Reprint: R0703A
Christian Harbinson, a young associate at the venture capital firm Scharfstein Weekes, has a difficult decision to make before the next investment committee meeting. He’s been watching over SW’s investment in Seven Peaks Technologies, and sales of its single product have been disappointing. Now the company’s head, Jack Brandon, wants another $400,000 to pursue a new product.
Harbinson believes in Brandon and in his proprietary technology—a titanium alloy that prevents surgical instruments from sticking to tissue. Three years ago, Brandon quit his job and put $65,000 of his savings into developing a nonstick cauterizing device. Two distributors offered to carry it after they saw his demonstration at a trade show, and a couple of surgeons, quickly becoming enthusiastic, promised testimonials.
But if Brandon’s cauterizer is to take off, surgeons will have to abandon the forceps they’ve traditionally used and switch to the Seven Peaks device—a change in behavior that will come slowly if at all. So, Brandon thinks, why not adapt his alloy to a line of forceps?
Now Harbinson wonders if he himself has become emotionally overinvested in Seven Peaks and if this decision is as much a test of his VC potential as of the actual deal. Should Scharfstein Weekes back Brandon’s company with a second round of funding, or would it be a case of throwing good money after bad?
Commenting on this fictional case study are Ivan Farneti, a partner with Doughty Hanson Technology Ventures; Fred Hassan, the chairman and CEO of Schering-Plough; Robert M. Johnson, a venture partner with Delta Partners and a visiting professor at the University of Navarro’s IESE Business School; and Christoph Zott, an associate professor of entrepreneurship at Insead.
