A venture capitalist’s investment in an emergent industry: which bets to place?

June 2001, the Belgian Investment Company (BIC) wants to invest in the booming Customer Relations Management (CRM) market. Dave Hudson, investment manager at BIC, has been asked to recommend a venture in which to invest a capital sum of 1 million euro. On his desk, Hudson has the business plans of two very promising ventures active in the CRM market. The first venture, Neurorithm NV, is still in the development stage of its revolutionary neural network-based software platform, which has the potential to become the next SAS or SPSS. Given the new and revolutionary character of their software, credibility will have to be established, however, before income streams will be generated. The second venture, DataMining NV, provides highly customized, unique data mining software for three market segments: the CRM market, bioinformatics and the sports analysis market. The company is expecting a steady growth in the years to come. The business plans of both companies display very diverse business models and ambitions. It is now up to Hudson to decide which one of these two companies to recommend to his superiors for future investment.

Written by Petra Andries and Yvonne Kirkels from the University of Leuven and Fontys University of Applied Science. Download case and teaching note at www.thecasecentre.org or request them from Petra.Andries@econ.kuleuven.be.

ThreeFive Photonics: Searching for the Holy Grail?

In 2001, the Dutch company ThreeFive Photonics was founded by telecom professional Wouter Deelman and PhD student Chretien Herben attached to Delft University of Technology. The founders set out to develop revolutionary opto-electronic chips with the potential to change the telecom industry. That year, venture capital firms invested € 7 million in the promising start-up, but additional capital was needed to develop ThreeFive’s radical “Holy Grail” technology. However, during the product development phase disaster struck: the ‘telecom bubble’ burst and the industry crashed. Desperately trying to keep the company alive, the founding team and investors turned to investigate less radical products, while trying to secure the extra funding needed. As the company’s final hour began to strike they faced an important decision: should ThreeFive try to enter new markets with new products, or look to merge with a competitor?

Written by Elco van Burg, Hans Berends and Sharon Dolmans from Eindhoven University of Technology. Download the full case and teaching note at www.thecasecentre.org or request them from j.c.van.burg@vu.nl.