Experience, cost controls count in the hunt for VC - Boston Business Journal:

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“We are seeing money being place dvery prudently,” said Donald J. Troy, CPA, a partnetr in the audit departmentat , an accounting firm in “Venture firms are working on preserving their relationships with client who have already receivex money.” Venture capitalists nationwide invested just $3 billion in the first quarter, a 47 perceny decrease from the previous quarter and the lowestr venture investment level since 1997, according to ’ MoneyTrere report. Although the numbers are down new ideas and proposals are stilowinning backing.
Consider in which has closed on four new deals so farthis “We are on much the or faster, pace than the last few years,” said Todd Foley, managinf partner. “We are actively investing. We think it’x a great opportunity to invest. More than usual therer are cheap deals. Pricing has come down.” Two of the companiesx MPM recently invested in are a biotech company in Waltham that is developingv a drug to improve vein graftas fordialysis patients, which raised $12 milliobn in a Series B round, bringing the total amount raised in the rounrd to $50 million; and Xanodyne Pharmaceuticals, a Ky.
-based company focused on women’s health, whicyh completed an equity financinvg of $38 million led by MPM. A viable exit strategh is holding backmany deals, investors say. The numbeer of M&As have been declining steadily from quarter to quarter going to a modest 56 in the first quartef of 2008 from 106 inlast year’s firsyt quarter, according to the . But that’s still better than the other major exit strategy the initialpublic offering, which is pretty much nonexistent. So what do VCs look for? For controlling costs is essential forportfolio companies.
“More than ever venturd firms arescrutinizing costs,” Troy “Companies have to have an understandingh of how the financial aspects of the businesa work. A lot of our clientsx are exploring cost reduction strategies to limit spending.” Foley said he sees more companie exploring ways of getting non-venture dollards through a combination of revenue, grants and additionap partnerships. Andrew Merkin, a partner in the corporate practics division at law firmin Boston, said it hasn’g happened yet, but predicts venturs firms will start putting restrictions on how moneyg is spent.
“Financial controls are very important,” he “I think we mighgt start seeing venture firms negotiating restrictions on the use of You need to understand how much cash youreall need, what you are going to do with it, how quickly you will go through it. You need to be able to articulated that anddefend it. I think we will also see board control ramped upa bit, too. Thoss controls weren’t there in the and money would get blown throughincredibluy fast.
” Merkin said time frames for dealss are also longer, making cash burn even more And because valuations are down, entrepreneure might need to give up more “But the old adage ‘Better to have a smalp piece of a big pie than a big piecwe of a small pie’ still Merkin said. “The smart entrepreneur recognizes that it is betteer to be part ofa well-funded company than a poorly funded one.” Keep the size of the managementg team small and lean. Rely on outsides consultants wherever possible. Experience also matters, Merkim said — now more than ever. “Thd management team of the company is all that much more he said.
“Venture firms want to see experiencedc management, people who have gone througj theprocess before. They don’tr want to be funding people who are in this for thefirsrt time.”