Cross-Over Investing All The Rage, Say VCs On Panel

October 8, 2014

By Riley McDermid, BioSpace.com Breaking News Sr. Editor

Venture capitalists are becoming less dogmatic about only investing in certain stages of a biotech company’s growth and have even been known to leave equity on the table if it seems an eventual payout may be large enough, a panel of VCs said Wednesday.

The group made their remarks as part of a panel, Blurred Lines: VCs, CVCs, and IBs Explain Their Re-Thinking of Traditional Private-Only or Public-Only Investment Strategies, at the BIO Investor Forum at the Palace Hotel in San Francisco on Oct. 8.

Known as “cross-over” investing because it allows different types of collaboration and funding agreements, the new model for biotech funding could have a massive impact on the way companies eventually find their way to an initial public offering or exit (acquisition).

“Today, everyone is in everyone’s backyard, there are lots of blurred lines,” said Jonathan Silverstein, partner and a co-head of global private equity at OrbiMed, when remarking on how prevalent cross-over strategies have become this year.

James Noble, chief executive officer of British biotech Adaptimmune, which recently raised $104 million funding round from U.S. investors, said younger companies appreciate a more creative approach to deal structure.

“In my judgment, the scale of the investment offers fantastic flexibility going forward,” said Noble, while cautioning that flexibility is only warranted if a biotech has an existing proof of principle for a product and a viable pipeline to bring to market.

However flexible the venture capitalist process may be, the importance of using traditional banking strategies when bringing a company public cannot be stressed several panel members.

“Bankers are incredibly useful,” said Noble, who said that specifically for biotechs trying to IPO in European companies, trying to go public without a bank could be disastrous.

Shopping for an investment bank should also be a long and thoughtful process, said Silverstein. “Companies should start their relationship with an investor early, proactively check” their IPO record and not be afraid to ask very direct questions about how their equity advising works.