Damodaran explains the influence of parent entities

Damodaran explained that the priorities of the parent entities (which provide the funding) largely dictate what and how much they invest in.

He shared this data today at the Stern School of Business.

The professor further noted that few companies have a corporate venture capital (CVC) arm/division responsible for CVC investments. This lack of independence from parent companies often results in less diversified investment portfolios.

Google’s venture capital investments thrived on the ‘Sugar Daddy Effect’

The “Sugar Daddy” effect is evident in the success of GoogleVenture capital investments.

Damodaran pointed out that Google has benefited from investing beyond its comfort zone in start-ups such as UberAirbnb and Soft at the beginning of their life cycle.

Meanwhile, tech giant SAP was forced to close its venture capital arm this year after start-ups it backed raised more than $12.9 billion over seven years.

What impact does this have on investments in low-emission fuels?

Damodaran also explained how the “Sugar Daddy Effect” has had a particular impact on investments beyond fossil fuels.

He noted that while large sums have been invested in solar, wind and hydroelectric power, only a fraction has been devoted to nuclear power and other low-emissions fuels.

Indeed, impact investors “want to have the cake, that is to say market-beating returns, and eat it too”. This has a direct impact on efforts to combat climate change.

Damodaran calls for greater independence in fund management

Damodaran insisted on greater independence for fund managers, a clear, conflict-free objective and the willingness of parent companies to close unsuccessful ventures.

He argued that this could lead to more diversified and potentially successful investments.

The professor’s observations on the “Sugar Daddy Effect” provide a new perspective on venture capital investment strategies and their possible pitfalls.