Is Corporate better than Traditional Venture Capital for BioTech Investment?

Melanie Lee, CEO of Syntaxin, an offshoot of the Health Protection Agency focusing on the research into the Botulinum toxin, talks to BioBusiness about syndication with corporate venture investors and whether or not that is a good strategy for biotech companies.

We look at the difference between traditional and corporate venture capital and what each type of investor in biotechnology company partnering and which provides the ‘better’ value for the investees.

Corporate Venture Funds Increasingly Important To Startups

Corporate venture arms are increasingly getting into the startup game at a time when capital inflows to traditional venture capital funds have cooled.

Over the past three years, 182 corporate venture funds were launched, bringing the total number to roughly 900, said Patty Burke of the Bell Mason Group consultancy during a presentation at the Corporate Venturing & Innovation Partnering Conference earlier this month. In terms of deals, about 16% of companies acquired in 2012 had Corporate Venture Capital (CVC) and for 2013, 90% of slated IPOs include CVC.

Though corporate venture funds have been around for 25 years, corporations tend to dislike change, because the status quo is risky to disrupt. “But the question is ‘can we afford not to do something?’” said Robert Ackerman, a partner at Allegis Capital.

If Blockbuster had embraced the new school and bought a company like Netflix, it might still be in the game. But instead, the brick and mortar video rental institution is rapidly vanishing. If Kodak had welcomed players like Shutterfly and Instagram, it might not be bankrupt.

Some companies get it. Nielsen is using its newly established fund for early stage investments. The company’s acquisition policy is “watch and buy,” but it hasn’t been very successful with smaller investments, said Itzhak Fisher, executive vice president of Nielsen and head of mergers and acquisitions. So the company launched Pereg Ventures, which has a goal of making about 15 investments.

In our community, Abbott, Astellas, Baxter and Takeda all have corporate venture investment arms. Although we have not see much investment directly into the Illinois community, Evanston based Naurex last December completed a $38 Million series B with Baxter being the lead investor.

At the same time, getting involved with startups can create friction with other investors. If a corporate investor intends to acquire a company, its valuation expectations will be different from that of traditional venture capitalists who want to maximize their investment, said Paul Lee of Lightbank, an early stage VC firm in Chicago.

Some companies have natural synergies with startups and a process for acquiring and successfully integrating, like Cisco, Ackerman said. Other companies are discovering how to create “pragmatic innovation,” by partnering and learning from innovative startups. They no longer have the luxury to not get involved in rapid global innovation, he said.

This is a conversation, not an editorial. Did I forget something, get it wrong or do you agree? Please Comment, Like, Re-Tweet and and Share.

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