I had a very interesting conversation on Friday with a business development executive from a major pharmaceutical company (both shall go unnamed to protect confidentiality). He had read my posting about negotiating the exit before the entry and was very intrigued. He told me that his company had started exploring this idea several months ago. They were very attracted to the idea of getting a quality asset without having to pay venture homerun-like returns for the product. Unfortunately the VCs that were approached were not interested.
If entrepreneurs would be willing to cap their upside (albeit with downstream economics that can improve the final number) and pharma companies are interested in making this type of commitment, there has to be a way to attract funding. What investors in this market wouldn’t want a completely uncorrelated 2-3x return with potential longer term upside? My guess is that eventually the VC community will stubbornly come around and invest at least part of their portfolio with this concept.
The other answer is to start a fund whereby the top 5 pharma companies all agree to share these deals with a pre-negotiated exit with the new fund. The entire remit of the fund would be to fund these companies. While the upside for each individual investment might not be gigantic, the downside theoretically is much less given it has gone through “pharma diligence” rather than “VC diligence” which is arguably much more thorough and has a much higher success rate. Anyone willing to give me $300M to make this happen?