NET SENSE
SANTA MONICA, Calif. (MarketWatch) -- At the Montgomery & Co. investment banking conference here this week the obvious sentiment was life is good: money is flowing, bankers are courting, private company CEOs are presenting to an audience wearing rose-colored glasses.
These are the same conditions that were prevalent during the good old days of the mid to late 90s, when a whole boatload of private companies teed up and eventually tapped the public markets.
But times are very different. A lingering memory of the painful and wrenching downturn six years ago is forcing even the most hopeful to adhere to some financial discipline. The IPO market isn't as attractive as it once was, mainly because of the strict and costly rules around corporate governance. Public companies are scrutinized and executives are eviscerated with regularity. The environment for public companies has become so unattractive one might mistake the U.S. for being "Communist," quipped Bob Grady of Carlyle Ventures Partners.
Don't let that seemingly negative comment fool you, though.
Grady, Tim Draper of Draper Fisher Jurvetson, Bob Davis of Highland Capital Partners and Jerry Murdock of Insight Venture Partners were on a panel of high-profile venture capitalists offering their views on the private capital outlook for this year.
Undoubtedly, it was a panel full of optimists. Capital tension in the U.S. markets or not, there is always the exit-strategy option of going public on an international exchange as well as the opportunity to exit through an acquisition.
Big companies are willing and eager to make purchases these days, as they buy research and development rather than spend for it in-house. Big companies have reduced their R&D budgets to a few percentage points of their revenue, according to Draper.
And, if government regulators were to change some tax laws -- such as the Venture Capital Tax Credit, which has come under some scrutiny -- to make venture investing less attractive, well, VCs would just get around it, quipped Draper. The bottom line: There would be liquidity and venture capitalists will continue doing what they do to support their troops' mission: spend money.
The moderator of the discussion was Jamie Montgomery, the CEO of the eponymous bank, who is a self-proclaimed optimist himself. His questions, the answers, the tone, Montgomery's subtle hint to the powerful men to keep his investment bank in mind for any banking assistance their companies may need, resulted in a discussion that was by and large positive. No one would walk away thinking that times weren't good and cash would be drying up anytime soon.
That said, one might think that Silicon Valley Kool-Aid was flowing again and making its way down to LA after Draper -- with tie wrapped around his head and suit jacket on backwards -- gave his best performance as a rap artist.
But the overall sentiment at the conference seemed to be this: Being acquired probably is more realistic than pulling off an IPO. Perhaps that was apparent to me because of the buyers in the house I bumped into on several occasions.
IAC's (IACI) Jason Rapp, senior vice president of mergers and acquisitions, was roaming around looking for deals. Rapp was the person who led the recent purchase of local review site InsiderPages by CitySearch, a unit of IAC. InsiderPages was reportedly sold for some $13 million, though Rapp wouldn't confirm that.
Also at the conference was WPP senior vice president Lance Maerov, who seemed very keenly interested in Break.com, a video site targeting men. WPP is a major advertising company.
For the buyers, the companies present at the conference were all very good.
The youngest was a company called M:Metrics, which is one of the few companies measuring behavior on mobile phones. M:Metrics is 30 months old. Its rivals would be Telefia as well as Nielsen//NetRatings and comScore, which today measure online behavior on the Web, but in the future will have to expand into the mobile market.
But many of the companies have been around for years.
Seven-year-old Quigo is growing sales by 100% annually and is expected to be profitable this year. It's wooing and winning a lot of publisher clients to its advertising platform, which could be a scare to even Google (GOOG) the largest ad agency on the Web. It's unclear whether Quigo can get big enough for an IPO, but its CEO Mike Yavonditte is inclined to believe this company will survive long enough to achieve that exit.
Daily Candy, an online media company targeting women, is seven years old as well. It started out by sending out some seven email newsletters a week. These days it appears to be a cash-generating machine. Last year, it generated $16 million in sales and sported 60% margins. Daily Candy targets women with email newsletters that promise readers "the ultimate insider's guide to what's hot, new, and undiscovered." According to the company, it can garner $280 for each 1,000 impressions for its newsletter products.
Three-year-old Break.com, which targets males between 15 and 35 years old, generates 550 million pageviews per month, with each unique visitor viewing nearly 50 pages each month. Break.com has no venture funding, but is certainly an interesting asset for anyone seeking to tap this demographic. Less than 4% of the 400 million streamed videos a month are considered "adult" in nature.
Other companies that would likely be interesting targets include SinglePoint, a sort of middleware company for mobile content. SinglePoint's competitors have been snapped up in the last year, such as m-Cube, which was bought by VeriSign for $250 million.
L.A.-based RazorGator, whose VC backers include Kleiner Perkins, is a company that competes with StubHub, which was acquired by eBay for $310 million earlier this year. RazorGator sells tickets to events, such as the SuperBowl, online.
Fandango was another online ticketing company that presented at the conference. What is interesting about this company is that its ability to sell tickets to movies can be -- down the road -- a forecasting tool for studios to predict whether a new movie release will be popular or not. BurnLounge was one of the new companies I had not heard of, and of interest, if only because it was the only company that seemed to be obviously going after dominant social network MySpace.
This company is trying to go after News Corp's (NWS) MySpace, with a platform on which consumers can create a "Burn" space rather than a "My" space. The difference is that on BurnLounge, a consumer can create a store and sell goods. The company is expected to generate $42 million in sales this year. This is a good idea. Unfortunately for BurnLounge, MySpace is moving in this direction and plans to work with Swapedo to help turn its 150-plus million members into merchants if they choose.
There were so many companies presenting that it's hard to mention them all. But the Montgomery team seemed to vet them pretty well. For anyone interested in buying a future revenue stream, this was a pretty good place to find it.
Funniest observation
Probably one of the most laughable moments and ridiculous but ridiculously true statements made at the conference came from Draper, who suggested that the proliferation of video online is changing behavior in ways we won't even be able to imagine.
For instance, children may not even have to learn how to read to know what's going on in the world around them. They merely just have to turn on Google's YouTube, or the many other video-sharing sites, point and say: "Look!" quipped Draper.
Draper's comments certainly held some truth. Video is exploding all over the world. Mobile television company MobiTV has 2 million subscribers. MobiTV CEO Phillip Alveda said that 85% of new phone subscribers in the U.S. have phones with video-viewing capabilities. Paul Zuber, CEO of Dilithium Networks, a wireless media company, said that he expects the number of minutes video will be consumed on a mobile phones this year is 13 billion, up from 1 billion last year. 
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