VU Profs argue Private Equity more vigilant in new financial world

Over the weekend, two Vanderbilt University professors updated their report, "Does Private Equity Create Wealth?" The study from Owen GSM Prof. Ron Masulis and VU Law School Prof. Randall Thomas reveals that boards of directors and management teams in companies owned by private-equity funds have advantages over public companies when it comes to monitoring financial risk and performance. Say the authors, PE execs "can do a better job of monitoring of derivative transactions and derivative contract positions than their public company counterparts..." They explained at another point in the 56-page report, "Unlike public companies, boardroom activity in [leveraged buyout] firms is less concerned about regulatory compliance, committee work, and process... There is better information available to top management and board level because of initial extensive due diligence and because of the more intense operational focus... Moreover, there is a different social dynamic on the board, so that anything can be discussed and all assumptions are subject to reconsideration...." The paper offers an interesting discussion of management incentives to create shareowner value. Masulis' research is focused on M&A activity and corporate governance. The 56-page Masulis-Thomas report is here (pdf).

Venture Notes

As posted here in Venture Notes (March 27), Tim Estes' tough-love presentation to the NTC's Innovation Conference March 25 may have raised some eyebrows, but, based on e-mail I've received, Estes is not alone in his thinking. Bruce Lynskey of the VU Owen GSM said, "I completely agree." Lynskey (above) told us he has advised the Chamber's Entrepreneur Project that Nashville has, in his estimation, zero seed-stage VC firms. So, local startups are "most likely to depart and relocate to the source of that seed funding." Lynskey said there's been some discussion in the Entrepreneur task force about "the value of developing a network of non-Nashville seed-stage funding sources." Lynskey acknowledged that tactic comes with some risk the companies will move away toward the source of the funding -- "Well, that is what is happening anyway!" he insisted. Echoing Estes' comments, Lynskey said that in addition to seed-stage cash, itself, "you also need the folks handling the money who are comfortable making seed-stage investments with that money. Nashville does not have this. It's a culture thing." He also said Nashville's lifestyle strengths cannot offset the area's short supply of "highly skilled engineers and scientists...the folks who come up with the original concepts." Nashville, he concluded, is woefully short on capital, workforce and key support firms professionals who understand the startup's "space and market."