My response on the highly thought provoking blog post "Venture Capital 2.0" by Drug Baron (David Grainger) - posted on 01/Mar/2013
---------------------------------------------------------------------------------------------
Once again a really thorough
proposition by Drug Baron that leaves frustratingly little scope to contradict.
For the sake of a debate I would still like to raise a few questions; make a
few statements & generally try not to sound like mouthing a rejoinder in
support of Venture Capital 1.0 - which it definitely is not! J
It is absolutely true that the VC
model should periodically re-invent itself & evolve like the innovations of
other kind it chases routinely – this, I believe is not just true of VCs
focused on life sciences but for all others too. Also, after a quick read, I
realized that one could misread the term “asset centric investing” if they do
not go through what exactly Index ventures pursues through its IDDs – David, you
may consider hyperlinking your statement “Asset-centric investing is only the first step on
a road to improved returns for life science investors” to http://www.indexventures.com/blog/index/post/354.
Now, since the primary intent of
the asset-centric-investing model appears to be de-risking venture funding to the LPs
(and thus raise funds with less difficulty), the inferred premise(s) of this
model appear to be as follows;
- That the early discovery prior to lead-validation should-not-be/ need-not-be venture funded
- That owing to the large investment & the inherent risk of failure, innovation (in particular drug discovery) is something better left to academic/ federal institutions & large pharmaceutical organizations that can afford the risk (did someone say, ‘risk is neither created nor destroyed, only transferred and hedged differently!’ :-))
- And finally that any VC backed biotech with a “pipe-line” hasn’t probably thoroughly screened the clinical & commercial viability of candidates including, probably in a few cases other than, the lead-program candidate for which it managed to tease out some funding?
No doubt this model makes
absolute sense to the fund of funds or LPs on its focus on sheer reduction of
risk to IRRs but not sure if this model helps generate & nurture novel
enterprises & why should it? - now I do realize that the ACI model also
believes that creation of an innovative enterprise is NOT the VCs
responsibility (probably since they are using ‘others money’ for this noble
cause? J)
& more a responsibility of the struggling entrepreneurs themselves?
Without sounding too knowledgeable
about it, I would like to believe that across the past few years, VC seemed to
have played a role in keeping afloat the spirit of enterprise at the most
critical & vulnerable early stages and thus helped, however minimally, in
letting a lot of budding innovators take root & grow their enterprises into
cash-cow organizations that’d offer a lot more de-risked alternative asset
investment options to the LPs.
So while I generally &
unequivocally support the need for yet another paradigm shift in drug discovery
methodology & innovation models, I am not sure if a VC model de-risked to
this extent almost morphing into a PE would help this innovation paradigm nor
help create the much needed pipeline of early innovative enterprises that later
mature into investable asset-centric organizations.
Post thought:
In the current context of
drastically reduced spend on basic discovery by big-pharma, I see that most
most biotechs, drug discovery organizations have started to reinvent themselves
into “drug development organizations” and have quite voluntarily started de-risking
by building a pipeline/ portfolio of in-licensed/ spun-off ~pre-validated drug
candidates . So I guess without so much as a nudge, the enterprise out there is
all ready for Venture Capital 2.0 – Now again that doesn’t say much about the
survival chances of real innovation that not necessarily stems from the largest
of organizations/ institutions….. after all, garage innovation in life sciences
appears to be a distinct possibility in in these winds of open source drug
discovery.
