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It takes tough analysis, savvy business sense and the daring of a high-wire walker to sort out the possible winners from the almost certain losers. Says George Rooks, 45, president of First Capital Corp. of Boston: "In the final analysis, it boils down to educated instinct—call it judgment. What we make is a judgment on the people and the product." For instance, Boston's TA Associates and New York's Inco Securities have raised $3.5 million to start a new company called Immunogen Inc. The firm plans to develop the use of monoclonal antibodies, which are invisible bits of protein that could be used to carry toxins that will specifically attack cancerous and other diseased cells, while leaving healthy ones alone. Although the technique remains unproved, the company looked like a good bet largely because its research staff is headed by a Nobel prizewinner and includes faculty members from Yale, Harvard and M.I.T.
The management of the new company is usually regarded as even more important than the product.
Says William Burgin, a partner in New York's Bessemer Venture Partners: "We prefer to invest in people with a track record, or we find a good manager for someone who comes up with a good idea." One such person was Irving Tague, who had been general manager of Hughes Airwest, a West Coast airline. Tague headed a group of executives that founded Chicago's Midway Airlines in 1979. The company, which was launched largely with $6 million in Bessemer venture money, earned more than $3.4 million during this year's second quarter alone.
Venture capitalists generally avoid investments in entertainment, such as Broadway shows, real estate or oil drilling. Says Burgin: "The potential sales have to be in the $100 million range. We can't invest in fads."
The work of these bankrollers does not end with an investment of $1 million or so in start-up money. They must then spend perhaps five to seven years nursing along the company with judicious management assistance and usually additional money. In 1969 Whitney helped start Storage Technology Corp. of Louisville, Colo., with an investment of $500,000. The company, which makes advanced computer accessories, had troubles for years until Whitney put one of its people on the company's board. Five years ago, Storage Technology's business finally began to grow as expected, and today it has annual sales of $603 million. After the company sold its stock to the public, Whitney's initial investment produced a return of $50 million.