Disease foundations often give money to startups working on treatments that might help the people they advocate for. But it’s not too often you’ll see a nonprofit foundation join with a venture firm to create their own company, as JDRF and PureTech Ventures are doing today.
Boston-based PureTech has secured a $5 million investment from New York-based JDRF (formerly known as the Juvenile Diabetes Research Foundation) to spawn T1D Innovations. The new entity is described as a company-creation vehicle that will help form, and provide seed funding, to startups that develop innovative therapies for type 1 diabetes. The plan is to funnel as much as $30 million from other non-profits, strategic and financial investors, into T1D, and use the cash to start eight to 10 projects. Many may go by the wayside, with a few surviving and becoming new independent companies.
“The goal is not to make a quick buck, that’s not why we’re doing this,” says David Steinberg, a PureTech partner and TID’s initial CEO. “It’s really to lower the activation energy of getting these things out of academia and out of the realm of more basic research into that translational development pipeline.”
To be clear, TID isn’t a startup accelerator, and it isn’t meant to be a long-term venture. Rather, its goal is to find promising, transformational ideas in the area of type-1 diabetes, keep them breathing, and usher them from concept to company —all within the timeline of a typical fund’s investment cycle. Ideally, each spinout company would then either find a pharmaceutical partner to help develop its program, or land a Series A round from traditional venture investors to get itself off the ground.
This is important, Steinberg says, because this type of funding is drying up, in part because the government sequester’s squeeze on National Institutes of Health grant money is making it harder to translate scientific ideas into potential products.
“The real problem that this is addressing is what’s typically referred to as the Valley of Death—this translation gap between new basic research and longer term, clinically relevant development of these technologies,” he says. “A vehicle that can go out and start companies around the most exciting technologies, not just invest in existing companies, that allows not-for-profits to participate, those are kind of the two key things that make this unique.”
PureTech is doing this by aligning the goals of for-profit investors with non-profit entities without putting the latter’s tax-exempt status in jeopardy. T1D will initially own the majority of the equity of each startup, and then sell shares as each company develops and raises its own outside funding, with the proceeds flowing back to T1D and its investors.
For patient foundations to take part, this is a little trickier. Foundations have two pools of cash: endowments, and money set aside to further their missions. Those foundations typically use the mission-related cash to … Next Page »