It took about an hour to get pushback on the concept that venture capital in the life sciences isn’t what it’s cracked up to be.
Michael Horvitz, a retired partner from the law firm Jones Day, said healthcare venture capital is crucial to bring products to market. He also warned that entrepreneurs shouldn’t assume that potentially untapped funding sources, such as family offices, will fill any perceived funding gap.
Horvitz spoke up in part because of remarks made earlier Sunday at the Cleveland Clinic Medical Innovation Summit by MIT’s Andrew Lo, who said the business model for life science venture capital was essentially done because it takes too long and too much capital to support drugs and devices. More patient investors and investment approaches should supplant it, he said. Others echoed those remarks during the day.
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Horvitz was on a panel at the summit discussing family office investing soon after Lo’s talk.
“I am sort of a big believer in venture capital,” said Horvitz, who along with his law career plays a role in his family’s foundation and other activities.
Investors mitigate the long timeline of life science investments by having a diversified portfolio, he said. Also, life science startups need an investor that can train founders in entrepreneurship, and address a challenge for many researchers and scientists: a reticence to give up any control
Family offices, Horvitz said, are poor at that. Venture capital, meanwhile, provides those services.
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“Venture capital comes in and studies the technology and the marketplace,” he said. “They want to see milestones. Most family offices and family foundations don’t have staff to do that.”
Horvitz also rejected the notion that family offices would somehow be more patient than venture capital firms and tolerate investments that wouldn’t see a return in “10 or 20 years.”
“I question that. Who wants to make an investment in which you won’t see a return in 20 years or at all?” Horvitz said, adding that in that timeline investors are often asked to re-invest multiple times (another unpopular proposition for a family office).
“Don’t be afraid of professional investors,” he said. “They know how to grow and nurture companies.”
