You are using an older browser version. Please use a supported version for the best MSN experience.

American Cancer Society gets into the venture capital business

Houston Chronicle logo Houston Chronicle 5 days ago By Chris Tomlinson, Staff writer

Every year nonprofit organizations circle back to donors and ask for more help filling their bottomless pit of need, but some innovative groups are investing in start-ups to become self-sustaining while fulfilling their mission.

To put a spin on the Biblical parable, smart nonprofits are learning to fish while giving away fish. Or as more simply put on Wall Street, they employ impact investing.

Late last year, the American Cancer Society launched a venture capital arm called BrightEdge. In addition to funding research, the society is investing donor funds in for-profit companies that are close to launching commercial products.

A few million dollars can make the difference between an innovation saving lives or fading into obscurity, said Bob Crutchfield, BrightEdge’s managing director.

“If you’re a cancer patient today, you want today’s solutions not tomorrow’s solutions,” he told me. “With our position in the market and our philanthropic impact fund, we’re able to create additional market awareness that will drive more provider adoption of new diagnostics, therapies and technologies.”

 

The society started BrightEdge with $25 million, and Crutchfield is raising another $125 million for the first round. BrightEdge plans to invest in companies for four-to-ten years, until they are purchased or go public. The society will reinvest any profits.

In addition to financial gain, BrightEdge will report on “mission impact,” such as lives saved or the number of products brought to market, and these metrics will be as important as the financial return, Crutchfield said.

In past columns, I’ve written about the valley of death between the lab bench where a scientist makes a discovery and the launch of a commercial product that saves lives. Dozens of Houston start-ups are working on medical devices and therapies, but they struggle to stay afloat without revenue for the five-to-ten years it takes to gain regulatory approval.

Donors are always happy to give to the professor running experiments, but when a researcher becomes a CEO, the money tends to dry up unless angel investors or venture capital get involved.

An example is Houston-based Procyrion, a company developing a cardiac pump to fight heart and kidney failure. I first wrote about Procyrion in 2014 as part of a column about Fannin Innovation Studio, a for-profit company dedicated to life science start-ups.

Five years on, Procyrion is just now moving into a pilot study that it hopes will lead to a pivotal trial. But to get this far, Procyrion has just completed a fourth funding round, raising an additional $30 million from venture capitalists. If the company succeeds, the device could be revolutionary, but it still has years of testing to go.

BrightEdge wants to help cancer treatment start-ups, but with a twist. If successful, the venture capital arm would make money for the society as well as deliver cutting-edge treatments to patients quicker by encouraging quicker adoption.

An early BrightEdge investment was in Castle Biosciences, a Friendswood company that makes an innovative diagnostic tool for skin cancer. The company just filed for a $58 million initial public offering, chalking up an early success for BrightEdge.

“We’re seeing a volume of innovation coming out of universities and into the market at a variety of stages that we haven’t seen in the past,” Crutchfield said. “Now is a really good time to underwrite the deals that have the biggest impact on our mission.”

To get one big success, though, venture capital typically end up betting on a lot of losers.

More traditional donors will not want the society to gamble with their money, and that’s fine. But younger donors expect nonprofits to behave entrepreneurially with hopes that one day groups like the American Cancer Society will earn all the money they need from smart investments.

“We are looking for a donor who wants to extend their relationship with the American Cancer Society and wants to make a philanthropic contribution and see the impact,” Crutchfield said. “Donors will not have discretion over where we invest, because we are investing across a large swathe of oncology, but they will get to see where their dollars are used and the impact of those dollars in terms of commercial progression.”

BrightEdge’s performance will decide its fate, which is why setting expectations is so important. The return on investment may fall behind the S&P 500 Index, creating opportunity costs, but if a company’s product saves thousands of lives, the lower financial performance might be acceptable.

Venture capital is always a gamble, but it’s a worthy one for nonprofits with a medical mission. Basic research does not create new treatments; start-up companies turn research into something that can help a patient. Keeping these companies alive long enough to treat patients could be the most rewarding investment imaginable.

Tomlinson writes commentary about business, economics and policy.

chris.tomlinson@chron.com

twitter.com/cltomlinson

AdChoices
AdChoices

More from Houston Chronicle

Houston Chronicle
Houston Chronicle
image beaconimage beaconimage beacon