A west coast North American comparative study of: venture capitalists' perception risks when selecting life science investment opportunities

Life science technologies are some of the most comprehensive and difficult to evaluate as investment opportunities. If Venture Capitalists can only invest in a specific number of portfolio investments, it is crucial that the investment opportunities chosen are those that are also the most likely to succeed. Investor perception risks due to lack of qualification, technology comprehension, information asymmetry or overconfidence, are factors that may limit Venture Capitalists from choosing investments that create wealth. To date, little research has been dedicated into the understanding of risk perception and technology comprehension among Venture Capitalists who specialize in life science investment opportunities. This study included a literature review as well as nineteen (19) semi-formal interviews with Venture Capitalists located on the West Coast of Canada and United States. Results show that interviewed Venture Capitalists are, overall, qualified in making life science investment decisions. However, results also showed that there are trends towards Venture Capital adverse selection and overconfidence during investment selection, particularly with respect to personal performance. Results further showed that adverse selection may occur simply as a way of reducing risk, particularly information asymmetry risk. In these instances it appears that opportunity selection is geared towards selection of known and trusted management rather than actual investment opportunity. Differences between West Coast Canadian and United States Venture Capitalists were also found. These differences specifically included the degree to which selection risks are taken, where interviews Canadian Venture Capitalists appeared to be more ethical and cautious investors, and interviewed United States Venture Capitalists were concerned with creating wealth out of innovative technologies in a wide variety of geographical locations.