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Access to Private Capital
According to the Houston Chronicle (March 21, 2010 pg D4), venture investments in small companies fell 22% in 2009 to $167 million. The source of this figure is Dow Jones Venture Source. Investments were made in the range of $250,000 to $3 million.
In contrast to this category of venture investments, much larger investments are made by private equity firms that are investing in the middle-market operations valued between $100 million and $500 million. Other sources are investment bankers, merchant banks, wealth management firms and high net worth accredited investors.
Recently, the Sterling Group LP demonstrated evidence that the private equity market in Houston is back in business and expanding. Ten months ago the Sterling Group LP launched a Limited Partnership (LP) to raise $600 million. The LP was closed on March 16, 2010 after it had raised $820 million, exceeding expectations by $220 million (Houston Business Journal, April 2-8, 2010 pg 1 & 45 A).
Kevin Garland, a partner at Sterling, related the investment principles that the time to invest in companies that are underperforming is after a recession. He said: “The opportunities to improve businesses are at an all time high” (pg 1).
The sources of capital to invest in underperforming banks that are in need of capital may be small private equity Limited Partnerships (LP) that invest in minority positions of several small banks. A Limited Partership that is not a diversified financial service company (i.e. holding company) can only own 9% of a bank.
There are other opportunities for a private equity LP’s in Texas and especially in Houston which lags behind Austin and Dallas generally in investing and specifically startups. For instance, a LP could invest in companies focused on the web-based Internet entrepreneurs.
According to a series of articles in the Internet Retailer Magazine, this industry is growing at double digits even during the great recession.