The Nutrition Capital Network II Spring Meeting in New York City has highlighted a number of prevailing trends in the nutrition industry's financial landscape.
1. The financial markets are in crisis. Compared to NCN I in San Francisco last fall, there are fewer venture capital firms in attendance and more private equity and strategic buyers searching for start-ups with revenues of $3-5 million and positive cash flow. Investors are also very aware that any investment negotiation will likely be in their favor if drawn out and multiple down cycles can be capitalized on. Entrepreneurs, of course, are anxious to secure financing and improve their chances of surviving the down economy.
2. Strategic buyers with free cash are starting to look at deals. Because the debt markets have grown cold, strategic buyers have become the leading potential acquirers the industry. Entrepreneur valuations, however, have not yet in alignment with what the strategic buyers are willing to pay. As the U.S. financial crisis continues down the path that it is on, entrepeneurs will reset their expectations and deals will continue to be done, but at lower valuations compared to prior years.
3. Prepare for a long downturn. In discussions with economists, investors, stock brokers and industry experts at NCN II, it is clear that the consistent stream of bad economic news will continue. Consumer credit and spending statistics coming out in the next few months will supplement the subprime mortgage crisis and push the U.S. economy deeper into recession. One long time stock broker compared this downturn to the recession of the 1970s, which effects lasted 8+ years.
If you'd like to read more about the state of investment and finance in the nutrition industry, I urge you to read NBJ's February 2008 Finance & Investment Issue.