How Do You Find the Good Tech Companies?

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Sept. 11 (Bloomberg) -- Menlo Ventures Managing Director Mark Siegel discusses venture capital for tech companies with Cory Johnson at TechCrunch's Disrupt San Francisco 2013 event. They speak on Bloomberg Television' "Bloomberg West." (Source: Bloomberg)

When your colleagues or your, how do you find the good companies?

We're looking for companies that are addressing a really big argan and have the ability to be billion-dollar companies.

I think that is what it takes in today's market to go public.

Those are the huge opportunities that really makes returns for venture capital.

I see a lot of ipo's 150 million dollar, two hundred million dollar ipos, some of the biggest companies in all technology came out with offering of less than $500 million.

If you go back historically, offering below $50 million.

Very big companies third way cigarette intel, i'm a result, very small ipo's. -- companies.

When you think of intel, microsoft.

We will air later from facebook, yahoo!, chinese startups not too long ago.

Are there countries that could lead to that, and do you really think we can find?

I'm sure there are.

One of the great things is the markets are open right now.

One of the biggest differences in the ipo market is the change in the way that stocks are traded.

Going from fractions to decimals.

Not get to geeked out, but i wonder when we went from the gap between the bid in the ask was in eighth, a quarter, we have gone to pennies.

You see that as a problem that is hurting companies, why?

It is a huge structural problem.

When stocks traded a penny, you think of a very small cap sto ck, there is not enough profit for investment bank to be a market maker in that stock.

Ranging for the trading -- to match the buyers and sellers.

There are still markets made in every small cap out there.

That is true, but the bank cannot afford to hire a research analyst.

It just is not lead to the kind of -- there is no profitable trading in a stock that trades 10,000, 100,000 trades a day.

The number of ipo's that raised 50 million or less has dropped by over 80% in the last 10 years.

Over 80%. many ipo's. we went from 500 ipo's a year before 2001 today about 100 a year.

From my perspective, the research that was being done back then, a lot of it, particularly for some of the smaller companies, even montgomery securities, all these banks that are gone, some of the research was crummy and it was promotional and it was not actually giving insight to investors, it was just promoting stocks.

Do we really want to go back to that era?

We have had an irrational exuberance back in 2000, and i think there needs to be quality research.

There has been a separation of the research and the trading, so i think that that is to be controlled.

Fundamentally, if you have less companies going public, you have less investment, fewer jobs treated -- is that true?

The exit is not to be selling to the public, it could be selling to cisco, intel, facebook, all of those countries have been very active acquirers.

That his record there are two ways that venture capitalists and employees make money and that is your company goes public or get sold to a public company, but when you take away one of those exit opportunities, it is fine when you have a robust m&a environment, but that was awaited of interest rates go up or we going to an economic slump, now there is a bunch of company that have no exit.

Do you think that debt consolidation could actually be undone?

I think we will see a pilot program very soon.

There was a bill introduced to allow tech marks to go up to as much as $.10. any jobs act, allows for the sec to do programs to study it and stocks to trade in increments of up to $.10. i think there is a good chance we will see it reverse.

A bill to help investment bankers make more money, i do not know if i like the odds of that.

Mark siegel, menlo ventures, really interesting stuff, thank you very much.

The ipo could mean a lot to companies here.

This text has been automatically generated. It may not be 100% accurate.


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