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How to spot a good idea
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August 1, 1997: 5:19 p.m. ET
Venture capitalist culls 1,500 proposals a year for good investments
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NEW YORK (CNNfn) - The venture capitalist behind billion-dollar ideas from Office Depot to sheep cloning says it's not hard to spot a winning business proposal from the pile of 1,500 that lands on his desk every year.
Alan Patricof of Patricof & Co. says he looks for good management, a profitable product or service, and what he calls an "unfair advantage."
"What I call an unfair advantage means something that's better," Patricof said on CNNfn's "Business Unusual."
Besides Office Depot, his company has backed firms such as Apple Computer and America Online. He's also put money behind long-term investments such as sheep cloning.
While it might seem daunting to find 1,500 dreams on his desk, Patricof said that only a handful are legitimate business plans. (217K WAV) or (217K AIFF)
"We're pretty organized and disciplined," Patricof said.
Not every businessperson needs to go to a venture capitalist, he said. Neighbors, family or friends can provide the crucial start-up money.
"The further you can take it along in developing a new project, you will get greater value," Patricof said.
Endowment funds, corporate and public pension funds, and foundations are Patricof's source of money.
He looks for a 35 to 40 percent return on his investment for an early-stage startup. The company has to have a high threshhold in order to maintain a portfolio of investments.
"That doesn't mean we make that in every situation, because we have losses," Patricof said.
For example, Dolly the sheep hasn't reaped much yet.
"We have not yet made the kind of money you would think you should make for coming up with such a major technical development," Patricof said. "In that area, it takes so many years to actually bring a product to market."
Long-term investments in areas like genetics are perfect for venture capitalists, he said. In fact, companies like Patricof's helped spawn the entire industry. (83K WAV) or (83K AIFF)
"You're certainly there, backing talented people who've done something before and have a good reputation," Patricof said. "And a good idea."
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