Fabled Technology banker Frank Quattrone, reinvigorated after his return to the capital markets in March, didn't take long to dash the hopes of scores of entrepreneurs attending Tony Perkins' AlwaysOn "Summit at Stanford" conference here.
Quattrone, as much as anyone perhaps the financial architect of Silicon Valleys Internet boom of the late 1990s, was cleared of federal obstruction-of-justice charges two years ago and subsequently the Securities and Exchange Commission lifted an NASD decision which had barred him from the banking business.
No sooner had Quattrone reopened shop in mid-March, as head of Qatalyst Group, than he became engaged with Google Inc. to advice on the Microsoft Corp. bid for Yahoo Inc.
However when Quattrone invited a panel of startup heads he was moderating on the stage of AlwaysOn here to ask him questions on the state of the current technology market, he essentially threw cold water on the chances of any quick payoff prospects for most of today's startups.
Although there might be some "Rollup models of subscale companies," to enable them to reach critical mass, he said, without this strategy the vast majority of companies simply should not expect to become eligible for public stock offerings, for example.
For the next two to three years at least, he said, maybe no more than 5% of venture portfolio companies could be expected to reach a trajectory where they could be considered for the public markets - and in some cases many of them might be advised to expand as much as possible privately.
So, even for these fortunate companies, the best may be advised to seek private financing during their effort to accelerate their market position. In other words, acquisition or leveraged buyout roll-ups are much more likely prospects for today's startups.
Quattrone reminded his audience at Stanford's Arrillaga Alumni Center of the cascading hierarchy model for IPO (initial public offering) eligibility for the public market - especially growing the top line by at least 25%, with 50% and higher all the more favorable for public market investors.
A major factor to the shrinkage of the IPO market was the fact analyst coverage has diminished dramatically, and current sell-side firm analysts simply don't have the bandwidth, nor can expect the financial payback necessary, to cover smaller companies in the current markets. This was not helped, he added, by the avid prosecution of two equity analysts by former NY Attorney General Eliot Spitzer.
While awaiting regulatory approval, Qatalyst is operating as a divisin of JMP Securities.
Through a succession of banking operations at Credit Suisse, Morgan Stanley, and Deutsche Bank, Quattrone underwrote some of the technology sector's most successful IPOs, including those of Amazon.com, Cisco Systems Inc., and Netscape Communications. The latter lit the spark that led to the Internet IPO boom.
A subsequent federal investigation caught up Quattrone in four years of legal wrangling across two trials involved allegations of obstructing a probe into allocation of shares in hot IPO stocks.
Quattrone speaks exuberantly with investor David Kunan following his panel at AlwaysOn's Summit @ Stanford. "Like a kid in a candy shop," Quattrone tells Conferenza, of his return to the industry.