Frontiers of Entrepreneurship Research
1996 Edition

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John Freear
Jeffrey E. Sohl
William E. Wetzel, Jr

Center for Venture Research,
Whittemore School of Business and Economics
University of New Hampshire
McConnell Hall
15 College Road
Durham, NH 03824.

Telephone/Fax: (603) 862 1981 / (603) 862 4468

Principal Topics

This paper reports the results of pilot study interviews of 38 investors conducted in 1995 by the Center for Venture Research into the design and implementation of an independent technology evaluation program. The purpose of the research is to develop an understanding of the components of a technology evaluation that are considered important by private investors, with the objectives of increasing the efficiency of the informal venture capital market and of improving the movement of technology from the conceptual to the operational.


The Center for Venture Research used the not-for-profit Technology Capital Network, Inc.'s data base randomly to select 84 private investors who had contemplated, or had made, investments in technology-based ventures within the last five years. Of the 61 who were contacted, 38 agreed to participate, a response rate of 62%. A research assistant in the Center conducted the telephone interviews, using a carefully structured script. The telephone interview script divided the questions into five principal sections: technological feasibility, market potential (sub-divided into supply side and demand side), investor activity, the investment evaluation process, and, finally, the role of the National Institute of Standards and Technology (NIST) in the process.

Major Findings

The interviews found that investors in high technology ventures would use an independent evaluation service as part of their due diligence procedures in assessing potential investments in technological innovations. They would welcome the involvement of NIST as a "broker"

for the independent evaluation of innovations, even though several investors had known nothing about NIST prior to the interview. The investors make it clear that the evaluation process must contain more than the assessment of the technological feasibility of the innovation, and an assessment of whether the innovation could be produced in commercial quantities. In addition, they want market related assessments, an assessment of competing technologies, and an assessment of the impact of governmental and non-governmental obstacles to market penetration. Most investors expect that a thorough and reliable evaluation could be performed within two to three months, and find this an acceptable period of time. Some investors raise the issue of the cost of the evaluation, but all are concerned that the qualifications and experience of the evaluator be appropriate to the task and be made known to the investors. Several investors would wish to know about the methodology employed and the data used in the evaluation.


The evidence is clear from this pilot study that most high technology investors would use an independent evaluation as part of their due diligence. Many see value in having NIST review and comment on their own evaluation, as an alternative to NIST performing the initial evaluation. Most are concerned, however, that the experts employed to perform the evaluation or the review be credible, and they wish to know the methodology adopted and the data used by the experts. Although some know little or nothing about NIST, most recognize the value of having NIST assemble independent experts to perform technological and market based evaluations of innovations in which they were considering an investment, provided that the evaluation can be accomplished in a timely and cost-effective manner.

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