Venture capital fundraising at 8-year low

Wealthy investors and institutions withheld their money from venture capital funds in the third quarter, according to two separate reports.
If this trend continues, the fund-raising model for young, high-growth firms could move away from professional venture capitalists and that could impact the economy. The Kauffman Foundation says companies less than five years old create most of the new jobs.

One report found 52 U.S. funds raised $1.72 billion in the three-month period, down 52% from the same period a year earlier, according to Thomson Reuters and the National Venture Capital Association.

It was the lowest fund-raising quarter for venture capital since 2003, the National Venture Capital Association said.

The other report, from Dow Jones LP Report, said 32 U.S. funds raised $2.2 billion, down 24%. (The two reports use different sources and methodology.)
Dow Jones said that U.S. private equity funds raised less in the third quarter, although they may end the year raising more than they did in 2010. [More...]
"Private equity fundraising appeared to be on a steady flight back to the land of recovery during the first half of 2011," said Laura Kreutzer, managing editor of Dow Jones Private Equity Analyst. "But recent public market volatility, concerns about Europe and a heightened sense of economic uncertainty created some turbulence in the third quarter."

Mark Heesen, president of the National Venture Capital Association, attributed the downturn to the difficulty venture-backed companies had going public in the first quarter.
"The quarter's low fundraising numbers are reflective of ongoing challenges within the venture capital exit markets... which, in turn, has prevented many venture firms from delivering solid returns to their investors," Heesen said. "Until we begin to see a steady and sustainable flow of quality IPOs which return cash, limited partners will remain on the sidelines, and the venture industry will continue to contract."

In a separate report the association and Thomson Reuters said initial public offerings by venture-backed companies hit the lowest level in almost two years: 5 companies went public down 77% from the second quarter. They raised $443 million compared to $5.5 billion in the second quarter.

Scott Austin, editor of Dow Jones VentureWire, said, "As limited partners continue to show a strong preference for investing with only the most prominent firms, the number of funds and the amount of capital committed have shrunk. If this trend continues, entrepreneurs will face greater competition for capital and other investors, such as angels and corporations, may find opportunities to invest in deals that, traditionally, would have been done by venture firms."

Why Your Company Needs A Quest

Forwarded by Growthink advisory board member Jim Hartley.  There is a lot in here to digest and this is a SERIOUS commitment for those who are serious about building a great company - my favorite line from it:

A thinking culture of passionate leaders who love their job attracts others who share those values. The respect of a loyal community shows in everything it does. The values become both brand and barrier to entry.

Community builds authority. We value what we earn and what we love. That value telegraphs itself. It’s contagious. Customers, vendors and partners pick it up as well. Nothing beats the 360 degree investment of brains, money and dreams all in the same direction. Every company that wants to grow should have some of that. The value of a thinking, job-loving employee community shouts ROI and makes solid business sense.

Engage Employees Using Customer Service Tactics

Fascinating and insightful post from the HBR blog re: employee engagement and company performance.

Engage Employees Using Customer Service Tactics
by Rob Markey
HBR Blog

Most companies claim they want enthusiastic, engaged employees - and with good reason. Employee engagement and financial performance are connected. A recent study by Aon Hewitt, for example, found that companies with high levels of engagement outperformed the stock market in 2010.

And yet Gallup research indicates that more than 70 percent of employees in the typical company are "not engaged" or "actively disengaged."

What's the reason for this failure? In my view, it boils down to a startling disconnect between how companies try to promote engagement and what truly inspires and motivates employees.

At most companies, the human resources department "owns" and measures engagement. It issues a lengthy annual survey, asking employees a withering barrage of questions - everything from your overall satisfaction to the adequacy of prescription benefits to whether you have a "best friend" at work. The resulting report, issued after lengthy analysis, leads to an improved benefits program, "supervisor coaching," or other initiatives run by staff at the center.

This approach is just like the way most companies used to deal with customers. Marketing or customer service departments owned customer satisfaction, relied on traditional staff-directed tools (such as training programs) to improve it, and gauged their success through old-style satisfaction surveys.

In recent years, however, leading companies such as Zappos and Apple have led a revolution in creating great customer experiences:

* They make wowing customers a priority for every frontline employee, not just a central team at headquarters.

* Instead of infrequent satisfaction studies, they ask their customers for feedback all the time.

These companies typically give their customers short, quick surveys. They promptly distribute the scores and verbatim responses to frontline reps and supervisors, who follow up right away with unhappy customers, fixing the problems wherever possible. And these companies build closed-loop learning into their daily operations so that they're constantly improving.

These efforts earn these companies deep, long-lasting customer loyalty. Their customers not only spend more, stay longer, and recommend the company to their friends, but they also contribute ideas for improvement because they believe the company values their feedback.

So, suppose you applied that same methodology to building employee engagement. What would you do differently?

For one thing, you'd conduct short surveys that respect your employees' time and ask only the few questions that yield the most important insights. You would do this often enough to generate a steady stream of information about engagement levels and ideas for improvement. JetBlue, whose employees I wrote about in my last post, sends a survey ninety days after an employee's start date and every year thereafter. Apple surveys its employees every few months.

And instead of delegating the effort to HR, you'd make employee engagement a top priority for frontline managers and employees themselves, with built-in procedures for closed-loop learning.

In fact, you'd take away the crutch of thinking that "someone else" is taking care of it, placing responsibility squarely and undeniably on the shoulders of frontline managers. That's how it's done at Apple stores. After each survey wave, store managers review the data for their store. Employee
focus groups identify key themes and issues, and employee teams help develop solutions, which they present to store management. There is no waiting for analysis and recommendations from some central team. By the time the next survey comes around in a few months, managers and store employees know whether their solutions have had the desired effect.

It shouldn't be surprising that the same basic techniques for earning customer loyalty also work with employees. At their core, both efforts depend on treating people with dignity and respect. Both require real-time learning. Both address the relationship in a human way, not just as a transaction or piece of data.

And, as it happens, they reinforce each other. Employees learn how to wow customers and feel great when they do. Customers love the experience. It's a virtuous cycle - something we call the Promoter Flywheel - and it leads to great financial performance.

Conventional approaches to employee engagement tend to focus on overall workplace improvements and benefits because those things can be directed by staff from the center. They're the "easy" things to do. Obviously, they're important: A safe and pleasant work environment, fair compensation, and the tools needed to do the job are table stakes for employee satisfaction.

But what you really want isn't just satisfied employees, it's passionate employees - people who love working for your company, love your products and services, and love wowing customers. You build that kind of advocacy by creating a real commitment to enriching your customers' lives, giving employees the tools and freedom to delight customers, and helping them see and hear the effects of their actions.