CURE and Yale’s final BioHaven entrepreneurship lecture of the year drew out a large crowd of 150+ attendees and focused on venture capital (VC) investing in healthcare and life sciences. This BioHaven panel was convened to shed light on funding opportunities and investment strategies at different firms, from corporate VC to more traditional groups.
Amogh Sivarapatna, a Yale PhD student in biomedical engineering and an Advanced Graduate Leadership Fellow in SOM, opened the event by discussing the challenges of creating and funding startups in healthcare and life sciences. He commented on how some entrepreneurs are uncertain about starting companies in this space because of the complexity of building a business that not only takes into account the science, but also potential regulatory, commercialization and payor hurdles.
Tim Shannon, MD, General Partner at Canaan Partners, began his role as moderator by setting forth the venture model in general. Venture capital is a type of private equity that makes investments (provides capital) to high-growth startup companies in return for equity stake in some form (including convertible debt). It is expected that these investments will be successful in that they make a better-than-average return for the investor. This, for example, can be a $50M investment with a $300M exit, but generally the 3X gross multiple return on investment (ROI) can be attractive to investors, while some big hits may return 10-20X. Most VCs are limited partnerships that have a fund of pooled investment capital with which to invest in a number of companies and are contractually obligated to return that investment capital to their limited partners, such as public pension funds, foundations and family offices, after a certain number of years. Thus, while funding innovation and next-generation technology, VC firms typically exist under a financial microscope to make viable returns as an asset class.
The discussion moved on to talk about structures at different funds, including Canaan Partners, which manages approximately $4B in assets, with 60% investments in tech and 40% in healthcare with 90% of these being early investments. Jason Hafler, PhD, Director of Investments at Sanofi-Genzyme Bioventures (SGBV) represented the corporate VC side and discussed SGBV’s unique strategy to only invest in early stage companies with promising new products that may be future Sanofi pipeline candidates. As a strategic fund, SGVB is also able to leverage Sanofi and Genzyme’s established expertise in science, preclinical and clinical development, regulatory, manufacturing, market access and commercialization. Liam Ratcliffe, MD, PhD, Managing Director, New Leaf Venture Partners, primarily makes late-stage investments in biopharmaceutical, information convergence (HCIT), medical device, and biological research tools & infrastructure sectors. The healthcare team at New Leaf spun out from the Sprout Group, the venture capital affiliate of Credit Suisse. David Wurzer, Executive Vice President and Chief Investment Officer, Connecticut Innovations (CI), which is Connecticut’s quasi-public state-funded venture capital firm responsible for growing the state’s businesses, discussed CI’s model. CI operates as an Evergreen fund (an investment fund that returns any proceeds from sales of investments or dividends back to the fund) and makes investment across all stages, including very early to fund proof-of-concept and prototype work to late-stage companies. CI has been named 5th Most Active Life Science Investor Nationwide (2011-2012) and 2nd Most Active Healthcare Investor Nationwide (2012-2013) according to Pitchbook. Finally, David Scheer, MS, President, Scheer & Company, Inc., discussed his company’s practice areas in strategy, transactions and VC. David also shared his insights in the pharma and drug development space by focusing on his experiences in founding Achillion Pharmaceuticals, Inc. and Aegerion Pharmaceuticals, Inc.
The main crux of the panel discussion focused on what VC firms look for in entrepreneurs and companies when making investments. As Dave Wurzer said, it is all about “people who know how to manage change.” While there was no single, universal answer to this question, the panelists seemed to agree that some very important factors include: entrepreneurs with prior experience, a great team (strong management), a commercially viable and scalable business, and extremely innovative, game-changing technology (competitive advantage). As Jason Hafler noted, there is only room for transformative products: “the bar for novelty has been raised.”
Rounding out the discussion, the panelists made recommendations to the audience about areas of focus, including: healthcare delivery, which is a sector that is still in it’s infancy and has no barriers to entry (simple, easy to understand ideas will win), precision medicine, and platform technologies that have wide applicability. With a strong market for healthcare IPOs and life science VC firms, including Canaan Partners, successfully raising new funds, the entire biotech ecosystem appears extremely robust, which is good news for investors, entrepreneurs and patients alike. All panelists welcomed direct follow-up contact with them.