The PureTech Ventures example
In early May 2011, Daphne Zohar, founder and managing partner of PureTech Ventures — a life-sciences venture creation company in Boston — had essentially four options in front of her:
- Negotiate a deal for an early strategic partnership.
- Close a financing round with the venture capital (VC) firm based on the term sheet she’d just received.
- Some combination of the two.
- Pursue a grant from a nonprofit or the government.
Narrowing the field
The third option is unlikely to work in practice: closing a financing round with a VC signals to potential pharmaceutical partners that PureTech is willing to take on future dilutive financing, which tends to make those partners keep their distance. Combining both deals, even though technically an option, isn’t one worth pursuing for that reason. The fourth option — a grant — would actually align well with PureTech’s interest in non-dilutive financing, but it simply isn’t on the table in this case, so it has to be ruled out too. That leaves PureTech choosing between a strategic partner and a VC.
Looked at side by side, the two options are close to perfect opposites, with very different costs and interests attached to each. PureTech’s own strategy is to build quality startup companies and raise money through non-dilutive financing, staying closely involved with those companies and looking for potential partners to join or acquire them down the road. PureTech has built strong relationships with pharmaceutical companies in the industry and has shown no urgency to pursue an IPO. Those interests clash directly with what a VC wants: a VC has little interest in a long-term relationship with the company, or in strategic partnerships that might help future startups down the line — it’s focused on extracting as much return as possible from the capital it’s already deployed. PureTech, by contrast, wants to maximize the return on every deal it makes, but with an eye on a bigger picture that a VC generally isn’t interested in.
So the question is: what’s best?