Corporate Versus Tradition: A Discussion on Venture Innovation

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A group of VCs convened at the BioCom La Jolla Global Investor Conference in late February for a panel discussion about the nuance between their strategies and those of traditional institutional VCs. Jim Krenn, partner and co-chair of emerging companies + venture capital group at Morrison Foerster, moderated the panel, which included the following panelists:

• Luba Greenwood, managing partner, Binney Street Capital Venture Fund, Dana-Farber Cancer Institute
• Jason Hafler, managing director, Sanofi Ventures
• Carole Nuechteriein, head, Roche Venture Fund
• Daniel O’Connell, MD, PhD, partner, Novo Ventures
• Asish Xavier, PhD, vice president of venture investments, Johnson & Johnson Innovation

The panel began with Krenn explaining that there have been a number of venture innovations in recent years that are expected to drive patient outcomes for years to come. Despite that, he also described recent years as challenging for the industry. After the COVID-pandemic peak, investments significantly dropped. However, Krenn described the current mood around the market as optimistic. Based on these statements, he asked the panel if anyone had any predictions for the coming year.

“We do have the recent class from the 2024 IPOs,” O’Connell started off. “They suggest that the industry is not doing so great out there in the public market. From an investment point-of-view, the two major routes and exit for liquidity for us are through M&A or the IPO route. We're hopeful that the IPO market will come back.”

He continued to explain that there are still several variables that must settle before the space can be described as fully revitalized. He also stated that the focus remains on M&A, especially for companies that are developing high quality products that are ready to be acquired.

“This is where we're going to spend a lot of time having close conversations with potential acquirers,” he said. “It’s also very important to ensure what the priorities are and what's becoming de-prioritized. It’s like looking into a crystal ball together to figure out how to invest in something today that's going be valuable later.”

Nuechteriein then spoke up, saying that while there are a lot of venture funds on the market, there aren’t as many as people may think. She also explained that there’s a limit in how many companies investors can fund, which limits yearly activity. She joked that two years ago, she reached a point where she never wanted to invest in another company again because she had to keep shutting them down. During periods like that, it can be easy to lose feelings of optimism.

“Then something happens that's good, and then things are good again,” she said. “People are putting in a lot more money into fewer companies, and it's a bit of a lemmings thing. People will follow the investors. The question is: what do we think it can be in five years? One thing about pharma companies is they're looking at things much more broadly now than they used to in kidney disease compared to five years ago. Who would have thought every pharma company wants to be in kidney disease?”

Xavier then added, “Corporate venture capital groups, during good and bad times, continue to invest about the same amount of capital. There isn't that much of an impact on the market with respect to the balance sheet or the P&L. If you track data over 20 years, it shows that when the markets are down, IPOs are down, and VC firms react. These are traditional, financially focused VC firms and they react much more to those conditions than the corporate ones who continue to stake a number of deals.”

Trends for the coming year

Krenn then shifted the conversation towards the trends that are influencing investment decisions in 2025.

“Focus is important,” Xavier explained, “and the business plan on which the money is being raised must really be focused on de-risking and assets. And it must be a meaningful de-risking event. It'll be important to have a plan where capital can be raised to deal with that. That's important because a lot of money over the last five-to-seven years has gone into a number of platform technologies, from CRISPR to RNA delivery. Right now, the IPO and private markets have assets which are producing data.”

O’Connell followed this up by explaining that the first question he asks companies is whether they consider themselves to be racing dogs. According to him, the bar to reach a value inflection has been raised, and investors are looking at the journey from pre-clinical to IND with new considerations. To attract investors, companies must show confidence that they have a molecule that will most likely work.

Nuechteriein added, “When we make investments now, we are assuming we're going to be in them for a long time. It's not like how we used to talk about one venture fund that used to be the sole series A investor. They would then bring in the crossovers and the series B so they could go public. That was the model, but that's not a viable model anymore. We're assuming we're going to be in the company for a long time, and we must establish reserves that are sufficient to fund this company through the concept clinical data.”

What are investors looking for?

At this point, the conversation shifted towards the specific indications and modalities that are getting the most attention in 2025. This prompted Greenwood to bring up artificial intelligence. While she and Nuechteriein briefly joked about the usefulness of the technology, Greenwood remained confident that it will continue to be important throughout the coming year.

"There's a lot of hype, and I think we should just all accept that AI is happening,” she said. “If you don't have AI as a tool, you're at a loss. If you need AI, especially if you're early discovery, you should probably utilize that as a tool internally. But just saying AI and you're going to have something eventually isn’t enough.”

Nuechteriein steered the conversation back towards the medical side of the industry, saying, “We need is something that you can get to a proof of clinical concept on venture dollars. We’re looking for something where it's a short trial with very clear endpoints. That's something that's very appealing to us.”

Hafler continued, adding, “One of the things that we really think about is patients. What is the unmet need you are solving, and is it going to make a difference for patients? I think, fundamentally, what's going to get anyone on the stage or in this room excited is a medicine for a patient that you can actually help. It can be hard. You can have difficult trials, but that's a risk you can understand and try to prepare for. Ultimately, for us, it's really about a product that follows an unmet medical need.”

Which path to take

Investors can provide aid in two ways: financial and strategic. When asked how the balance between these two concepts is found, Hafler explained that most venture capitalists care about finding great teams, solving unmet medical needs, and procuring the funding to execute on these drugs. He said that this doesn’t require venture capitalists to be solely focused on finances, as long as they stick to good venture capital principles.

“Every deal that we exit, we get to put that back into the next set of innovation,” he said. “We can go and spend half a billion dollars and then go to our CFO and ask for more money. But if we just lost a billion dollars, we're not going to be around. We have good venture principles, but we think we can add more value by bringing strategic expertise on pre-clinical and clinical trial design, along with all the things pharma can at a later stage. We offer our portfolio to companies. They don't have to listen, but that's one data point. That's our view of the world.”

As the conversation concluded, Krenn asked the panelists if they had any points that they felt the entrepreneurs in the audience should know when it comes to developing strategies.

O’Connell was the first to answer this question and said that they should learn to approach corporate ventures the same way that they would approach any other institutional investor. He explained that he had heard a few comments throughout the conference from people who were surprised to hear certain pieces of advice from people with a background in corporate strategy. According to him, people don’t expect them to be sophisticated investors.

Krenn had his own response to this section, saying, “A well-functioning boardroom really adds so much value to the company in terms of opening doors and providing guidance and mentorship. You see the difference in the trajectory for a company that has a well-rounded, well-functioning board, versus those that maybe chase the highest dollar amounts, but didn't really have the value add that those investors were going to bring as well.”

Nuechteriein added, “Start reaching out to people when you do not need money, because you’ll bring a different mindset. I have one person on my team who really loves to invest in venture companies, and he likes talking to people he helped. He's helped several companies build a business plan because he finds it interesting. He likes working with small companies, so it takes the pressure off the decision making and he feels a little bit freer. They're not looking for money right now. You need to build these relationships before you actually need money.”

For Greenwood, one of the most important aspects of the job is understanding that pharma companies are different. When investors and pharma companies are talking, both parties must understand what the other is actually looking for. She noted that it can be very frustrating dealing with CDA agreements because it can make simple processes like sharing information more difficult than it needs to be.

Hafler spoke up, saying, “Find someone who can give you a warm intro to an investor. The second piece is, this is a little bit of a funny line, but I spend some time outside of work raising money for nonprofits on the educational side. We have a saying which is: if you ask for money, you're going to get advice, but if you ask for advice, you're more likely to get money. I think it translates to venture or biotech fundraising. If you go to any venture capitalist and say that you love their advice, you’re more likely to get money out of their pockets, especially if you listen.”

Lastly, Xavier stated, “About half of what we will do this year will be investments in oncology, immunology, neuroscience, ophthalmology, and companies with a drug development candidate that they can get to the clinical data stage. We are willing to lead or be one of three large investors in those situations. The rest of the deals this year could be early-stage deals where we are willing to create companies or be the first institutional check in a company. We are also willing to do later stage deals.”