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Among the week's must-reads: how accounting firm consolidation hurts small companies, a bigger VC-funding pie, and health care's next big thing
Faded Glory: The Big Accounting Firms and Their Lust for Emerging Companies
Remember when the major accounting firms in the 1990s pushed hard to take on promising young companies, sometimes at reduced fees, in hopes the companies would go public? That approach now appears to be a thing of the past.
At PricewaterhouseCoopers, the closest approximation to an interest in smaller companies is its Middle Market and Private Companies practice area on its Web site for "medium-sized and smaller organizations around the globe." KPMG has a Private Equity practice area, but on its Web site there are no company examples or promises of early-stage support for companies with little cash.
Part of the problem is that that there are now only four major accounting firms—Ernst & Young, PricewaterhouseCoopers, KPMG, and Deloitte & Touche—where 15 years ago there were eight. Brad Feld, a veteran venture capitalist and entrepreneur, bemoans the shift, accusing the Big Four of being "arrogant, lazy, ineffective, and nonresponsive to entrepreneurial companies."
On his blog, Feld blames the shift on the accounting scandals of a few years ago, increased government regulation, and the lure of growing revenues from big public companies. He cites unhappy experiences of emerging companies he has worked with, such as the one that was charged $185,000 for the 10 hours that a Big Four firm worked to help them switch accountants. It blamed the high fee on an effort to recover discounts it had given the emerging company in previous years.
One firm that, at least for public consumption, appears interested in emerging companies is Ernst & Young; which after 20 years is still promoting its Entrepreneur of the Year competition.
Jeff Bezos: "Our Kinda Guy"
Which companies is Jeff Bezos' private-equity firm, Bezos Expeditions, backing? It's hard to say because the firm has made no announcements, and Bezos isn't talking. But now we know the name of one of his companies: 37signals, a Chicago-based online software company (www.37signals.com). Jason Fried, president and co-founder, says on the site that Bezos Expeditions "made a minority private-equity investment in 37signals."
He recounts that the two-and-a-half-year-old company has "been contacted by nearly 30 different VC firms" but has "never been interested in the typical VC deal." It has been more interested in utilizing "the wisdom of a very special entrepreneur who's been through what we're going through," says Fried. "Jeff is our kinda guy." Fried won't say how he made contact with Bezos, though it seems safe to say Bezos is hunting for investment candidates in a don't-call-me, I'll-call-you approach.
A Real Uptick in VC Funding?
Since the dot-com bust of 2001, venture-capital funding has been in the doldrums as well. Now there are signs of a change. According to a report released earlier this month by Thomson Financial and the National Venture Capital Assn., 50 venture-capital funds raised a total of $11.2 billion in the second quarter of this year, which is the most since the first quarter of 2001, and more than double the recent $5 billion-a-quarter investing rate.
The Next Big Thing in Health-Care
The U.S. health-care industry, estimated at more than $1 trillion in annual revenues, naturally makes many entrepreneurs salivate. Yet there have been more than a few mirages and hiccups on the path to opportunity including genetic engineering, nanotechnology, and computerization of medical records.
Now investor and author Andy Kessler predicts that health care will be revolutionized by digitally based early-detection techniques that will alert patients and their doctors to signs of cancer and heart disease years in advance of current methodologies. In his new book, The End of Medicine, Kessler takes readers on a sometimes-tedious personal journey through a health-care system still dependent on stethoscopes and rubber hammers.
Readers observe him being poked and prodded in his humorous assessment of existing diagnostic technology, all part of a process to prove the logic of the changes he concludes are inevitable. He visits medical research centers to explore leading-edge techniques for measuring chemical and structural changes within the body, and makes a strong case for a digital revolution in medicine's approach to diagnostics.