CHANGING ROLE AND SCOPE OF VENTURE CAPITAL


liquidity for investors, including insiders. Going public at the right time
also provides maximum cash for minimum dilution of equity ownership by
the existing investors.
 Timing of an issue is very important. An illustration of timing is pre-
sented in a study done by Howard (1973). During a 22-month period,
(through October 1972), 452 venture companies filed initial registration
statements. Of the 234 ventures who filed registrations in 1971, 97 had
gone public by October 1972, a period in which the public markets were
good and the Dow Jones Industrial index exceeded 900.
 The successes of 1972 led more companies to retain underwriters for
offerings of securities in 1973. Through October 1973, 90 ventures filed
registrations. Only six were successful. Another six were effective, but the
best-efforts underwriting was not completed. Of the remaining firms un-
der study, 16 withdrew their registration and 62 remained in registration,
hoping for a new issue market rally.


RESEARCH AND DEVELOPMENT LIMITED
PARTNERSHIPS (RDLPs)

 A source of financing that has rivaled the stock market in size is a type of
investment known as an R&D limited partnership. This allows individuals
or organizations to invest in a company's research and development and to
write off that money as expenses. The investors become limited partners
and are entitled to receive royalty payments from future sales of products.
Part or all of these royalties are in turn taxed as capital gains, offering an
added attraction to this kind of investment.
 Since their inception, more RDLPs have been devoted to biotechnology
than any other technology segment. According to a draft of a new study
that the New York University (NYU) Center for Science and Technology
Policy carried out for the National Science Foundation, through the end of
last year RDLPs in biotechnology raised $663 million-fully 27 percent of
the $2.5 billion total raised through RDLPs (Klausner, 1986). As a compar-
ison, the study, "RDLPs and Their Significance for Innovation," notes that
biotech has attracted only about 3 percent of all venture capital support.
The report estimates that 85 percent of all funds raised by RDLPs actually
goes to research, and that this financing vehicle has sponsored about $0.5
billion in R&D annually since 1982 (Klausner, 1986).
 The bottom line is that RDLPs are here to stay for biotechnology. The
NYU Center draft concludes, "A company with a solid reputation and