Weekend Reading List 2/15/14

Inspired by the Biotech Reading List over at BioDueDiligence, I thought I would share a few items from my weekend reading list.

• Over at the Kauffman Foundation, there is a new report out called Declining Business Dynamism in the US High-Technology Sector that includes in the conclusion “This sector typically is viewed as very entrepreneurial, but we document a pronounced slowdown in such activity in the post-2000 period.”

I caught this report because of an HBR blog post Ian Hathaway, by one of the report authors. As high-tech for Kauffman generally includes tech & biotech (life sciences), I am hoping the report addresses the question of whether there are discernible differences between industries.

• There was a recent paper , The Disintermediation of Financial Markets: Direct Investing in Private Equity, on the performance of limited partners investing directly into companies, bypassing venture capitalist to make direct investments into companies.

The topic peaked my interest previously because of the Kauffman report “We Have Met the Enemy… And He is Us” and the application of the process in Wisconsin investments. The full paper is available for download but here is the abstract to peak your interest.

The Disintermediation of Financial Markets: Direct Investing in Private Equity

Lily H. Fang (INSEAD – Finance), Victoria Ivashina (Harvard University; National Bureau of Economic Research (NBER)), Josh Lerner (Harvard Business School – Finance Unit; Harvard University – Entrepreneurial Management Unit; National Bureau of Economic Research (NBER))

Abstract:
This is the first large-sample study of direct private equity investments by institutional investors. The analysis uses a proprietary dataset of all such investments by seven large institutional investors over twenty years. Despite the substantial fee discounts, we find little evidence of attractive relative performance by direct investments. In particular, co-investments underperform traditional fund investments: this poor performance appears to result from fund managers’ selective offering of deals at market peaks as co-investments. While some solo direct investments outperform fund investments, this is concentrated in the earlier part of the sample and less information-sensitive transactions. The performance of both co-investments and solo investments deteriorates sharply in the 2000s, suggesting that any information advantage may have disappeared as the private equity industry became more competitive. Overall, our evidence suggests that institutional investors may find it difficult to capture the rents earned by private equity managers by investing directly.

• Twitter did a case study on a pharmaceutical company‘s use of a disease-specific hashtag during a recent conference. One of the three “Keys to Success” was: “Be innovative. Unexpected ideas often obtain the best results. @Boehringer was the first in the pharma industry to use Tweet chats to encourage awareness and engagement within the medical community around a specific disease.”

I am all for pharma/biotech engaging on social media but I am wondering whether we’ve found (or are looking in the right places for) metrics for engagement that can also support the business return on investment for the efforts.