Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

Investment Banking Crisis Will Freeze Silicon Valley M&A Deals

Posted by Tom Foremski - March 17, 2008

Bear Stearns woes represent a large crisis within the investment banking sector and that means a massive impact on large numbers of M&A deals affecting startups and large companies in Silicon Valley.

Jon_Fisher.jpg John Fisher, a Silicon Valley entrepreneur who sold his company Bharosa to Oracle last year, says the chilling effect from the fallout from the investment banking sector will severely impact many startups.

"The investment banks broker huge numbers of M&A deals. This crisis means that over the next few quarters there will be many companies caught in the middle, unable to complete M&A deals," says John Fisher.

Acquisitions take between 3 months to a year to complete. Startups caught in the middle of the investment bank crisis will be highly vulnerable because they would then need to scramble to raise capital.

"You'll find many startups that won't be able to raise capital and they'll go out of business. It could be as bad as the dotcom crash for a while," Mr Fisher warns.

He estimates that as many as 1,000 M&A deals of all types of companies, not just in the tech sector, will be affected over the next two quarters.

Foremski's Take:

Such a scenario will hurt the VC funds because exit opportunities will be dramatically reduced for much of this year. The IPO market has been constrained for several years and M&A has taken over as the best way to recover and profit from startup investments.

VC firms will have to scramble to raise capital for their portfolio companies to keep them going and this could lead to less favorable terms for founders and other investors.

This could be a good time to fire up a roll up strategy to acquire startups caught up in the investment banking squeeze at fire sale prices.

More predictions of gloom at Jon Fisher Blog

More Info:

Jon B. Fisher served as Bharosa, Inc’s CEO until its successful acquisition by Oracle Corporation in July, 2007. Jon was named Ernst & Young's 2007 Entrepreneur Of The Year in Northern California and served as CEO of three software companies in the last 15 years.

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