Against the backdrop of a severe downturn in private equity and venture capital financing in the U.S., the Invest Southwest conference starts tomorrow here in Phoenix. Andrew Johnson from the Arizona Republic had a nice write-up Sunday about the conference and its attendees. The annual conference is billed as an opportunity for emerging Arizona companies to present their business plans to venture capital and private equity firms (i.e., to ask for money).
When reading the AZ Republic article, you can’t help but be struck by what a small share of private funding Arizona companies receive. The article indicates that Arizona companies managed to secure $71 million in venture financing last year, while in the third quarter alone of 2007, there was $7.1 billion in venture funding in the U.S. And for 2008, a paltry $14.5 million has been raised by Arizona companies. It’s a theme I’m sure I will return to often – Arizona needs to push harder than it already has to attract and maintain entrepreneurs who will base their start-up companies here. I know there is a lot of good engineering talent in the large chip companies here in Phoenix. Those individuals shouldn't feel like they need to leave Arizona to get the support resources and funding they need to have a successful start-up company. Invest Southwest is a good start to getting Arizona companies some exposure without the need to make the trek to Palo Alto. There are other groups like ASU Technopolis and the Arizona Technology Council who are also doing their part to incubate start-ups.
Needless to say that 2009 is going to be a particularly difficult one not only for the firms seeking equity infusions at Invest Southwest, but also around the country. The NY Times had two articles earlier this week (here and here) about the difficulties facing private equity and venture capital firms as they struggle to raise new funds and to hold on to their current investors. Obviously, there are going to be some great distressed buyout and investment opportunities going forward for the firms that are able to raise the cash – assuming that banks will start lending on the deals again to allow them at least some leverage. Without debt financing, the numbers don’t work.
Next year looks to be a rough year for our economy, but that is the perfect time to put together plans for forming an opportunity fund to take advantage of the economic downturn. If you do so, contact me first to make sure you comply with securities laws. And please call early before you start soliciting investors as there are plenty of regulations that apply in the early stages of the process that can trip up fund sponsors.
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