Companies that present typically having already secured initial funding of $500,000 to $1,500,000 from founders, friends, family, and individual angels and are now seeking A or B financing rounds.

The annual Angel Capital Expo is one of the largest events in the angel capital community and brings together 300+ accredited investors and entrepreneurs looking for funding.

The Keiretsu Forum is the largest North American angel investment network and one of the most active.

The Angel Capital Expo will be held in the Julia Morgan Ballroom in San Francisco starting at 7:30 AM on May 24, 2012.  Please contact Sonja Markova to register – 415.573.0751.

Entrepreneurs representing the following companies will make brief oral presentations to registrants.  The companies were selected by representatives from MBV Law and Moss Adams, founders of the Food & Beverage Investor Fair, and include:

Bison Organic Beers

Caveman Foods

Droga Confections

giddy

Ocho Candy

R&B Cellars

Refine Beverages

Smari Organics

sushirrito

TastingRoom.com

The presenting companies encompass a broad range of products and services from the food & beverage industry and include a craft brewery, confectioners, naturally fermented soda, organic yogurt, snack foods, sugar free cocktail mixes, take-out sushi restaurant, specialty wine merchant and a premium winery.

An additional 23 companies will present investment opportunities from their exhibitor tables:- Back to the Roots, Clearly Kombucha, culinarytwist, Cultivate, Daily Colors Nutrition, DeliciousNutritious, DerrickSky, Ecotensil, Ehrenberg Cellars, fava, Galante Vineyards, Local Orbit, Mamma Chia, MateVeza, Munchery, Of Course I Can, Rebuilding Alliance, Saafara Tea, Sensual Olive, Sista Sandwich, Slow Girl Foods, Souvla, and Spencer Magazine.

Accredited investors interested in attending the 2012 Food & Beverage Investor Fair please contact Cynthia Maxey at 415.781.4400 to register.

Moderator:  Mark French, Principal – Greyrock Capital Group

Panelists:

Andrew Branagh* – CEO – Gelato Classico

Brad Barnhorn* – Director for 7 “growth stage” food & beverage companies

Peter Pliska, Senior Vice President – New Resource Bank

Bill Shen, Vice President – Encore Consumer Capital Group

The Forum will commence promptly at 4:00 PM and will last for an hour including audience Q&A. Immediately afterwards will be presentations by food & beverage entrepreneurs seeking to raise investment capital to support the growth of their company.

The 2012 Food & Beverage Investor Fair, which has been organized by MBV Law LLP, Moss Adams LLP, Philip D. Chernin & Company, Green Tree Capital and Greyrock Capital Group, will be held at the Hotel Nikko in San Francisco from 3:30 PM to 7:00 PM.

The event’s goal is to introduce promising young food and beverage companies that have gained some traction in the marketplace to angel and institutional investors.

Accredited investors interested in attending the 2012 Food & Beverage Investor Fair please contact Cynthia Maxey at 415.781.4400 to register.

The event’s goal is to introduce promising young food and beverage companies that have gained some traction in the marketplace to angel and institutional investors.  It is a unique opportunity to informally meet some of the most interesting producers of food and beverage products inNorthern California, sample their products and listen to brief presentations from eight companies.

Despite significant headwinds, Bank of Marin and California Bank of Commerce have thrived during the last several years.  The CEOs shared with a record audience how they managed to steadily grow net income, deposits and loan portfolios by sticking to the basics of banking – taking deposits and lending to middle market companies.

Given the crisis of confidence that gripped financial markets since their collapse in 2008, the performance of the two banks has been nothing short of remarkable.

Russell A. Colombo is CEO, President & Director of Bank of Marin Bancorp, and has been since 2006.  He joined the bank in 2004 as Executive Vice President.  On January 20^th, the bank reported record net income for the year ended December 31, 2011.

Data from Charles Schwab as of January 31, 2012 showed Bank of Marin providing shareholders a five year total return of 14.0%. It outperformed its peer group as well as Silicon Valley Bank, Wells Fargo, US Bancorp, JP Morgan and Bank of America, all of which provided negative returns for the period.

On March 31, 2009, less than four months after receiving TARP money, the bank was one of the first four banks to repay the funds it had received in December 2008.

John E. Rossell is CEO, President & Director of California Bank of Commerce, and has held these roles since founding the bank in July 2007 fourteen months before the Lehman Brothers bankruptcy.  John was the founding CEO, President  & Director of two other Bay Area banks.

On January 24^th, the bank reported record levels of loans, deposits, assets as well as record net income for the quarter and the year ended December 31, 2011.  The bank serves closely held companies with $5 million to $50 million of annual revenues.

As Mark Calvey from the San Francisco Business Times noted in his 1/31/12 article, “both California Bank of Commerce (OTC BB: CABC.OB) and Bank of Marin (NASDAQ: BMRC) receive Bauer Financial’s highest rating of five stars.”

In closing, I have to paraphrase from one of Mark Calvey‘s observations “the conversation proved to be anything but boring.”

In 1980, the S&L industry was deregulated which then allowed them to make a wide range of consumer loans as well as commercial real estate loans similar to commercial banks.  S&L’s, which for the most part had been state chartered, could now obtain a federal charter accompanied by less stringent regulations.  Thrifts raced to become federally chartered and obtain the advantages including deposit insurance through the Federal Savings and Loan Insurance Corporation (FSLIC).

With regulations loosened, the S&L’s soon began to engage in increasingly risky activities.  Many S&Ls lent far more money than was prudent to ventures they were not qualified to assess, especially commercial real estate according to William Seidman, former chairman of the Federal Deposit Insurance Corporation (FDIC) and later the Resolution Trust Corporation (RTC).

Risky lending practices along with widespread corruption ultimately led to the insolvency of the FSLIC.  From 1986 through 1995, the number S&Ls declined by almost 50% from 3,234 to 1,645 including 747 insolvent S&Ls liquidated by the Resolution Trust Corporation.

The Glass–Steagall Act of 1933 instituted banking reforms that were designed to control speculation.  It was a reaction to the collapse of a large portion of the commercial banking system in 1933 and separated risky investment banking activities from traditional commercial banking activities.

At the height of the S&L crisis only the US economy was in a recession as opposed to the global recession precipitated by the 2008 financial crisis.  The total loss from the S&L crisis to the FSLIC and RTC was estimated to be about $152.9 billion according to an FDIC report.  Losses from the 2008 financial crisis have been estimated to be around $3.5 trillion spread across the globe over 20 times as great.

Many believe the 1999 repeal of the Glass–Steagall Act’s provisions helped precipitate the 2008 financial crisis.  Commercial banks could now acquire investment banks giving the latter access to former’s deposits.  Consumers, corporations and governments were able to leverage up their assets even more.  What flavor CDO, CLO, CMO do you want today?  It fostered a debt super-cycle that created a mountain of debt.  When the housing market collapsed it burst the credit bubble and exaggerated the severity of the financial crisis.

It is no wonder then that two of the most prominent investment management firms, Bridgewater Associates* and Pimco**, have such a gloomy outlook for the domestic economy as well as much of the global economy.  Their assessment is that it will take some 10 to 20 years to work through the mountain of debt that has been accumulated globally.

Until the debt burden has been worked down to a manageable level economic growth will continue to be anemic.  Clearly, the Federal Reserve Board’s view is that the economic recovery remains extremely fragile and will remain so for an extended period.  This afternoon it announced that it was unlikely to raise interest rates before the end of 2014.  Previously, its position had been that it was unlikely to raise interest rates until mid-2013.

That said, all bets are off if a solution is not quickly found to resolve Europe’s sovereign debt crisis.  A default by one or more of the Eurozone’s members or other untoward action would quite likely precipitate a global recession.

 ~~~~~~

 * – Bridgewater Associates is the world’s largest hedge fund manager with $120 billion of assets under management.  It was ranked as the best performing hedge fund manager in the world in 2010 and 2011.

** – Pacific Investment Management Company, or Pimco as it is more commonly known, is one of the largest investment management firms in the US with over $1.35 trillion of assets under management.

However, as bleak as the outlook may be, there is cause for optimism.  Entrepreneurship is alive and well throughout the world and ultimately it will lead us out of this darkness by creating new companies that will create jobs.  Perhaps if it were not for the headwinds cited above it might even be flourishing.

The past two weeks have been exhilarating being surrounded by so many bright and enthusiastic entrepreneurs with an intense desire to succeed.  First it was the 7^th Annual Intel Global Challenge at UC Berkeley.  It is a global business plan competition that encourages student entrepreneurs and rewards innovative ideas that have the potential to have a positive impact on society.  Teams competed from 60 countries and were whittled down to 30 teams from 20 countries that were brought to campus.  Over a period of several days 24Silicon Valley venture capitalists and industry executives culled the group down to the 8 finalists.

The Intel Foundation awarded $100,000 in cash prizes: first place and $50,000 went to Forward (Gaitu) which is an integrated, web based platform that enables consumers to add special effects to photos without expensive and hard to use photo-editing software.

Second place and $20,000 went to Maxygen-mobile DNA of Russia which invented a low-cost, portable DNA test solution used at the point of care to quickly identify thousands of infectious diseases.

Third place and $10,000 went to NanoDiagX of Egypt, which used gold nanoparticles to develop a virus test that can detect Hepatitis C in less than an hour at one-tenth the cost of current commercial tests.  Four other teams won special science awards of $5,000 each.

It was a remarkable evening and the keynote presentation by Dr. Genevieve Bell from Intel was absolutely fascinating.  Dr. Bell is an Intel Fellow and Director of User Interaction and Experience in Intel Labs.  I cannot remember the last time I was so riveted by a keynote speaker’s presentation.  Her compelling presentation on where technology is headed in the future is well worth watching and can be seen by clicking on this link.  The presentations of the 8 finalists follow Dr. Bell.

A week later it was the Keiretsu Forum’s annual Angel Capital Expo with some 350 angel investors, institutional investors and entrepreneurs participating.

The Keiretsu Forum is one of the largest angel investor networks inNorth America. Since its founding in 2000, members have invested over $260 million in companies in technology, consumer products, healthcare/life sciences, real estate and other industries with high growth potential. Northern Californiamembers are among the most active having funded 20 companies in 2011 and 16 in 2010.

The twelve companies that made presentations were:

Medicore Global develops advanced technology for reducing skin infections through a unique textile fiber application.

Cartelligent helps clients purchase a car, including best price negotiation, trade-in service, financing and lease analysis, and delivery of the new vehicle at any one of its locations

PaperCutz is a publisher of mass market graphic novels (comics in paperbacks) to the tween/teen audience.  The graphic novel market is the quickest growing in book publishing.

iCapEquity provides real estate owners and developers with the necessary equity capital to secure construction loans from traditional lenders.

Belveron Real Estate Partners is a secondary real estate partnership focused on creating early liquidity for institutional and individual real estate investments.

Les Concierges is a provider of global concierge services and solutions. Concierges are supported by a state-of-the-art proprietary Global Concierge Technology system.

Bucha produces Kombucha, a natural, low calorie, fermented tea with a history as a health elixir.

HydroVolts designs, builds and sells portable micro-hydropower turbines powered by water currents for distributed renewable energy generation.

Zamzee is a fun, engaging and scientifically proven movement-based incentive program to get young people and families moving more.

AMHC Inc. is a holding company that acquired two cutting edge technology firms with a strong revenue history as well as a portfolio of technology patents.

Clearly there is a bright future ahead.  It is evident that the entrepreneurial spirit with its creativity and passion is alive throughout the world.  There is little doubt in my mind that many of the presentations of the past two weeks would meet the “holy grail” test of a venture capitalist friend -it presents an elegant solution to solve a complex problem.

The August downgrade of U.S.debt by Standard & Poor’s, after the debacle over raising the nation’s debt ceiling, set the stage for a crisis of confidence in the financial markets.  With no clear resolution in sight to the Eurozone’s sovereign debt crisis there was grave concern regarding the viability of its banks – the ingredients for the perfect storm.

Financial markets internationally tumbled dramatically, volatility increased markedly and consumer confidence waned.  The Dow Jones Industrial Average fell or rose by some 400 points four days in a row.  The IPO window slammed shut.  Despite a pipeline of some 200 companies that had filed with the SEC not a single company went public in September.

The Eurozone is composed of 27 sovereign countries, each with its own separate banking system.  Despite a common currency there is no common treasury; therein lies part of the problem.  When the European Union was formed there was no political will to create such an institution.  In July, Eurozone leaders agreed to expand the powers of the EFSF in order to stabilize the Euro.  Yet it was only last week that the change was approved by all 27 nations, a cumbersome and inefficient process that does not build confidence.

The European banking system differs markedly from that of theUnited States.  In large part it has been financed by short term commercial paper much of which has been raised fromU.S.money market funds chasing yield.  As the sovereign debt crisis dragged on, many money market funds became unwilling to roll over the paper.  This has created liquidity issues for Eurozone banks as this is their prime source of funding. U.S.banks on the other hand obtain a large portion of their funding from a low cost and stable depository base.

Precipitating the crisis of confidence in the European banking system was the realization thatGreecesimply does not have the economic wherewithal to repay in full the 350 billion Euros of debt outstanding.  Some 280 billion Euros is held by Eurozone banks and the remainder is held by Greek banks.  The question is not whether there will be a “haircut” but how much it will be – the July plan called for 21% but the market appears to be expecting something much larger.

The health of the European banks is now at the forefront of the drama.  If the other debt laden Eurozone countries demand the same deal asGreece, the EFSF would prove insufficient.  The IMF (Ms. LaGarde was until recently France’s Finance Minister) as well as Ms. Merkel, Chancellor of Germany, and Mr. Sarkozy, President of France, have called for recapitalizing the banks so that they will be able to absorb the likely losses.

Eurozone banks are resisting the push to recapitalize.  With their shares trading at significant discounts (50% to 60%) to book value the dilution to existing shareholders would be immense.  However, if banks do not raise additional capital to absorb the anticipated losses they will have to shrink their balance sheets and shed assets to reduce their leverage in order to meet new capital requirements.  This will translate into fewer and more expensive loans to corporations and consumers.

The impact on the European economies would be huge.  According to a recent Financial Times article, Eurozone companies derive some 80% of their financing needs from Eurozone banks as compared to the 30% that U.S.companies receive.  With the engine of growth now sputtering, is another Eurozone recession in the offing?

According to The Wall Street Journal, DealLogic recently reported that for the first eight months of 2011 there were 87 IPO’s byU.S. companies.  This compares very favorably to 2010 when there were 87 IPO’s for the entire year.  This was a nice respite from conditions in 2008 and 2009 when both the IPO and M&A markets were virtually frozen.  During the dark days of the financial crisis only 22 and then 39 companies were able to go public in 2008 and 2009 respectively according to WilmerHale’s 2011 IPO Report.

However, all good things must come to an end.  And that they did.  Along came August and market volatility increased dramatically.  Four days in a row, the Dow Jones Industrial Average fell or rose by some 400 points which in all likelihood set a record.  Almost overnight the IPO window slammed shut as companies were forced to pull their IPO’s because of the uncertainty that was rampant in the market.

It will no doubt be “wait and see” for the remainder of 2011 as financial markets abhor the uncertainty that is abundant today.  According to The Wall Street Journal, DealLogic reported that the pipeline of companies registered with the SEC to go public swelled to 115 at the end of August.  The market turmoil in August caused 15 companies to pull their offering, the most since April of 2001 when 20 were pulled.

Unfortunately, the market volatility that has plagued the market since early August is unlikely to abate anytime soon and will likely to keep the window closed.  Underwriters are very wary of launching an IPO into tumultuous markets when a stock can often sink after its debut. They are well aware that a majority of the IPO’s issued during the first half of 2011 are now trading below their issue price.

In the last several years, private equity firms have been forced to hold onto their portfolio companies longer, a consequence of the weak recovery from the recession coupled with less than robust M&A and IPO markets.  According to PitchBook’s Private Equity Breakdown report, there were over 6,000 portfolio companies at the end of June.

Without healthy M&A and IPO markets, private equity firms are unable to provide the returns they have promised their limited partners.  And without healthy returns, limited partners are likely to look askance at the asset class.

Recently Completed Private Equity Transactions

ABRY Partners acquired Masergy Communications which provides managed, secure virtualized network services to enterprises with complex needs across multiple locations.

Brynwood Partners has acquired Pearson Candy Company which manufactures and markets confectionery such as Pearson’s Salted Nut Roll, Pearson’s Mint Patties, Pearson’s Nut Goodies and Pearson’s Bun.

Clearview Capital has acquired Child Health Holdings from Harbert Private Equity, the firm announced. Tampa-based Child Health, which does business as Pediatric Health Choice, provides health care services for medically complex, technology-dependent and behaviorally challenged children.

CounterPoint Capital Partners has acquired Tomich Brothers Fish Company which processes wetfish and other seafood for distribution and Standard Seafood a seafood wholesaler and processor.

Energy Capital Partners acquired CoaLogix which provides clean coal technology and services for coal-fired electric utility power plants.

Frontenac Company recapitalized Wenner Bread Products a wholesale bakery that makes frozen, par-baked and fully-baked dough, breads and rolls.

GTCR has completed its acquisition of BankServ which provides software-as-a-service banking and payments systems.

Golden Gate Capital acquired EP Minerals, a producer of diatomaceous earth and perlite filter aids, functional additives and absorbents.

Graham Partners has purchased Chelsea Building Products, a manufacturer of vinyl lineals and accessories for the window and door fabrication market.Chelsea also provides specialty cellular PVC moldings and exterior wall cladding.

H.I.G. Capital acquired Next Generation Vending and Food Service which provides vending and refreshment solutions for corporate and institutional environments.

J.H. Whitney acquired Autospliced which provides electronic interconnect solutions that include connectors, precision metal pins and stampings, integrated connector modules, shape memory alloy assemblies and printed circuit board assemblies.

JMH Capital has acquired Tri-Star Protector which services upstream oil and gas companies through the collection, refurbishment and resale of pipe thread protectors.

Mangrove Equity Partners has acquired North American Aircraft Services which provides aerospace services with a focus on fuel tank maintenance and repair.

MidCap Equity Partners acquired National Educational Music which sells and rents out band and orchestra musical instruments, primarily for use in educational programs.

Revolution Capital Group has acquired a majority stake in the Capital Exchange which provides a networking website for professionals throughout the financial community.

Saturday Capital acquired Code Red which provides first aid and automated external defibrillator training to companies.

The Riverside Company has acquired Sunless, which manufactures spray tanning booths, airbrush equipment and other products for salons.

The Sterling Group has acquired Stackpole International which manufactures and supplies oil pumps and powdered metal components to automotive original equipment manufacturers.

Transom Capital Group has acquired Ritz Camera & Image, a specialty retailer of camera and imaging products and services.

Veronis Suhler Stevenson has acquired Strata Decision Technology which provides web-based financial analytics and performance management software tools used primarily by hospitals and healthcare systems.

Mezzanine debt, which is often referred to as subordinated debt, is a layer of junior capital that is considered to be quasi-equity as it has some of the traits of equity.  For accounting purposes it is recorded as a liability and will be found beneath the senior secured debt on a company’s balance sheet but above the stockholders’ equity section hence the term mezzanine debt.

Typically unsecured, mezzanine debt receives a significantly higher yield than senior secured debt.  Generally the current pay coupon for mezzanine debt is a fixed rate of about 12%.  Mezzanine lenders look for an annual return of 18% to 19% and usually bridge the gap with warrants or other equity like features. The warrants represent far less dilution than issuing common stock would and let the owner maintain control of the business.   Another extremely attractive feature is that there is no amortization of principal over the life of the loan which usually has a term of five to seven years.

For larger transactions there may be a payment in kind (PIK) component option available to the borrower.  This is a periodic form of payment in which the interest payment is not paid in cash but rather by increasing the amount of principal outstanding equivalent to what the lender would have received if it had been paid in cash.  The following is an example to illustrate:

Loan principal – $10,000,000

Cash coupon – 12%

PIK – 4%

Monthly cash payment – $10,000

Loan principal at the end of the year – $10,400,000

Typically, a company with a proven track record and good prospects can obtain three to four times (during the height of the financial crisis it was half that!) its cash flow in senior secured debt. Mezzanine debt generally will be able to provide another one to one and a half times cash flow for total leverage of about four to five and a half times cash flow.

For well-managed middle market companies that have strong and predictable cash flows along with good business prospects, mezzanine debt can provide a viable solution for a company’s liquidity or expansion needs.  Mezzanine debt is not suitable for every company and should be evaluated carefully in conjunction with a company’s professional advisors.