Bois Capital is being hired by VC’s to sell their portfolio companies. This is a new trend. Previously, VC’s relied on their own networks to sell their portfolio companies and were adamant that “companies are bought not sold”.
Bois Capital recently sold a VC-backed company in Israel and is currently representing a VC-backed company in India and a VC-backed company in Silicon Valley.
As can be seen by the chart above, the amount of VC investments and deals are declining. Paradoxically, venture capitalists are raising money at the fastest rate in a decade, raking in about $13 billion in the first quarter of 2016. But much of that cash won’t flow into new startups anytime soon. Rather, VC’s are bracing for a downturn and boosting reserves to keep companies they have already backed from going bust.
Many VC’s are in triage mode. The number of bridge financings for technology companies is increasing. VC’s are getting more calls from peers on “special opportunities” asking them to join a late-stage round for companies running out of cash.
The M&A process typically takes 6 months, so it is prudent to have at least 9 months cash in of order to launch the M&A process. if a company has close to $0 on the balance sheet as the transaction closing draws near, the acquirer will use this leverage to renegotiate better terms.
The advantage of hiring an investment bank is the VC can focus on the operations and financing of its other portfolio companies and not the time consuming M&A process. A professional investment bank can run a smooth process and generate the maximum amount of competition for a portfolio company being sold. A well-connected investment bank can reach out domestically to the usual suspects as well as internationally. Bois Capital recently sold a private US-based SaaS company to a billion dollar private company in Spain it identified through rigorous research of the sector.
Bois Capital expects that the trend of VC’s hiring investment banks will accelerate in 2016 as VC’s reexamine the health of their portfolio companies. Interestingly, PE firms have traditionally hired investment banks. Now VC’s are wisely hiring investment banks as well.