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The NVCA Four Pillar Plan

The National Venture Capital Association yesterday unveiled a four point plan to resuscitate the dead IPO market currently vexing the VC community. The plan calls for greater cooperation among ecosystem partners, enhanced liquidity paths, tax incentives, and regulatory changes. While all of NVCA's proposals are compelling and needed, we are particularly interested in Pillar One and Pillar Two.

Pillar one calls for a reexamination of "ecosystem partners" - those institutions which currently make up the foundation of the IPO process - entrepreneurs, VCs, investment banks, buy siders, exchanges, law firms and accounting firms. NVCA recommends that boutiques step in to fill serve "No Man's Land" of IPO candidates raising up to $75 million and having a post-IPO valuation of up to $400 million. Other recommendations include greater cooperation between the bulge bracket and boutiques through joint book running and fee sharing, an emphasis on cultivating buy side interest in venture IPOS, and lower-cost accounting services for pre-IPO firms.

Pillar two calls for a reengineering of the liquidity process, with emphasis on alternative private equity platforms, innovative boutique advisors specializing in emerging technology, greater reliance on global funding sources and international stock exchanges, and VC-originated M&A which would roll up smaller portfolio companies.

We have blogged here before regarding such proposals, particularly with respect to the rise of boutique banking and alternative liquidity mechanisms. While the NVCA report cites wholesale institutions such as SecondMarket and InsideVenture as primary examples of "enhanced liquidity mechanisms," we continue to be bullish on such Web start-ups such as TradeVibes and Valuecruncher. We believe that social technology has the capability to transform the retail marketplace, to provide crowd-sourced price discovery, deeper liquidity, and access to a broad investor base.

We continue to be bullish on boutique investment banks. Companies such as Greenhill (GHL), Evercore (EVR), and Keefe Bruyette Woods (KBW) boast strong balance sheets, strong management, and solid core business strategy. We also expect a wave of consolidation in this space as firms seek to carve out or bolster current competitive positions. We see Thomas Weisel Partners (TWPG), JMP Group (JMP), and FBR Capital Markets (FBCM) as potential targets.


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