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Assessing Venture Capital Returns for Efficient Investing in Nanotechnology
Volume 2, Issue 1
Authors:
Pearl Chin, Seraphima Ventures
Abstract:
The advent of nanotechnology and recent emergence of venture capital (VC) investing in early stage nanotechnology firms makes this a good time for a reexamination of VC investment successes and failures. In this article, Dr. Pearl Chin asks tough questions about venture funds that claim to successfully invest in nanotechnology and she provides an analytical assessment of ways to avoid the investment pitfalls of the dot com and biotech eras. Dr. Chins firm, Seraphima Ventures, is an investment fund based on the assertion that better management oversight tips the scales in favor of a successful fund. A number of recent academic studies provide analyses of the returns to private equity that support this assertion. First, their findings show that private equity funds, both venture capital and buyout, generated roughly equal returns to public equity. Second, they show good venture capital management is a key factor for success. Third, studies show that large funds started in boon years performed most poorly because of a rush of capital flowing into funds designed to jump on the bandwagon. Thus, private equity firms have not yet achieved their potential. If a traditional venture fund is considered successful with a 1 in 10 hit rate using a carpet-bombing approach; then a targeted fund that provides a management team with comparable deal selection abilities in terms of investment and technology expertise, would be expected to do at least as well. This investment management philosophy can improve performance outside of nanotechnology and for European investments as well.
Full Text (PDF)
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