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| Private Equity |
In Calamity’s Wake
Charles W. Thurston
04/01/2004
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Alexei Andreev is focused on the small things—so small they are indiscernible
unless you have a tunneling electron microscope handy. An intense young Russian
émigré armed with a PhD in solid-state physics from the Moscow Steel &
Alloys Institute and an MBA from Stanford, Andreev is almost evangelically
excited about nanotechnology. For the last two years, he has been a partner at
Draper Fisher Jurvetson (DFJ) in Redwood City, Calif., one of the leading
venture capital firms funding nanotech start-ups, with some $3 billion under
management.
TOP VIEW
There are high hopes for private equity this year. The rebirth
of the initial public offering market has provided a welcome exit option for
funds; the development of a secondary market for private equity interests has
done the same for individual investors. Fund managers are pledging to avoid the
worst excesses of the boom years, and the business environment for small
enterprises is improving. If we believe these factors make a compelling case for
private equity, we need to first evaluate our liquidity needs and then find a
way to access the best funds. |
We and our family offices are breathing new life into venture
capital funds like Andreev’s: Individual investors provide capital for DFJ’s
home office fund and its 14 affiliated funds, based at science research centers
around the world from Beijing to New York. The latest addition to its network is
the DFJ Mercury Fund, which operates in the Houston-Austin area and has invested
in start-ups that include NanoCoolers, a builder of tiny machines that cool
electronic devices, and Molecular Imprints, which is developing a tool to
imprint minute designs onto a chip wafer.
While investors have generally
shunned the technology sector in the wake of the Internet debacle, private
equity and venture capital funds like DFJ are tiptoeing back into their good
graces—though, admittedly, only in areas that have clearly defined business
applications. “We believe nanotechnology is substantially closer to the real
world than most people think,” says Andreev. “There are promising applications
being developed for alternative energy, photovoltaics, computer memory and a new
class of batteries, among other areas.”
Convincing us that these individual
investments make sense may take some effort, given the number of private equity
firms that shattered our goodwill and confidence in recent years. Even so, it is
difficult to argue with private equity’s returns: The category’s long-term
performance is likely to draw us back in, albeit cautiously, as the funds begin
rebuilding their capital bases this year.
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