Forecasting Markets: The Capital Update for 2006

moderator: Robert J. Crowley, Massachusetts Technology Development Corporation (MTDC)
author: Martin Hensel, Texterity
author: Claire Wadlington, FA Technology Ventures
author: C. Edward (Ned) Hazen, Lighthouse Capital Partners
author: T.L. Stebbins
published: Sept. 3, 2013,   recorded: January 2006,   views: 33
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Description

This panel was evenly divided on the utility of predicting the direction of markets, so some speakers chose to discuss predicting in lieu of making predictions.

Martin Hensel describes three common forecasting points of view: industry forecasts, which are really “marketing tools, intended to give comfort to investors and customers;” entrepreneurial forecasts, which are “generally early and optimistic;” and investor forecasts, which focus on broad product areas, as well as on management teams. As a CEO of a company that has found a market delivering magazines digitally, Hensel commends his investors in particular, and offers advice to directors in general: be “steadfast” and “protect entrepreneurs from themselves.”

Ned Hazen discusses the “little known and little understood marketplace” of venture debt -- a method for financing companies that provides capital for purchasing equipment and for things like market research and prototype introduction. Hazen recommends this alternative to venture capital, because it doesn’t “dilute” the company; entrepreneurs retain their ownership positions. But before borrowing, he cautions entrepreneurs, watch out for tricky financial restrictions on how to run the business and for clauses that allow lenders to “seize your cash” if they spot the smallest “material adverse change” in your operation.

Claire Wadlington notes that 2005 marked the first uptick in venture capital investment in four years -- $21.7 billion dollars, which slightly topped 2004’s number. Close to $5 billion went toward software deals, followed by biotech at $3.9 billion, then internet-centered and medical device investments. One big change: 901 companies got first-time funding this year, a four-year high. For 2006, she sees VC money trending toward open source; Web 2.0; recurring revenue business models; wireless-3rd screen; energy technology; robots for unstructured environments and bio-engineering.

While apologizing for “missing the market” last year, T.L. Stebbins makes some forceful pronouncements about 2006 and beyond. He remarks that U.S. markets last year underperformed all other major markets in the world, and worries that NASDAQ “has moved away from small and micro cap” business. Some of this may be attributable to our “good friends in Washington and the regulators,” who have restricted “capital flows to small cap-micro cap in the U.S. today.” New markets have emerged outside the U.S. to serve smaller firms. The London Stock Exchange “is now the most vibrant small cap market and the fastest growing market in the world today.” And there’s bad news for 2006: Stebbins says the domestic recovery will stabilize and flatten out; the international market will be volatile and anti-American; real estate prices will be in trouble; interest rates will rise; and capital markets will see a high degree of risk.

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