Case Study-3: Failure of Analog Devices Enterprises In 1980, Analog Devices established a corporate venture program, Analog DevicesEnterprises

(ADE), to generate both attractive financial returns and strategic benefitsi n t h e f o r m o f l i c e n s i n g a g r e e m e n t s a n d a c q u i s i t i o n s . F u n d i n g w a s p r o v i d e d b y Amoco, and ADE had invested $26 million in 11 firms by 1985.T h a t v e r y y e a r A m o c o c e a s e d c o n t r i b u t i n g c a p i t a l , a n d t h e ADE program wassuspended. Around this time, Analog Devices t o o k a $ 7 m i l l i o n c h a r g e a g a i n s t earnings; in 1990, with most of the portfolio liquidated, it took another $12 millioncharge. Of the 11 firms in ADEs portfolio, 10 were terminated, acquired by other companies at unattractive valuations, or relegated to the "li ving dead." Only one firmultimately went public. In this case, ADEs stake was so diluted by a merger that it was worth only about $2 million at the time of the offering.W h a t w e n t w r o n g ? C l e a r l y , t h e A D E p r o g r a m e x h i b i t s a l l t h r e e o f t h e c l a s s i c structural failings:1. Program managers were hampered by the lack of a clear objective. Instead, theyh a d a t h r e e f o l d m i s s i o n : t o i n v e s t i n f i r m s p u r s u i n g t e c h n o l o g i e s r e l e v a n t t o t h e ongoing business of Analog Devices and Amoco, to obtain options to acquire firms of interest to Analogs management, and to generate high financial returns.2 . Analog Devices researchers, seeing scarce resources being devoted to ADE,resented the program. Also, Amoco only committed to fund the p r o g r a m f o r f i v e years, considerably less time than was needed to grow the early-stage companies.3 . I n c e n t i v e s o f t h e v a r i o u s p a r t i e s a p p e a r t o h a v e b e e n i m p r o p e r l y a l i g n e d . T h e management of Analog Ventures believed that they were insufficiently rewarded, andAmoco did not share in the profits generated.