At the recent Biotech and Money London 2015 event, we pulled together some of Europe’s leading life science Corporate Venture Capitalists to discuss some of the fundamental challenges facing life science CVC’s in Europe today, debate the impact of market trends and answer the most common questions from early stage life science execs looking for funding.  The co-chairs of the discussion were:

Deborah Harland, Partner, SR-One

Roel Bulthuis, Managing Director, MS Ventures

Mette Kirstine Agger, Managing Partner, LundbeckFond

Anja König, Managing Director, Novartis Venture Fund

Nooman Haque, Silicon Valley Bank

During the course of the discussion, I became aware of 5 fundamental drivers and motivators for CVC executives. Am sure there are plenty more, but are here are the ones I identified:

1) They desperately need good people

Everyone agrees that without a great technology you’ll never be successful in biotech. What the group universally agreed on, however, was that it was people and management talent that is at the root of most successes - and it is in short supply in Europe.

Great science is great science, but without good people it’s not going to translate into something that is meaningful, that’s a product that has a commercial and medical need.

- Deborah Harland, Partner, SR One

CVC executives agonise about finding the right teams to translate great science into a great commercial product. They often recycle seasoned entrepreneurs in their networks but, as Roel Bulthuis from MS Ventures points out, they invest heavily in coaching the next generation and building new teams:

It’s part of our responsibility to not just bring people in from the outside, but help support and coach our management teams to grow into those roles, to build new teams

- Roel Bulthuis, Managing Director, MS Ventures

2) Valuations and Fundamentals

European CVC’s are driven by the fundamentals, and are very valuation sensitive. The obsess about the quality and uniqueness of the science, how it can meet an unmet need, market competition and whether the fundamental commercial opportunity is genuine. And they won’t pay over the odds.

It was suggested in the panel that if they were not Series A or seed investors, this focus on fundamentals may be one of the reasons that they struggle in the US:

One of the reasons why we struggle is because we’re very valuation sensitive. So if you pay up you can get in, but we don’t want to pay up. We are very driven by fundamentals, I would say.

- Anja König, Managing Director, Novartis Venture Fund

3) They yearn for a specialist global investor base

The paucity of capital available to life science companies in the Europe versus the US is well documented (and frequently moaned about by aspiring biotech entrepreneurs). In the US you have a critical mass of investing driven by domain expertise. In Europe, this is sorely missing. As Anja explains:

‘What’s missing is actually a specialist global investor base. People with domain expertise. A lot of the investing in Europe happens nationally and there are a lot of generalist investors. They’re very sophisticated financially but they easily move from biotech. It blows up a little, then we’ll just invest in hotels chains. And this is not the kind of investing that you get in the US’

Deborah Harland underlined the issue, pointing out that underpinning the IPO’s of the companies she took public last year were serious, specialist investors, who understood the market.

‘It was absolutely critical to have serious, specialist investors backing the IPOs, and the banks that we work with really insisted that this was the way to go.’

- Deborah Harland, Partner, SR One

4) Creating great companies! (Duh!)

Forgive me for pointing out the obvious, but CVC’s have LP’s to make money for and they only way they can do that is by building and creating fantastic companies - so no surprise then that this is a key motivator and driver.

Roel believes this should take precedence over all priorities, arguing that if CVC’s focused on the fundamentals and building great biotech businesses, this would eventually lead to more money flowing into the sector - success breeds success.

The only thing we can do is create good companies and invest based on the fundamentals. In the end if we build those companies, if we return money to our LP’s, the LP’s of our co-investors, that is going to flow back into the market.

Roel Bulthuis, Managing Partner, MS Ventures

5) Syndication Success

All CVC’s syndicate to realise the potential of life science assets, and often a successful syndication of investors is the main ingredient of a successful company. Therefore it shouldn’t come as a surprise that a driver for CVCs execs if finding the right syndicate partners, and avoiding the many pitfalls that could lead to disaster.

So what are the ingredients of a successful syndication?

i) A mixture of corporate and non-corporate funds. All the CVCs agreed the balance of motivations was needed.

ii) The people you invest alongside within those funds.

iii) Aligned interests. If interests are misaligned this frequently leads to conflict - however, this can be managed properly as long as everybody in the syndicate is aware of where people’s incentives lie.

The most important thing about syndication and board governance in general I think is that it should be clear what everyone’s incentives are.

- Anja König, Managing Director, Novartis Venture Fund

The list is obviously non exhaustive. I’d be curious if anyone had any different ideas as what’s driving CVC’s - let me know in the comments below.