Corporate VCs Have a Global and Early Stage Focus

7 Aug

By Michael Quigley, Director of Research, LSN

mike-2

As large pharmaceutical companies have cut internal R&D spending, they have established and financed venture capital branches, which have quickly become a critical source of capital for emerging life science companies. In a previous article, we discussed the two types of corporate VCs and why they can be a beneficial source of funding. This article sheds more light on corporate VCs by examining some data points from the last 50 mandates that we received from this group and by making comparisons with the rest of the investor community.

A Global Perspective

In general, more and more life science investors are pursuing opportunities worldwide; leading the pack are corporate VC players. Of the corporate VCs that LSN has spoken to, 78% have global mandates, compared with only 41% of investors from all other categories combined. (See Exhibit 1.)

Exhibit 1

The global investment focus of large pharma companies makes sense, as the majority operate worldwide. To uncover potential investments, these companies set up multiple offices around the world to act as external innovation engines or feeders for their parent companies.

An Early Focus

Another data point that can be extrapolated from LSN’s research is that corporate VC investors tend to be interested in companies and products at the earliest stages of development. This is true in the biotech and medtech sectors. For example, 82% of corporate VCs are interested in therapeutic and diagnostic companies that have technology or products in the preclinical stage, compared with 57% of other investors. (See Exhibit 2.)

Exhibit 2

Corporate VCs tend to have a good understanding of the scientific and regulatory hurdles that technologies face; therefore, these investors are more willing to evaluate and allocate to companies in the early stages of development. Additionally, corporate VCs are looking to fill their parent companies’ development pipelines. By identifying opportunities early, they are able to secure equity positions when the valuation of a technology or company is relatively low.

Large pharma companies aren’t the only corporate VCs in the life science space. LSN has also noticed that the venture divisions of a number of high-tech companies, such as Google and Samsung, have a growing interest in the healthcare sector. It is a positive development for the life science space that high-tech corporate VCs are joining large pharma to fill a crucial funding void that is being felt on a global scale.

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