Investing in Health Platforms Versus Individual Assets
Do health investors prefer to invest in platforms or individual assets? These experienced investors share their insights. And one health investor shares their favourite question to put to entrepreneurs.
James Hardiman, Partner, DCVC
Brenda Irwin, Managing Partner, Relentless Venture Fund
Scott Kaplanis, Partner, Epic Capital Management
Damian Lamb, Managing Director, Genesys Capital
Nilay Thakar, Associate, ARCH Venture Partners
Transcript with timestamps (click here)
Do you prefer to invest in platforms or individual assets? James Hardiman, Partner, DCVC [00:10]
When it comes to platforms versus single assets, I think that’s very investor-specific. So at DCVC, we prefer to take platform risk. So we’re usually more interested in the underlying technology itself that’s been used to develop the asset, with the hope that that technology can be used again and again to produce additional assets.
Now, that’s a very tech, kind-of, oriented view of investing in healthcare. I think traditional biotech companies, or biotech investors, rather, tend to be more interested in single-asset risk. And the way they kind of assess that risk or create arbitrage that they go really deep on that specific asset and that specific target, and kind-of make sure that they can understand it in a more in-depth way than maybe other investors, and they want to arbitrage that understanding.
So I think traditional biotech investors tend to prefer single asset risk, more tech-oriented investors tend to prefer platform risk. But both of those are generalities.
Brenda Irwin, Managing Partner, Relentless Venture Fund [01:11]
The super majority of all health investors, whether it’s healthtech to drug development, are going to prefer a platform as an investment, a platform within a business. And the reason is, we need to have more than one kick at the can.
It depends really on the status of a portfolio. So I will invest in a single product company if I see multiple applications. If I see a screaming, compelling, competitive positioning, but it’s quite unique— so I’m, you know, from being asked around product versus platform, I will never say “I won’t”. So it’s “never say never.” And it really depends about where the portfolio is—my portfolio. If I’ve only done borderline product versus platform companies, then I’ll spend more time focused on platform opportunities.
So I think it’s important, especially for new entrepreneurs, to understand that sometimes our decisions, we’re not going to be able to answer the simple question: product or platform. And it depends. Really, when I say that, I really mean it. It’s “timing is everything.” Not all investors will share the details about portfolio balancing, but entrepreneurs should understand and appreciate that that’s what we’re doing as well, all the time, when we’re looking at new investment opportunities.
Scott Kaplanis, Partner, Epic Capital Management [02:34]
At Epic, we definitely are more interested in investing in platforms versus individual products. They tend to be bigger-picture ideas that can warrant substantial capital investment from the venture community as a starting point. And then once you have a platform in place, you tend to have more flexibility. More flexibility with respect to what markets you’re targeting, in case you need to pivot your business, and importantly, more flexibility in terms of potential exit strategies. So if you have a platform company, other options tend to be open to you potentially in other sectors. And importantly, as a go-public alternative to remaining funded by venture, you have now different paths to raising capital available to you with a broader and bigger idea.
Damian Lamb, Managing Director, Genesys Capital [03:16]
The question of platforms or individual assets is an interesting one, because we do both. And I think most investors do both. You just take a very different approach, when you do them. A platform, you know, that can spin out multiple assets and generate multiple products, is a very desirable thing, because they usually are the types of companies that generate massive returns. And by massive returns, I mean, the really big deals. You see the $3 billion deal, the $5 billion deal, those tend to be platforms, because large pharmaceutical companies will buy them to generate pipeline products for themselves.
That being said, you can generate great return on individual assets. You just have to approach the investment in a very different way, which you have to be very careful about how much capital you spend. Because ultimately, it’s very easy to assess the value of an individual asset. Once you’ve got the product to a certain stage of development where you know what disease state it’s going to deal with. And you can run the calculations on, “what’s that market size? And how much money can we generate from that, and what’s the patent light left?” And that gives you an outcome. From that you need to be relatively judicious about how much capital you spend developing that asset. If you get beyond a certain point, that’s tough to generate returns.
You can do both, they just you just have to approach them differently as an investor. And if you’re an entrepreneur, you need to approach financing differently too.
Nilay Thakar, Associate, ARCH Venture Partners [04:31]
At ARCH, I think we’re heavily focused on platforms. Again, to different people, it means different things. You could have a small molecule, for example, right, an antibody, and you could say it’s applicable to multiple diseases. That would be a platform. Not for us, though, I think for us platform is essentially a platform that gives you different technologies to attack different indications. So it’s kind of one level above that.
If you take, for example, a company we created called Illumina. It’s essentially a next gen sequencing technology, but that is, in a sense, a platform. But if you want it from an instrumentation play, if you’re thinking of a therapeutic, Juno is a company we created that makes CAR T therapy, enables CAR T therapy. And that’s a platform in that it can engineer T cells and you can attack multiple indications with that. But it’s also different. It’s not just the same antibody against things; it’s different tools to attack different indications. So that’s how we define platforms.
Essentially, from an investor perspective, it’s a financial thing. You’re de-risking your investment and not putting all your eggs in the one basket, if you will, and essentially, hedging it out.
What’s your favourite question to ask a founder in your first meeting? James Hardiman [05:43]
When talking to a founder, for the first time, I’m usually very interested in understanding why they’re pursuing building a company. Being a founder, I think, in many ways is a very lonely job. There’s few other people in the company that are going to understand the kinds of pressure that you’re under, and even fewer that you’d be able to confide in, if any. And so that’s why you often find, you know, founders are friends with other founders, because they’re the only people, including friends and family, that really understand what that journey is like.
And so I think it’s really important at the early stages to understand the founder’s motivations for, kind of, undertaking this journey, and making sure they appreciate of what that journey is going to entail.