Article
The unique investment appeal of life sciences
20 March 2024 | Applicable law: England and Wales | 4 minutes
The products and innovations of life sciences businesses make an essential contribution to the health and quality of life of us all. The sector is also an attractive investment target for sources of private capital, with many high net worth individuals and family offices bringing their resources to bear to help life sciences firms develop new solutions to pressing health issues. A growing picture is forming of private capital filling the gaps where venture capital and other institutional investors have passed on backing new life sciences initiatives and innovations.
"The examples are numerous" says Withers tech partner Susanna Stanfield. "The Lauber family, who established their wealth in real estate several generations ago, have set up Korify Capital to invest in a range of biotech projects, whilst the Strüngmann family, founders of drug maker Hexal AG, was one of the biggest investors of BioNTech as it developed the leading Covid-19 vaccine. And not forgetting of the highest profile philanthropist couples - Priscilla Chan and Mark Zuckerberg – who are aiming to use science to help humanity through the Chan Zuckerberg Foundation."
Where venture capital investment typically comes with short-term exit pressure, companies that need a longer investment runway can find that family offices are excellent partners, since they generally do not have such a strong imperative to return their capital in the short term. Moreover, family office investors are often more focused on outcomes than quick capital gains.
Private capital investors may be driven by a personal connection to a research area, such as a health condition affecting a family member.
"Private capital investors may be driven by a personal connection to a research area, such as a health condition affecting a family member. Maximilian Winter was diagnosed with Lyme disease and launched a venture capital firm from his family office in Germany to fund potential cures. After recovering, Winter went on to found Harmonix, which invests in healthcare, life sciences and technology innovations" says James Shaw, head of the Withers tech practice group.
Entrepreneurs and families who have built their own successful businesses in life sciences and healthcare are another group that is likely to support the sector. And, like most other family office investors, they will offer valuable contact networks that can really transform a start-ups prospects for success.
The Withers team is advising a family office client that has set up a charitable trust to provide funding grants to support medical research. One project is showing so much promise that the researchers have founded a start-up to commercialise their innovative research. As well as advising the charitable trust on how it can provide funding to the start-up and become a shareholder while fulfilling its charitable purpose, the team is also advising on the new business's IP protection and corporate structure to ensure it is in a good place to grow and attract future investment.
Start-ups in the life sciences sector don't need exclusively to rely on traditional funding at the early stage.
"Start-ups in the life sciences sector don't need exclusively to rely on traditional funding at the early stage. This example illustrates how family offices can fill the gap left by institutional funders at the early stage of proof of concept for an exciting early-stage business carrying out medical research that could be life changing," says Susanna.
Where investors have competing priorities (for example profit versus philanthropy), or there is pressure to sell a business that has not yet reached its potential, intermediate liquidity opportunities such as finding buyers for their shares can offer a solution.
This kind of conflict isn’t necessarily a bad thing, says James: “Having both financially and impact motivated investors in the boardroom can actually create a positive creative tension. Despite very different financial incentives, if they work it out you can usually get to a good answer. It’s good for the company and the decision making to have both perspectives represented.”
With 2024 expected to be the first year in which more wealth is allocated towards private than public markets, it seems likely that plenty of family offices and foundations will find compelling reasons to invest in life sciences, driving great leaps forward in health and healthcare.
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