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

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“We are seeing money being placevery prudently,” said Donald J. CPA, a partner in the audit departmenftat , an accounting firm in “Venture firms are working on preserving their relationships with clients who have already receivedf money.” Venture capitalists nationwide invested just $3 billion in the firsgt quarter, a 47 percent decrease from the previous quarterr and the lowest venture investment levelp since 1997, according to MoneyTree report. Although the numbers are down considerably, new ideazs and proposals are stilolwinning backing.
Consider in Boston, which has closed on four new deals so farthis “We are on much the same, or faster, pace than the last few said Todd Foley, managing partner. “We are activelyh investing. We think it’s a greatr opportunity to invest. More than usua l there are cheap deals. Pricing has come Two of the companies MPM recentlty invested inare Proteon, a biotechb company in Waltham that is developingh a drug to improve vein grafts for dialysisz patients, which raised $12 millio in a Series B round, bringingg the total amount raised in the round to $50 million; and Xanodyne Pharmaceuticals, a Newport, Ky.
-basex company focused on women’s which completed an equity financing of $38 million led by MPM. A viablw exit strategy is holding backmany deals, investors say. The number of M&As have been decliningg steadily from quarter toquartet — going to a modest 56 in the first quartere of 2008 from 106 in last year’s firsf quarter, according to the . But that’s still bettert than the other major exit strategy — the initial publicc offering, which is pretty much nonexistent. So what do VCs look for? For controlling costs is essential forportfolio companies. “More than ever venturee firms are scrutinizing Troy said.
“Companies have to have an understanding of how the financiakl aspects of thebusiness work. A lot of our clientas are exploring cost reduction strategies tolimit spending.” Folegy said he sees more companiess exploring ways of getting non-ventur e dollars through a combination of revenue, grants and additionalk partnerships. Andrew Merkin, a partner in the corporate practice divisionn at law firm in saidit hasn’t happened yet, but predicts venturs firms will start putting restrictions on how money is spent. “Financial controls are very he said.
“I think we might start seeing venture firms negotiating restrictions on the use of You need to understand how much cash youreallg need, what you are going to do with it, how quicklt you will go through it. You need to be able to articulatd that anddefend it. I think we will also see board control ramped upa bit, too. Those controls weren’tt there in the past, and moneh would get blown throughincredibluy fast.
” Merkin said time framees for deals are also longer, making cash burn even more And because valuations are down, entrepreneurs migh need to give up more “But the old adage ‘Better to have a smallp piece of a big pie than a big piecwe of a small pie’ still applies,” Merkinm said. “The smart entrepreneur recognizes that it is better to be part ofa well-funderd company than a poorly funded Keep the size of the managemenft team small and lean. Rely on outsid e consultants wherever possible. Experiencs also matters, Merkin said now more than ever. “Thes management team of the company is all that much more he said.
“Venture firms want to see experiences management, people who have gone through theprocess before. They don’t want to be fundinvg people who are in this for thefirst time.”