Concern is mounting that the venture-capital model might be broken. Returns have been relatively poor in the past decade. More importantly, perhaps, the innovation outcome has been somewhat disappointing. As PayPal cofounder Peter Thiel complained, “We wanted flying cars; we got 140 characters.”
One key reason for this might be the way venture-capital funds are typically structured. Such funds have been organized for decades as limited partnerships, raising commitments among external investors to be invested and returned within 10 years.
What if I told you about an investment fund that diversifies your portfolio, shields you from fluctuations in the stock market, and earns double-digit returns? Sounds interesting, right?
Did I mention that this investment also creates potentially life-saving treatments for deadly rare diseases?
This fund doesn’t exist — at least not yet. I’m cautiously optimistic, however, that in the near future we’ll see the launch of an orphan disease “mega-fund” that finances early-stage biomedical research and drug development and is also a tidy investment. Read More »
It’s widely believed that uncertainty is bad for business. If you don’t have the right information, you make the wrong decisions. Or you make no decisions at all. We saw this play out during the financial crisis when there was quite a lot of uncertainty and many investors held back.
With that in mind, my colleagues and I recently looked at the effect of having greater financial information available within an industry. Specifically, we studied the impact of public firms on an industry, as public firms are required to disclose large amounts of information. They have to issue quarterly financial statements and provide information on operational details such as business strategy, expected future outlook, and business risk. Financial analysts and the business press provide even more information on those companies. Taken together, that disclosure activity can improve the information environment for firms in that industry by reducing uncertainty.
IPOs are making a comeback, according to Ernst & Young. E&Y surveyed 300 institutional investors and found that 82 percent had invested in IPO or pre-IPO stocks in the previous 12 months, compared with only 18 percent in the prior two years.
While the rebound has occurred across industries, investors clearly like certain kinds of companies more than others. Biotech has had a string of successful IPOs. This infusion of capital will allow companies to get their products to market faster, which should get us closer to curing or combating diseases. The social media industry also has been drawing IPO investors of late, despite Facebook’s bungled IPO in the spring of 2012.
From WSJ MarketWatch and MIT Sloan. Innovation@work Blog
In an effort to create a successful retirement portfolio, investors often find their way to professionals who loosely call themselves “advisers” or their services “financial planning,” even though they are de facto sales agents paid commissions by their company. This compensation structure can lead to conflicts of interest between financial professionals and their clients.
Yet, despite numerous anecdotes that pay structures influence investing advice, there is little reliable evidence about the quality of advice that financial professionals actually provide. Do financial professionals help retail investors make better financial decisions and educate investors? Or do they put their own interests first and attempt to generate more commissions and fees? Read More »