Venture Philanthropy: Fast, Disciplined, and Getting People Started

25 Sep

By Shaoyu Chang, Research Analyst, LSN

Shaoyu 10*10Venture philanthropy investment is playing an increasingly important role in early stage life science innovation. More and more, nonprofit foundations are partnering with start-up companies to advance science and address unmet needs. At the recent Redefining Early Stage Investments Conference in Boston, leaders from five prominent foundations gathered for a discussion on the evolving landscape of venture philanthropy in life science research.

At a time when traditional funding sources for life science are on the decline, venture philanthropists are stepping in to fill some of the gaps. “We are looking at the emerging markets of tomorrow. They might not be big, but they are not inexistent” said a program investment officer with a leading foundation in global health. “We are trying hard to find the right mix of commercially viable companies that can serve our charitable goals.”

Unlike traditional grant-making foundations, to facilitate innovations, venture philanthropy investors offer science expertise and business management skills in addition to their investment dollars. “Money is not enough. It is essential that you are part of the process,” said the founder of a nonprofit fund dedicated to the treatment of rare diseases. The resources of this fund helped establish a biotech start-up that is advancing new therapies through clinical trials.

The risk involved in early-stage life science innovation makes it difficult to raise funds from increasingly risk-averse venture capital investors. By contrast, venture philanthropy investors are more willing to accept these risks. “Our goal is to de-risk early-stage research,” said the CEO of a foundation that focuses on autoimmune diseases. “Our measure of success is not the number of new therapies approved, but that new therapies are tested more frequently and quickly.”

To achieve the dual goals of social impact and business success, venture philanthropy investors are now expecting specific outcomes from their strategic partnerships. In addition to milestones in scientific development, many foundations are now sitting on management boards and are receiving returns on investment upon commercialization of the research that they have funded. The view on nonprofits as non-dilutive capital is outdated.

Besides funding, venture philanthropy can bring much more to the table, from access to top-tier research institutions to patient group connections. “We are fast, disciplined, and can get people started,” said the CEO of a fund devoted to neurodegerative diseases.

As venture philanthropy grows in significance for early stage investment, start-ups will find opportunities for new strategic partnerships. Scientist-entrepreneurs should feel encouraged to reach out to philanthropic funds, showcase the strength of their science, and demonstrate how their big ideas can align both commercial potential and philanthropic mission.

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