonably good year. In the past twelve months, we've seen some of the larger public companies picking up and acquiring venture backed companies, to fill holes in their product lines and expand. We've been the beneficiary of that in at least a few instances. As you probably recall, we sold Networks In Motion to TeleCommunications Systems about a year ago. That firm provided location based services for wireless operators, and Verizon was one of our major partners there. That was a very good exit. I think there's probably some correlation between M&A activity and the advancement of the public markets. For example, in March, one of our companies, Maxlinear, a semiconductor company based in Carlsbad, went public. In July, we sold another one of our companies, Greenplum, a database warehousing company, to EMC, another good win for the venture investors. In that case, EMC was looking to further its presence in software around data management, to complement its hardware business. More recently, and to the point, we sold and closed on the acquisition of 3E by Verisk Analytics. Verisk is a compliance and analytics company. It's my believe that they viewed the environmental compliance area as one of interest, and perhaps as a new platform for them to expand in that arena.
How much involvement did Mission have in that sale?
Dave Ryan: In the case of 3E, there was a subcommittee of the board, comprised of myself, the CEO, and the other major co-investor, Frontenac out of Chicago. We started with interview with investment bankers early in the year, and selected Jeffries to represent the company. I can't count the number of meetings and phone calls we had over the past several months as we progressed towards identifying the best prospects to acquire the company and then with the negotiations.
As an investor and board member, how do you look at a firm and weight the option between and IPO and M&A?
Dave Ryan: The standards to become a public company are more substantial now than they were 25 years ago when I first got into this business. Back then, companies with just $20M to $30M in revenues could go public, and you just had to work with the four horsemen--as we called them then--Hambricht & Quist, Montgomery Securities, Alex Brown, and Robertson Stevens--and they would take those companies public. Now, all of those mid-sized tech bankers have been acquired, 10-15 years ago by major banks. That means, those are much larger investment banking firms, that typically require a larger fundraise for the economics to work out for them. Therefore, companies generally have to be much larger in scale to make it to the market. That's why you see the number of companies going public is much fewer than a couple of decades ago. That's only been exacerbated by Sarbanes Oxley, which has increased the costs of being a public company.
How much does that kind of environment affect venture investors?
Dave Ryan: I'm not a historian, but I think if we took a deep dive into history, many of the supernormal investment returns have been derived from well performing, public companies. There is a premium return associated with companies that go public, and can execute well thereafter. That's not to say we can't generate significant returns from selling to larger companies. That does represent the majority of our exits. Clearly, we have a belief that those returns are attractive--but, they're not nearly as attractive as those of a well performing public company.
What's your focus, as a firm, in the next year, and any particular industries you are interested in right now?
Dave Ryan: Mission Ventures continues to focus on four key areas: wireless and mobile applications, IT infrastructure, software and enterprise applications, and digital media.