Family Offices: The New VCs
Guest post by Dennis Ford, Founder & CEO, Life Science Nation, a sourcing platform for prospect pipeline development in the life science arena.
There is not enough capital to fund all of the good ideas from life science companies, which is a major challenge for life science CEOs today. To identify the next not-so-obvious investors, fundraising executives should look to the capital-raising practices of start-ups in other industries. If they do, they will learn that the basic premises include thinking outside the box and being flexible and more creative.
The economic turbulence of 2008 and 2011 has forced institutional investors to reevaluate how they fundamentally invest. The poor performance of some of VC and PE fund managers have concentrated fewer dollars in the hands of fewer managers, and the increased competition for those scarce dollars have slowed the life science market at a time when the number of potential technologies and products are surging. The banks, pensions, endowments, and insurance funds that made up a large portion of new VC and PE funds have become risk averse.
However, a new paradigm is emerging: family offices are becoming the new VCs. The void left by the institutional investors is, to a surprising extent, now being filled by family offices. They have brought Wall Street talent in-house and adopted and incorporated all the processes and procedures of alternative institutional investors. There is a lot of press being generated about this new opportunistic investor in the life science arena.
The big win for life science fundraising executives is that unlike traditional alternative institutional investors, family offices are not solely driven by a rate of return. They also want to see their investments benefit and impact the world. This opens yet another door for life science entrepreneurs: starting with the philanthropy arm of family offices.
The fact of the matter is that philanthropy and life science investment go hand in hand. Bill Gates, Warren Buffet, Michael J. Fox, and many other billionaires and celebrities have all contributed to making it politically correct to be globally aware and to put capital behind facilitating science and technology that can change the world.
Life science fundraising executives who are quick to take advantage of the shifting investor landscape have an opportunity to find investors who are interested in their company’s research and at its current stage.