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Boutique Appeal: Against the backdrop of department store consolidation, retailers and investors seek specialty shops

November 8, 2013

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By Allison Collins
November 8, 2013

To protect themselves from fickle consumers and uncertain economic times, retailers are using acquisitions of specialty shops as a form of insurance. Deals such as Gap Inc.’s (NYSE: GAP) $130 million purchase of retail chain Intermix Holdco Inc. in January allow middle-market companies to break into new segments of the market. (For more, see the video below with Hadley Mullin of TSG Consumer Partners.)

Through September, 2013 has been a big year for department store deals, with about $9 billion in deal value according to data from Dealogic and provided by investment bank Robert W. Baird & Co. The year through September has seen nearly $21 billion in total retail M&A activity, which includes department store deals.

The third quarter was especially strong for U.S. retail and consumer transactions, rising 112 percent from the same quarter in the previous year, according to PwC.

“I see more opportunities in the specialty retail space than I do in the department store space,” says Al Ferrara, a partner at BDO USA LLP. Deals are coming from private equity firms that bought a retailer three to five years ago and are looking to exit, or the stores themselves, which may be looking to move into a specialty niche through acquisition, Ferrara says.

Gap’s Intermix purchase underscores that idea. By buying Intermix, a group of clothing stores that sell women’s luxury apparel, the company enters an entirely new space. When Gap made the acquisition, Intermix operated 32 boutiques across North America. Gap says it is seeking to expand the brand’s network of stores and enhance the company’s website. Stores are scheduled to open soon in Chestnut Hill, Mass., Brooklyn, N.Y., and Bellevue, Wash.

“Smart companies are trying to bulletproof themselves by having concepts at different price points and target audiences; therefore, if one should face headwinds, you have the others,” says Jane Hali (pictured), vice president of custom research for London-based trend forecasting agency WGSN Group Inc., about the Intermix deal.

Gap has businesses at all ends of the market. It has Old Navy at the low end; Gap in the middle; Banana Republic in the middle but above Gap; Athleta, which gives them a specialization in a specific market; and Piperlime, a pure e-commerce business. The acquisition of Intermix adds a specialty store, with a very select assortment of clothes, to Gap’s holdings. The deal was Gap’s first since 2008, when it paid $150 million for Athleta, which sells exercise clothes. The company bought Banana Republic in 1983.

In October, rumors swirled that suit chain Men’s Wearhouse Inc. (NYSE: MW) may bid for shoemaker Allen Edmonds Corp. in a move that could strengthen the chain. That news came around the same time that Houston-based Men’s Wearhouse rejected a $2.3 billion takeover offer from Jos. A. Bank Clothiers Inc., which also operates a chain of retail stores. If that deal had not been rejected it would have expanded Jos. A. Bank’s product offerings into tuxedo rental and casual wear. In July 2012, Men’s Wearhouse acquired men’s clothier Joseph Abboud through a $97.5 million deal for its owner, JA Holding Inc.

Specialty retailers have also attracted the interest of private equity firms.

Private Equity Involvement

In October, London-based private equity firm Permira Funds agreed to buy the parent company of Dr Martens, R Griggs Group Ltd., for about $486 million. Dr Martens makes apparel, shoes and accessories sold in 63 countries. Permira has also invested in Hugo Boss AG and Valentino.

Private equity firm Apax Partners closed a $1.1 billion deal for apparel chain Rue21 Inc. in a take-private transaction in October. Apax, headquartered in New York and London, has a history of investing in retail companies. In November 2012, the firm paid $570 million to buy Cole Haan from Nike Inc. (NYSE: NKE). Before that, the firm invested in Takko, a value fashion retailer in Europe in 2011, and Spyder Active Sports Inc., which makes performance wear, in 2004. Apax also invested in Phillips-Van Heusen Corp. in 2003 and Tommy Hilfiger Corp. in 2006, and has exited both investments.

In April, New York private equity firm Kohlberg Kravis Roberts & Co. LP (NYSE: KKR) announced the purchase of a majority stake in Paris-based SMCP Group, a clothing retailer. SMCP’s brands include Sandro, Sandro Men, Maje and Claudie Pierlot. SMCP had opened 69 stores in North America during the 18 months before that sale was announced.

New York private equity firm Sycamore Partners said it would buy Hot Topic Inc. for about $600 million in March. Hot Topic is a mall and web-based retailer that sells music and pop-culture influenced apparel, accessories, music and gifts. The company also owns Torrid, which sells clothing for women size 12 and up, and Blackheart, which sells lingerie and beauty products. Sycamore is also invested in apparel chain Talbots.

In January, Boston private equity firm TA Associates completed a majority investment in Dutch LLC, which is the parent company for fashion lines Joie, Equipment and Current/Elliot. Those brands are sold in high-end department stores, including Saks, Nordstrom, Neiman Marcus and Barney’s.

TA, which acquired a 60 percent stake in the company, plans to focus on building out retail locations for the companies and developing an e-commerce site for Current/Elliot, TA Associates principal James Hart tells Mergers & Acquisitions in an interview.

In December 2012, Los Angeles private equity firm Leonard Green & Partners LP bought a 25 percent stake in the Topshop apparel chain from British billionaire Philip Green for $805 million. Leonard Green also co-owns J. Crew. The firm had previously invested in David’s Bridal, but sold the chain to Clayton Dubilier & Rice in October 2012 for $1.05 billion.

“Specialty retailers are able to appeal to a very specific segment of the market that broader generalists are finding it more difficult to appeal to,” says Maud Brown, a managing director at Bahrain private equity firm Investcorp, which owns retailers Sur La Table and Paper Source. Investcorp also owns SourceMedia, Mergers & Acquisitions’ publisher.

“The department store model has been challenged for many years. Various department stores have tried to reinvent themselves, but the brands – be they specialty retailers or brands themselves – are trying to get a direct relationship with their end customer,” Brown says.

Many brands that are sold through department stores have opened brick-and-mortar locations. A significant portion of those companies have both wholesale and retail models, so they still work with and sell their products in department stores, as well as in their own locations, Hali says.

“The only way for the manufacturers to have full distribution is really to open their own stores, and that is what many of them are doing,” Hali says.

Peter Millar, a high-end men’s apparel line, has opened two stores and has plans for more.

The company, which aims to outfit 35- to 50-year old men for the office, weekend, golf course and tailgate, recently opened a store in South Hampton, N.Y., and another location in Palm Beach, Fla. Peter Millar is sold in Neiman Marcus and Nordstrom stores, as well as through smaller retailers.

“I suspect in the next 18 months we’ll have four more locations,” says CEO Scott Mahoney. For Peter Millar, the retail locations are a chance to express and market the essence of the brand. The company is considering locations in New York, Chicago, Charleston, Austin, Dallas and other places, but “it’s not going to be a 50-store play,” Mahoney says.

This is not the first time we have seen this phenomenon. In the 1990s, when the outdoor apparel space exploded, North Face, which makes outdoor performance-wear, began opening stores, says Robert W. Baird & Co. managing director Joe Pellegrini (pictured).

“They can control their own destiny better when they have their own store,” says James Cassel, chairman of Miami investment bank Cassel Salpeter & Co., but that does not mean they will pull out of the larger stores.

E-commerce gives brands another way to increase customer awareness, which can generally help sales. “Department stores like the idea that their brands have full online businesses — it makes the brands more important to the customer and top-of-mind,” says Hali.

Brands are seeing a higher percentage of revenue that comes from more than just department store sales, according to Pellegrini. “Having a well-positioned website only raises the awareness level of the brands,” Pellegrini says. “They’re seeing a higher percentage of their revenues being derived from an omnichannel approach, which includes direct sales and online.”

For middle market brands, experts agree that increased size could help companies work more easily with large department store conglomerates.

In October, Hanes Brands Inc. acquired Iselin, N.J.-based Maidenform Brands Inc. for $583 million. The deal gave Hanes ownership of Maidenform, Flexees, Lilyette, Self Expressions and Sweet Nothings, adding to the brands it already owned: Playtex, Bali, Just My Size, Hanes, Barely There, Wonderbra, Champion and L’eggs.

“They have more leverage” with department stores, Hali says, since they are larger as a combined company. That deal also resulted in production synergies, as Hanes owns many manufacturing facilities. Before the deal, Maidenform had been using a third-party manufacturer.

PVH Corp. (NYSE: PVH) also gained leverage with stores when it bought Warnaco Group Inc. In that deal, which closed in February, the company picked up the rest of the jeans and underwear portions of Calvin Klein (it already owned the rest), as well as Speedo, Body Nancy Ganz/Bodyslimmers, Warner’s and Olga. PVH also owns the Tommy Hilfiger, Van Heusen, Izod and Arrow lines.

Aside from PVH, several brand owners have scooped up more companies to increase their portfolios.

In September, Paris-based clothing and accessories company Kering bought a minority stake in luxury brand Altuzarra, which is sold at Barney’s, on Net-a-Porter.com, Bergdorf Goodman and other stores. Kering develops apparel and accessories for luxury and lifestyle brands, including Gucci, Bottega Veneta, Saint Laurent, Alexander McQueen, McQ, Balenciaga, Brioni, Christopher Kane, Stella McCartney, Sergio Rossi, Boucheron, Girard-Perregaux, JeanRichard, Qeelin, Puma, Volcom, Cobra, Electric and Tretorn. The company was known as Pinault-Printemps-Redoute or PPR until June, when it changed its name to Kering.

In August, Authentic Brands Group LLP, which is backed by private equity firm Leonard Green, picked up Spyder Active Sports Inc. for an undisclosed amount. The Boulder, Colo.-based ski and snow outfitter sells jackets, snow pants and cold-weather accessories. Spyder was added to Authentic Brands’ portfolio, which already included brands Judith Leiber, Andrienne Vittadini and Viking.

In July, LVMH Moet Hennessey Louis Vuitton SA said it would buy Italian cashmere company Loro Piana SpA for about $2.6 billion, following the company’s 2011 deal for Bulgari SpA. The Loro Piana purchase expands LVMH’s depth in the luxury goods segment, where it already owned Louis Vuitton, Celine, Kenzo, Marc Jacobs, Emilio Pucci, Thomas Pink and others.

In February, Iconix Brand Group Inc. (Nasdaq: ICON), which owns Ed Hardy, Rocawear and Candie’s, bought London denim label Lee Cooper for $72 million. Also that month, Iconix said it would buy sportswear and denim label Buffalo David Bitton from Buffalo International LLC for $76.5 million in cash. Those deals follow a November 2012 acquisition of soccer-related product manufacturer Umbro, which Iconix bought from Nike Inc. (NYSE: NKE) for $225 million. New York-based Iconix licenses clothing brands to retailers and manufacturers.

Vida Shoes International Inc., a New York footwear brand owner, acquired Andre Assous Co., an Oceanside, N.Y.-based footwear company known for espadrilles in January. Vida licenses shoes for Baby Phat, Carter’s, Osh Kosh, Esprit, Sag Harbor South Pole and Unionbay and other companies.

Department Store Consolidation

Middle market companies and brands face increased pressure from department stores as consolidation continues.

In November, Hudson’s Bay Co. closed a $2.9 billion deal for Saks Inc. That deal brought together Hudson’s Bay’s namesake stores in Canada, Home Outfitters, which is a home goods store; Lord & Taylor, a department store that sells apparel, home good and small appliances; and Saks and Saks Off 5th, the chain’s group of outlet stores.

“There is going to be more pressure from the larger retail conglomerates for there are fewer stores for the brands to sell to,” says Hali.

In addition to the Saks deal, Neiman Marcus Inc. changed hands.

Ares Management LLC and Canada Pension Plan Investment Board bought luxury retailer Neiman Marcus for about $6 billion in October. Neiman owns high-end retailer Bergdorf Goodman.

Neiman, a Dallas-based chain, was last purchased by TPG Capital and Warburg Pincus in a 2005 leveraged buyout. The private equity firms filed paperwork with the U.S. Securities and Exchange Commission for an initial public offering in June, but ultimately decided to sell instead. TPG and

Warburg Pincus reportedly paid about $1.2 billion for the department store in 2005.

In a previous wave of department store mergers, we saw Macy’s Inc. (NYSE: M), then known as Federated Department Stores (after R.H. Macy & Co. agreed to a merger in 1994), merge in 2005 with the May Department Stores Co., owner of Filene’s, the Jones Store, Kaufmann’s and other stores, to create a combined company with more than 1,000 stores.

In 2006, the company sold Lord & Taylor to Purchase, N.Y.-based private equity firm NRDC Equity Partners LLC, which owned Hudson’s Bay. Macy’s owns luxury retailer Bloomingdales.

With so few department stores, it is unlikely that we will see further consolidation in the space, experts say, but potential targets could include Dillard’s, and possibly J.C. Penney Co. Inc. (NYSE: JCP).

Large department store deals can make it difficult for smaller brands to get into the stores, according to Baird’s Pellegrini.

“They are going to be far pickier and demanding of the vendors,” Pellegrini says of large department stores.

As retailers grow larger and more sophisticated, they tend to want to work with fewer vendors, and with those that have a similar level of infrastructure sophistication.

“There are a lot of young up-and-coming companies with great brands and products, but to service a large base of department stores, making sure the right inventory is on the shelf is difficult,” says Pellegrini.

What happens first when you integrate an acquisition is vendor rationalization: “The more you buy from certain vendors, the higher the discount,” says Cynthia Cohen (pictured), CEO of Strategic Mind share, a consulting firm for retailers. Cohen is also on the board of directors at apparel chain Bebe. If department stores consolidated buying, it could lead to some of the clothing lines being dropped, Cohen says.

“If they consolidated buying, that gives the stores more power, but department stores and good brands understand they are partners and they both need to be in business. One can’t put the other out of business. It’s sort of like shooting themselves in the head,” says Cassel.

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Debt deliberations: Startups experts say deal can’t come too soon

October 23, 2013

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By: Kent Bernhard Jr
October 15, 2013

The UpTake: Senate leaders say they’re on their way to a deal to raise the debt ceiling and reopen the federal government. That’s a good thing for the startup ecosystem, where Washington infighting is causing hesitancy for investors.

Editor’s Note: This story was modified to reflect today’s developments in the U.S. House of Representatives.

A deal to end the government shutdown and raise the debt ceiling can’t come too soon for the startup ecosystem, say experts.

But it looked early this afternoon as though the wait will be longer. Though Senate leaders have come close to a bipartisan agreement to reopen the government and raise the debt ceiling, the House is in disarray. House GOP leaders this morning floated their own plan to do the same, but apparently couldn’t sell their idea to a majority of their Republican colleagues.

“You have uncertainty right now,” Barry Sloane, the chief executive of Newtek, which provides small business lending and services, told me. “If you are an investor today, looking to invest in an early stage business, you’ve got to hesitate. There’s a lot of stuff on hold.”

Add to that “stuff” bipartisan negotiations in the Senate. Senators had appeared close to an agreement, but put their talks on hold to wait and see if a plan would emerge from the House of Representatives. As of late this afternoon, House leaders had come up with a plan and a vote was slated for tonight.

The dithering in Washington led to nervousness on Wall Street, where the Dow Jones Industrial Average fell more than 188 points. An auction of short term government bonds drew scant interest, as traders weighed the risk of a debt ceiling breach Thursday.

The agreement Senators were negotiating would raise the debt ceiling through February 7, removing the threat that the government could default on its obligations as early as Thursday. It would also reopen parts of the government that have been shut down, and fund federal agencies through mid-January.

The possibility of funding drying up is the biggest impact the drama in Washington has on startups, said Erik Kantz, a dealmaking lawyer at Arnstein & Lehr in Chicago. He said a breach of the debt ceiling, because it would shake the confidence of markets worldwide, could have a trickle-down effect to the wealthy angel investors who feed startups their early-stage cash.

“It dries up the capital that’s available,” he told me.

Some of that’s already happening with the shutdown, Sloane said. He pointed out the Small Business Administration-backed lending is at a standstill because of the shutdown. And investors are already acting more cautiously.

“What everyone’s doing…you’re continuing to line up business it’s a question of whether you’re closing things,” Sloane said. “I think it’s a small but significant subset of the investment community that is doing nothing.”

And if the Senate leaders fail in their effort to get a debt ceiling deal, or that deal is rejected in the House, things could get really bad, really quickly.

“You could wake up one morning, if this is all pushed out…and the markets don’t accept it anymore,” he said. “You could have a 10 percent correction of the stock markets in a day.”

And if something like that happens, it can’t help but trickle into every form of finance, including the bets investors make on startups.

James Cassel of Miami investment bank Cassel Salpeter was more blunt.

“I think it will have worldwide long-term impacts,” he said of the possibility of a debt ceiling breach. “I think it’s going to have a devastating effect. They’re playing with fire. I think someone needs to hit them over the head with a baseball bat.”

Anticipating the hike in interest rates: A little planning can have benefits

October 21, 2013

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By James S. Cassel
October 20, 2013

James S. Cassell

Now that the government is back in business, it’s time to think about interest rates. With interest rates having recently begun to rise and currently expected to climb higher than today’s historically low rates, it’s important for middle-market business owners to begin planning and preparing for the likely impacts on their businesses and finding ways to lock down the most favorable long-term rates. A little strategic action now can go a long way to help put their companies in the best-possible financial position.

Many business owners do not understand all of the potential impacts that rising rates may have on their businesses, including affecting their profitability and value, and how serious the impacts can be. Higher interest rates mean higher costs for borrowing money and financing equipment. They affect almost everything, including the interest rates charged on lines of credit that have floating rates as well as both the interest rates and the coverage ratios that affect the ability to refinance term loans when they become due.

Interest rates also can have significant impacts on the valuations of businesses. Although rising interest rates won’t affect Earnings Before Interest and Taxes, they will have an impact on business cash flow. Most significantly, however, they can affect potential buyers of businesses, as they will probably have to pay higher interest rates when they borrow money to the leverage their purchases of businesses. This may cause valuation gaps or discourage them from making the acquisitions. In a nutshell, the higher interest rates affect debt service coverage ratios. The higher the interest rates, the lower the amounts that may be borrowed. As a result, there’s a good possibility that business valuations will be affected as interest rates rise.

With all this considered, now is a good time to begin taking steps to ensure that you can secure the lowest-possible interest rates for your business over the long term. How should you go about this? Some strategies:

• Take advantage of today’s historically low rates. If you’re planning to take out any new loans or can renegotiate existing ones, there’s no time like the present. Aim to lock in long-term rates or hedge the rates whenever possible.

• Get liquid. Use your excess cash flow now to pay down as much of your debt as possible, provided you do not see a need in the foreseeable future to borrow the money back.

• Get creative. Approach different lenders, such as trying community banks rather than national banks. Both have their pros and cons, but it might be in your best interest to work with a smaller lender that’s hungrier and more flexible for your business in order to lock in lower rates and more favorable terms.

• If you choose to expand your business credit line, owner-occupied real estate loan or any other type of loan, use your newly found capital wisely to penetrate new markets and invest in the right people, technologies, equipment and other resources to support your business.

• Government programs like SBA-type programs might offer lower fixed rates that are more favorable. Although it’s not always a good idea to put up your house as collateral for your business loans, if you do find yourself in the position of having to do this, you should consider locking in those interest rates for the longest-possible terms.

• Keep in mind that some loans that are based on using cash flow as collateral might be good, less expensive options if you can provide acceptable collateral. You might consider converting some of your loans and/or changing lenders to take advantage of better terms offered by different lenders. Be careful when getting unsecured loans: Giving up the collateral is not always ideal.

• Consider specialty lenders. Look for lenders who specialize in specific areas, as they may help you secure better terms. If you can pit multiple lenders in a bidding war against each other, you probably can get better deals.

In addition to ensuring that you are borrowing money at the most favorable long-term rates, it’s always a good idea to consult qualified, trusted advisors, such as attorneys, investment bankers and CPAs. By doing some smart planning now and taking the right strategic steps, you can strengthen your business and put it in the best position for both the short and long term.

James Cassel is co-founder and chairman of Cassel Salpeter & Co., LLC, an investment-banking firm with headquarters in Miami that works with middle-market companies. www.casselsalpeter.com

Top 12 Tips to Get the Most Value from the Sale of Your Middle-Market Business

October 17, 2013

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By James Cassel
October 17, 2013

A little planning can go a long way toward helping you to obtain the maximum value for your business. The sooner you begin, the better.

Throughout my career in leading the sales and purchases of middle-market businesses nationwide, I’ve found the following 12 tips to be the most helpful for business owners planning to sell. The further in advance of the sale that these recommendations are implemented, the greater the value that can be created. They’re also generally good business practice for anyone in business.

Make sure that your financial and accounting records are in order so that you can readily give potential buyers a clear, accurate snapshot of your historical financial results and condition. This is critical to ensuring that you get top value for your business. It’s also a good idea to prepare a budget and maybe get audited financials.
Review and/or restructure your agreements with customers as necessary. Do your contracts have special terms, such as change of control provisions or requirements that you personally provide services, that may affect the longevity of the contracts when you’re no longer involved with the business?
Review and, if necessary, restructure your leases. Often, long-term leases for excess space and high rates can be roadblocks to completing deals, while the opposite is true for long-term leases at favorable or below-market rates. Do you have a long-term lease that new buyers will have to continue or any special clauses that will create issues for potential buyers?
Review and/or restructure agreements with your suppliers. As in #2 and #3 above, you should determine whether you’re locked into agreements that may not appeal to potential new buyers or reduce value. Now would be a good time to try to modify or terminate any agreements that you don’t consider favorable to avoid turning off potential buyers.
Review your insurance coverage. Consult a trusted insurance agent to evaluate your current coverage and fill any gaps that may exist. For example, depending on your business, liability coverage and tail coverage might be critical.
Do your personal tax and estate planning. Consult with qualified lawyers and accountants to ensure that you have structured your ownership in the most tax-advantaged way in the event of a sale. Doing this now vs. just before a sale can be very advantageous.
If you have a family-owned business, talk with your family. Make sure that your family members and other key stakeholders fully understand the possible impacts of the business sale on everyone involved. Especially if your family members either work at or are dependent on your business, it’s critical to have their buy-in.
Evaluate your intellectual property. Work with qualified attorneys to make sure that it’s well protected and owned or licensed by the right entities. Also, make sure that you have proper licenses for all of the software you use.
Evaluate management. Ensure that you have appropriate management in place and that there are no gaps that you should fill before you put your business on the market. Also, examine your employment agreements to ensure that you have the necessary noncompete, confidentiality, and other provisions.
Determine whether there are environmental issues. Either remediate them or at least develop an accurate understanding of what will be required to do so.
Get organized. This gives a good impression and strong comfort level to potential buyers, which is a priceless intangible.
Hire an effective public relations and marketing firm. Positive news coverage in credible media outlets that reach potential buyers as well as current and potential customers can help to elevate firm and brand awareness, secure credibility for your business, and even generate inquiries from potential buyers. Depending on the nature of your business, social media might be an appropriate tool to leverage as well.

Without a doubt, the tips listed above are general good business practice, even if you’re not thinking of selling yet. The key is to work with qualified advisors, including attorneys, accountants, and investment bankers, who can give you the strategic counsel and guidance you need to put your business in the best possible position. It is a good idea to assemble the team far in advance of a contemplated sale. By minimizing the weaknesses and playing up your strengths now, you can help to ensure that you get the best value for your business whenever you’re ready to sell.

James Cassel (jcassel@casselsalpeter.com) is cofounder and chairman of Cassel Salpeter & Co., LLC (www.casselsalpeter.com), an investment banking firm with headquarters in Miami that works with middle-market companies. Before founding Cassel Salpeter & Co., Jim was co-founder and chairman of Capitalink, an investment banking firm that was acquired by Ladenburg Thalmann & Co., a New York Stock Exchange member firm where Jim continued and served as vice chairman, senior managing director, and head of investment banking. He also was chairman of a significant company that owned hospitals.

Yellen appointment at the Fed seen as a positive for startups

October 9, 2013

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By: Kent Bernhard Jr
October 09, 2013

The UpTake: Janet Yellen isn’t expected to change the Federal Reserve’s easy money policies much, and experts say that’s good for the upstart economy.

Janet Yellen brings arguably more expertise and experience to the job of Federal Reserve chairman than anyone before her. But what does her appointment mean to the upstart economy?

“My big picture view is that stability and the Fed’s recent accommodative policies are good for the startup ecosystem,” said Stash Jacobs, an attorney with Miami-based Greenberg Traurig who works on mergers and acquisitions and funding deals for startups.

President Barack Obama nominated Yellen today to the post being vacated by Ben Bernanke. The first woman appointed to the most powerful economic post in the world, she comes to the job with a wealth of experience.

Most recently, she has served as the Fed’s vice chairman. She has held previous posts as head of the San Francisco Federal Reserve Bank and the Council of Economic Advisors.

If the Senate confirms her, she will take over at a time of continued economic duress, with the Fed pumping money into the economy through low short-term interest rates and a mechanism called quantitative easing to try and stimulate the economy and ease unemployment.

Don’t look for that to change, at least in the near future, and that’s a good thing for startups and entrepreneurs.

That’s because the Fed’s easy money policy drives down the attractiveness of such traditional investments as CDs and bonds, leading more money to enter the stock market—good for companies like Twitter that are going public—and even to direct investments by institutional investors in venture capital funds, the feeder system for startup investment.

Such investments as venture capital are more attractive, if riskier, because they offer a higher rate of return than traditional investment vehicles, especially at a time of low interest rates.

“When IPOs are happening, that’s great for startup companies because it builds confidence,” Jacobs told me. And with other investments perhaps less attractive, “It can cause investors to be interested in venture capital and early stage investing as well.”

James Cassel, co-founder of investment bank Cassel Salpeter, said the Fed’s policies could also have a more direct impact on entrepreneurs and would-be entrepreneurs. The lower interest rate policies of the Fed have a positive effect on the housing market, which can encourage someone thinking of entrepreneurship to take the leap into it.

“If the fed can encourage growth and keep down inflation, it can be good for the ecosystem,” Cassel told me. “You’re willing to invest…or take that business risk of starting a company without getting paid for a while.”