DISQUS

M. Wynnewood · 2 years ago

What is wrong with savvy, successful venture capital firms diversifying and taking advantage of "private-equity-like" investment opportunities? They aren't abondoning their venture capital charter, just adding a new investment type to their portfolio. In a previous article attached to this one, it was mentioned that private equity shops are pursuing more venture-capital-like opportunities. I believe that good firms searching for new ways to create value for their LPs can be successful and should be commended. By the way, I hear that CHG was a 25 bagger for NEA. How do you argue with that?

David P. Hamilton · 2 years ago

M. Wynnewood, the short answer to your question, of course, is "nothing" -- at least so long as the strategy works. Does it? I don't think anyone knows. While NEA has clearly had some hits this way -- Linehan said something similar about both CHG and an earlier healthcare-service investment from the late 1990s -- you'd need to look at the firm's entire VGE portfolio to make that judgment.

That said, what interests me most about this subject is what it says about the direction of VC investing. There's already been a tremendous amount of angst about a paucity of early-stage VC investment over the past six or seven years, largely driven by the search for early exits. In life sciences, for instance, that's driven a boom in "specialty pharma" companies that buy up discarded drugs or reformulate generics. Such companies may well be worthy and economically viable, but they're not remotely innovative in the same way as your typical early-stage biotech or medical-device firm.

So as VC money moves downstream, it raises natural questions about the extent to which these firms are still primarily funding transformational innovations, or just chasing dollars wherever they can find them. Now, NEA is big enough that perhaps it can do all of that at the same time. But that's a proposition that seems worth examining from time to time, which is what I've tried to do here.