Tuesday, November 12, 2013

Some Quick Observations from a Trip to Silicon Valley (Part II)

A little more than a year ago, Dan Tenenbaum posted about impressions garnered during a whirlwind trip to Silicon Valley. It just so happens that a week ago I returned from my own quick trip to the Valley, during which I met with a number of people working in the venture lending space.

This niche involves lending to companies that are beyond the start-up phase and gaining traction in the marketplace. These companies may not yet have attracted the attention of commercial banks or other institutional lenders, or they may need a substantial mezzanine investment to seal the deal with a senior lender, but either way they generally prefer not to give up a substantial equity position (as would be required in a typical venture capital deal). Like venture capital equity deals, the focus in these debt deals is on a successful exit for the capital provider at the end of a predetermined investment period.

So, how’s business in the Valley?

Last year, business was booming when Dan visited. It still is. Two people with whom I met described the capital markets there as positively “frothy.” This I take to mean that deal flow is surging, with more capital providers seeking good deals than there are good companies seeking financing.

All in all, it was a great trip. A bit of a trip down Memory Lane as well. It’s been more than 30 years now since I left Stanford and Silicon Valley behind, eventually to hang up a shingle here in the Midwest. On more than one occasion I’ve paused to reflect that the guy on whom I accidentally spilled beer at the Oasis on El Camino in Menlo Park back in 1982 may have been Steve Jobs. Where would I be now if I’d invested my law school tuition money with him? Sigh. 

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