BEN FRANKLIN FINANCIAL ENVIRONMENT DISCUSSION
STRATEGIES FOR 2009
Advice and Predictions for companies and investors in the coming year,
from some of the region's top financial minds
November 7th, 2008 Discussion Summaries
ALAN J. COHN, PRESIDENT, SAGE FINACIAL GROUP;
AND BEN FRANKLIN BOARD MEMBER:
We've learned from the past... we have the potential to keep this recession short.
There are two ways this recession could go...it could last, because of panic, or we could learn from the past and take steps to address it. The good thing that comes out of the current economic crisis is that a lot of problems were unmasked. Flimsy competitors that were bolstered by leverage have failed. Now, the economy will rebound-and innovations like the ones funded by Ben Franklin provide a wealth of opportunity. Energy, computer technology, medical research-they are all great areas for investment.
JUDITH E. ERWIN, EXECUTIVE VICE PRESIDENT & FOUNDER, SQUARE 1 BANK; AND BEN FRANKLIN BOARD MEMBER:
Don't expect much new money from venture capitalists.
Right now, venture capitalists are hunkering down and looking at their existing portfolios. They already have a stable of companies they have to maintain through 2009, and that is their focus. They're thinking: Do we have the capacity to do this on our own? Who are my syndicate partners? Banks and financial institutions are looking at access to capital.
BRENDA D. GAVIN, D.V.M., MANAGING PARTNER, QUAKER BIOVENTURES; AND BEN FRANKLIN BOARD MEMBER:
Run your company as if this is all the money you're ever going to get.
Today's economic problems are not so new to the life science world, just an exacerbation. There's still good deal flow, with money going into the sector, but the problem is that there are too few exits, and thus competition for exit. Public markets aren't an exit, but they can lead to one. The real exit is the strategic buyer. People now want later stage deals. People need to run their companies as if they currently have all the money they're going to get. If you don't raise another dollar, how will you get to the next milestone?
ROBERT E. KEITH, JR., MANAGING GENERAL PARTNER, TL VENTURES;
AND BEN FRANKLIN BOARD CHAIR:
Now's the time to play defense.
The best advice a start-up, or any company, could take right now, is to be realistic. This is not a time to try to sell your way out of financial problems. This is not the best climate for investors to be shelling out a ton of cash. So you have to figure out what's critical and what's not, especially in terms of your employees. If you think about it, it will come to you who and what you need to keep around. Also, don't hesitate to seek outside advice; it brings perspective.
CHARLES M. ROBBINS MANAGING DIRECTOR, FAIRMOUNT PARTNERS, INC.; AND BEN FRANKLIN BOARD MEMBER:
Get out of the bull-market way of thinking.
The stock market the last few months has been like going through a divorce in which you have to then keep your spouse. For the past 15-20 years we've played in a bull market, in the stock market and in the economy as a whole. It was consumer and leverage driven. The system fed on itself, and more and more money became available. But then came the mortgage crisis.
What are early stage companies to do? They need to thrive. The bull market of the past 20 years has taught us to think in terms of growth-that something is chasing you all the time, and you have to go as quickly as possible. But now, early stage companies need to figure out what they're good at, conserve capital, be thoughtful, use less cash, and not expect it to be easy. Instead of trying to get something done in two years, expect to get it done in four or five.
ANTHONY M. SANTOMERO, PH.D., (FORMER) PRESIDENT, FEDERAL RESERVE BANK OF PHILADELPHIA; AND BEN FRANKLIN BOARD MEMBER:
Welcome back to the '50s.
Hopefully, the new administration will quickly devise fresh and aggressive ways of addressing the recession. To relate it to baseball, we have to wonder: What inning are we in...the 2nd or 3rd, or the 7th or 8th? Last summer, Wall St. said we were nowhere near the end, and they were right-however, they failed to predict how it was going to get worse, i.e. the Fannie/Freddie crisis. Looking forward, we should keep in mind that there is less capital out there, and that there is a disruption in the traditional channels. This disruption comes in the form of companies merging, being bought out, buying, and changing names. The names of the players are changing, and with those changes come the creation of a new competitive environment. New names will try to reinvigorate franchises. The more traditional banking practices of the 1950s will come back.
ERIC TWEER, VICE PRESIDENT OF PROFESSIONAL BANKING, CITIZENS BANK:
It's bad...but not as bad as the media wants you to think.
As far as lending and availability of financing...yes, the outlook is downbeat. But banks still have the ability and willingness to lend-they're just becoming much more selective. They're also staying very close to their clients, keeping the lines of communication more open. At the same time, clients are more pragmatic. Deals are still going to get done, but they're getting done with tighter structures. Banks are taking more of a long-term view, just like everybody else is.
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