Over the past year, more and more VCs have started to unveil
& employ their own versions of a ‘return-maximizing, risk-mitigated
investment model’ that typically involves multiplying the early-stage portfolio
& bringing down the average-size of seed-investment while maintaining the
overall seed-stage investment at no greater levels than earlier - A
case-in-study being the recent Seed-class of Atlas Ventures & equally
demonstrated by Index Ventures developing its proprietary version of MonteCarlo simulation for optimally distributing precious funds across its portfolio
of biotechs' with assets across different phases of clinic.
This holds largely true
for the increasingly active Pharma CVCs too that not only are mimicking the VCs
in increasing their early-asset portfolio, but have taken derisking a notch
higher with their joining forces* with other CVCs (competing pharma) in funding
rounds, quite apparently compromising on the eventual ownership of the commercial
potential &/or IP generated in the bargain.
* OPSONA (Novartis,
Roche, Baxter among other VCs) AILERON (Novartis, Roche & Lilly among other
VCs); MERUS (Novartis, J&J & Pfizer among other VCs)
While this may sound like life sciences venture funding is
slowly turning into a mere statistical exercise (venture-farming…?), a la the stock
market, knowing what it takes to separate wheat from the chaff in the complex
world of drug discovery, the users of these models will surely need a lot more
than a practical knowledge of the probability theory – which even a cursory
read of the above posts again will make it very evident. Just may be, a biotech
VC can still showcase ‘proprietary deal-flow’ as a core-strength while making a
pitch to the LPs.
Now how does this lean-funding scenario impact the
development strategy of the start-up? – while a few indicators of change are already out there like
the CROs being encouraged (~arm-twisted) to share risk with the biotech while
providing services, I believe this'll trigger bigger changes & hopefully nudge the drug-discovery towards an innovation
pathway that’s a lot more rational & predictable – but then this is
something Drug Baron should talk about.
