CASE STUDY 1 Failure of Venture Capitalists

CASE STUDY 2 Failure of Venture Capitalists

Analog Devices Enterprises

In 1980, Analog Devices established a corporate venture program, Analog Devices Enterprises (ADE), to generate both attractive financial returns and strategic benefits in the form of licensing agreements and acquisitions. Funding was provided by Amoco, and ADE had invested $26 million in 11 firms by 1985

RESULTS
That very year Amoco ceased contributing capital, and the ADE program was suspended. Around this time, Analog Devices took a $7 million charge aga inst earnings; in 1990, with most of the portfolio liquidated, it took another $12 million charge. Of the 11 firms in ADEs portfolio, 10 were terminated, acquired by other companies at unattractive valuations, or relegated to the "living dead." Only one firm ultimately went public.

In this case, ADEs stake was so diluted by a merger that itwas worth only about $2 million at the time of the offering.

WHAT WENT WRONG ???

Program managers were hampered by the lack of a clear objective. Instead, they had a threefold mission. Analog Devices researchers, seeing scarce resources being devoted to ADE, resented the program. Also, Amoco only committed to fund the program for five years, considerably less time than was needed to grow the early-stage companies.

Incentives of the various parties appear to have been improperly aligned. The management of Analog Ventures believed that they were insufficiently rewarded, and Amoco did not share in the profits generated.

India vs. China

China and India are the emerging markets where both venture capitalists and private equity players are expected to park their funds

The typical venture capitalists venturing into India today consist of global venture capitalists, high net-worth individuals and private investors, all of whom are looking to cash in on Indias vibrant markets

Top Sectors Attracting Private Equity Funding in India

Sector IT-ITES Manufacturing Healthcare & Life Sciences Banking & Financial Services Textiles No. of Deals 33 23 13 6 12 Value(US $ Million) 422.90 331.45 201.24 146.70 146.50

Comparison- US, India, China

The more mature US and European VC markets consistently invest a considerable amount in companies in the earlier product development stage (pre-revenue) In contrast, China and India generally prefer later-stage companies. China has a unique pattern of pouring 30% to 50% of its invested capital into protable companies (a level three to four times higher than the US or European VC sectors)

Meanwhile, Indias sweet spot centers on the revenue pre-prot stage, where 60% to 90% of its capital was invested between 2009 and 2010.

Comparison-USA, China, India

(Number of deals)