Entrepreneurs have an unwritten rule about corporate investors: Taking their money means potentially turning off other companies that could acquire (or hire) you.
Maybe it’s all a lie?
Everyone – from corporate investors, the entrepreneurs who take their investments, and a lawyer who advises startups – has heard that warning. But at a MedCity News forum on corporate venture capital last week in Chicago, they all say the old adage is as real as Hogwarts.
On the contrary, corporate investors validate products and lead to new deals with others in the field, said panelist Paul Magelli, CEO of the health data company Apervita.
The event was held at the MATTER accelerator in Chicago, sponsored by Sidley Austin LLP, and part of MedCity News’ larger investor conference, MedCity INVEST.
Magelli was joined by Marc Gottschalk, a partner at Sidley Austin LLP who is also co-leader of Sidley’s corporate venture capital group; Dr. Paul Resnick, senior vice president for business development at Juventas Therapeutics; and Carolyne Zimmermann, general partner at dRx Capital, the Qualcomm-Novartis joint venture.
In Magelli’s case, he’s dealt with corporate venture in two startups. Mayo Clinic Ventures and GE Ventures both have a stake in Apervita. Plus, he also ran a company that got investments from T-Mobile and Motorola.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
The same is true for Resnick. Takeda and the Korean pharma Green Cross Holdings have invested in Juventas. At an earlier company, Resnick dealt with Novartis as an investor.
Magelli and Resnick both said their corporate investors never scared off anyone. Mayo Clinic and GE Ventures have both opened doors to customers in the case of Apervita, Magelli said.
Resnick said for an early-stage life science company, an endorsement by a big player in the space is validation the company is on the right track. It’s never kept acquirers from sniffing around, he said.
That doesn’t mean corporate VCs don’t come without strings. Gottschalk and Zimmermann both noted that entrepreneurs need to take a close look at protective provisions of corporate investment deals – particularly around voting rights, benefits upon the sale of a business, or the ability of the corporate investor to veto the sale of a company.
There’s also the more tangible, day-to-day strings. Juventas’ deal with Green Cross Holdings, for example, gives Green Cross distribution rights in South Korea. Magelli, meanwhile, said that while leading the telecommunications data company Apertio, he experimented with revenue streams per the request of Motorola that, if Motorola wasn’t an investor, they would have never tried.
Corporate venture capital is a bigger part of healthcare innovation. The more myths we can bust the better.
