Ryan Sansom Explains Strategic Investments for Life Science and Technology Companies

Many entrepreneurs have at least a topical grasp of the world of investors and capital finance. Much of this understanding, however, typically centers around more conventional financial investors such as high net worth individuals, angel investors, venture capitalists or private equity funds. Founders of healthcare startups often encounter strategic investments that require interaction with a very different entity: the “Corporate Venture Capital” investor.

Corporate VC investors are typically large publicly-traded or privately-held companies that either operate directly within the startup’s particular industry or consider the startup (or its technology) to be of unique strategic importance.

To help founders of life science companies better understand strategic investments by “corporate VCs,” Goodwin Procter partner, and Founders Workbench contributor, Ryan Sansom participated in a recent “On Air” Google Hangout hosted by The Capital Network to discuss the topic.

The following is the first in a series of posts that summarizes Ryan’s discussion. This first post clarifies who exactly is making strategic investments, and some trends in strategic investing.

Who exactly is making strategic investments?

As noted, we’re not talking about traditional VC and other financial investors. When it comes to life science and technology investments, we ARE talking about large publicly-traded or privately-held companies that are sizable enough to make corporate investments in startup companies. Examples of such corporate VCs that are publicly active in the software and hardware space include Google, Intel, and Motorola.

In the healthcare information technology (HCIT) area, the players that are active include CVS Caremark. In the biotech and small molecule arena, the big public players include J&J, GSK, Sanofi Aventis, Biogen Idec, Merck and, most recently, BI (NOTE: these companies are listed because their activities are public; many other companies are likewise active in strategic life science investments, but for competitive reasons they keep these activities private).

Trends in Strategic Investing

Traditionally you’d see strategic investors come in at the later funding rounds (after, for example, a Series B or Series C round). Traditional software and hardware companies have long taken positions in strategically important companies as a precursor to an acquisition – the end-game for the strategic investor. More recently, we’ve seen more life science companies and other strategic investors approaching companies at earlier stages – including leading or joining the syndicate in the first round of institutional financing.

The reasons for this shift include:

  1. Expiring patents – Among the bigger biotech and pharma companies, the ‘patent cliff’ is approaching – as those patents ‘roll off’ the cliff and the current drugs face generic competition, these companies need new drugs, devices and products to sell.
  2. Shifts in R&D – there is a school of thought that within a large company, which has more bureaucracy and complex administrative processes and perhaps a dearth of collaboration, R&D might not work as well as it does at an early-stage company. This has prompted a cultural shift within large-company R&D departments in which there is a more concerted effort to downsize and buy rather than to build (as seen in software field, for example).

To learn more about strategic investments for life science startups watch the full Google Hangout here.

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