Friday, April 23, 2010

Silicon Dragon Meets the Future of Private Equity

The talk of midtown Manhattan this week was a heated discussion about the future of private equity, led by panelists (right to left) Leonard Harlan of Castle Harlan, Dixon Doll of DCM, Michael Pralle of Caprice Capital Partners, Xiaohu Ma of Morrison & Foerster, Ron Schramm of Columbia University and author and AVCJ chairman emeritus Dan Schwartz.
Schwartz, photographed here with guests Miki Kashiwagi and Tom Bingham of White Oak Research, John Kjorlien of Aladdin Capital and New York University's Ann Lee, challenged the panelists to concede that the golden era of private equity is over and that a new model that reflects greater focus on operational performance rather than financial engineering for the business is past due.
Harlan emphasized that the mega-funds in the private equity business are struggling with the credit crunch and that a fall-out is coming. He stressed that mid-sized firms have a brighter future and noted that Castle Harlan has bypassed the banks to finance deals and get them done. Venture capitalist Dixon Doll noted that the number of firms is being compressed as invesmtent returns have shrunk due to the plunge in portfolio companies going public.
Even so, both Harlan and Doll agreed that returns for the top half of private equity and venture firm will be in a healthy 20-30 percent range--a prediction later challenged by Schwartz. Doll made the case for a vibrant venture capital business as a job creator and growth engine of the economy. Harlan argued that the middle-market private equity firms should flourish, particularly if longer holding periods of portfolio companies can become the norm.
China was a core topic of discussions, with Morrison & Foerster partner Xiaohu Ma pointing out the importance of the Chinese government's involvement in fostering the growth of private equity and providing a legal framework for dealmaking.
Asked where the business is on the pendulum of greed and fear, Pralle responded that the era of greed ended with 2007, while adding that the highly cyclical business has encountered other downturns previously. As for real estate, the current game is finding the right acquisition opportunities now that there are motivated, over-leveraged sellers and cash or under-leveraged buyers.
The Harvard Club of NY offered a good networking venue for guests. Shown here are Howard Krongard of the China Investment Group (left) and Neil Jairath of UBS.
Below, moderator Rebecca Fannin of Silicon Dragon chats with fellow panelists Doll and Schramm.
We'd like to thank our sponsors Morrison & Foerster and DCM for their generous support. We'd also like to give thanks to the Global China Connection's David Zhu and Amy Shi for helping to make our event a successful one.
Now, it's on to Beijing, May 20, for our panel on leading edge technologies in China. The event will be held at the Silicon Valley of Beijing-Tsinghua Science Park with panelists Kai-Fu Lee, venture investors Joe Zhou, Sonny Wu, York Chen and two leading technology entrepreneurs.
For more info, see