Sources of advantage

Technology and bio-medical companies create success cycles by the way they perform four critical business processes. Peter S. Cohan and Barry Unger reveal the implications.
Venture backed public companies – such as Google, Yahoo, Microsoft, Cisco Systems, and Genentech – are recognised for their ability to create jobs, revenues, and high investment returns, and their importance to national economic development in the United States, and increasingly in other countries as well. Specifically, according to the National Venture Capital Association, venture backed companies spawned 10.1 million jobs and $1.8 trillion in revenues between 1970 and 2003. And during the two decades ending in September 2004, venture capital funds returned 15.8 per cent per year to investors, compared to the S&P 500’s 12.4 per cent return.

We have previously studied the drivers of growth and stock price appreciation in technology-based public companies and the behaviours and priorities of entrepreneurs in high growth early stage companies. We are now seeking to better understand and formally categorise what factors and processes create successful outcomes for technology and bio-medical (aka life science) venture backed companies during their “private” stage while they are being selected and nurtured by venture capital and institutional investors.

Our immediate effort in this arena is to extend and amplify – via a series of interviews with partners of technology and bio-medically focused venture capital firms – earlier work which identified four consistent processes in publicly held technology leaders that enabled them to repeatedly achieve positive outcomes (growth in revenues and profits) that then created the capital, confidence, and market insights to achieve new growth.

Further efforts will focus on how venture capitalists facilitate entrepreneurial success cycles in their investments through screening, selection and structuring procedures, investment “styles”, and monitoring and control systems.

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