Venture Capital Clue To Hot Issues Managers Sift Through Dozens Of Deals To Find Winners

Looking for the next Netscape?

So is everybody else, but one clue to discovering the next hot initial public offering could be as simple as finding out which company has had the benefit of venture capital and which has not.

A recent study shows that of the companies that have gone public since 1986, the ones that had been backed by venture capitalists had the biggest rise in their stocks.

The Securities Data Co., a financial information company based in Newark, N.J., reported that offerings backed by venture capital rose an average of 135.1 percent during the period, while non-venture capital offerings rose an average 35.5 percent.

Also, in the first year of trading, offerings that were backed by venture capital gained an average of 32.5 percent, while non-venture capital offerings averaged a mere 10.9 percent.

Analysts were not surprised at the gap in performance.

“Venture capital firms will sift through hundreds of business proposals and back very few of them. The ones they back are companies with the best managers, technology and strategies for success,” said Robert S. Natale, director of equity research at Standard & Poor’s.

Then there’s the power of money. The venture capital, Natale said, can provide companies with a crucial edge in large, competitive markets like high technology and health care markets.

Investors can get a piece of these promising offerings by buying small- or micro-cap mutual funds that allocate a certain percentage of their portfolios to new issues.

These funds include the Warburg Pincus Post-Venture Capital Fund and the Kaufman Fund, both of which invest in companies backed by venture capital.