During the past several years, the somewhat overlapping concepts of Impact Investing and Environmental, Social and Governance (ESG) are increasingly top of mind for everyday investors. Impact Investing refers to providing capital to companies, organizations and funds that are focused on solving critical societal and environmental problems, such as improving access to affordable healthcare, enhancing the quality of human life, reducing the impacts of climate change, etc., alongside making financial returns. Impact investing is set to become a mainstream trend in a variety of sectors, including life science and healthcare, clean energy and sustainable agriculture, among others [1-4]. According to economic experts, science-driven technology has been responsible for over 50% of the growth of the US economy during the last half-century . The biotech industry—with all the innovation and resilience it has demonstrated in these extraordinarily challenging times of COVID-19—is expected to continue having a profound economic and social impact in the future, in addition to bringing significant upside to investors .
The Global Impact Investing Network’s (GIIN) recent survey of 300 of the world’s leading impact investors who collectively manage $404B in assets, reported that the impact investing market has seen impressive evolution over the past decade and will continue to show steady growth in the future . These findings indicate that impact investors are willing to accept concessionary or risk-adjusted returns on their investment as long as it aligns with their mission and helps them achieve their impact goals. While impact investing focuses on societal benefits, investing for attractive returns does not have to be mutually exclusive with doing good. The common perception of an inherent trade-off between impact and financial performance is increasingly being debunked in the investor community across different sectors, including life sciences. In fact, a study by Wharton reported that profits and purpose can often go hand-in-hand and it is possible to produce both market-rate returns and long-term impact [7-8].
For innovators, entrepreneurs, companies and investors involved in the healthcare sector, positive impact on humankind and society is an implicit nature of their work. Indeed, in the life sciences area where VIC Technology Venture Development focuses, the highest societal impact companies are often the ones that also offer the best investment opportunity. For VIC, high-impact and high-return are both requirements for any new venture we develop within our portfolio based on exclusively licensed technologies from top research institutes worldwide. From breakthrough medical devices to life-saving therapeutic drugs and vaccines, the VIC innovation ecosystem provides attractive, thoroughly vetted, private equity investment opportunities for accredited individual investors aiming to generate sound financial returns and create positive social and environmental impact at the same time. Small-sized privately held startups offer unique high-impact and high-return investment opportunities to investors. Both Moderna and BioNTech, companies behind the successful commercialization of the highly efficacious mRNA technology-based COVID-19 vaccines, are perfect examples of the societal and commercial impact that pre-IPO biotech companies are capable of [9-11]. For almost a decade leading up to their respective public offerings in 2018 and 2019, these companies were backed by private investments to continue developing the innovative mRNA technology that ended up transforming the way infectious diseases and potentially several other life-threatening conditions such as cancer, heart failure and autoimmune diseases are treated. Early-stage investors in these companies ended up making exceptional returns in 2020 on their initial investments back in 2008 (~45X for BioNTech and ~175X for Moderna). Keeping these unicorns aside, early-stage investors can expect to make above-market returns on their investments in impactful life-science and medical technology startups. The only caveat is it takes substantial time for these returns to materialize; 5-10 years is typical in the healthcare sector, depending on the specific product (vaccine, therapeutic, or medical device) and its regulatory pathway. The path to success for any company seeking to commercialize disruptive life science and healthcare technologies is not always straightforward. Even for the aforementioned transformative mRNA technology, its true commercial potential was not realized until the pandemic hit, and world governments invested billions of dollars to accelerate the pace of clinical trials and ramp up production. This is where picking the right technology, having an experienced team bringing it to market (or exit), and appropriate risk-sharing between private investment and government funding, are all factors that become extremely crucial for success. VIC has a rigorous opportunity assessment process that helps us screen a handful of the most compelling (large market size and large societal impact) investment opportunities from a pool of hundreds of technologies evaluated by its team each year . For the majority of its portfolio companies, VIC applies for federal SBIR/STTR grants to facilitate the development of risky early-stage technologies. Last but not the least, VIC provides favorable investment terms that protect early-stage investors in the long term .
Investors can take several approaches to get involved in impact investing and have a variety of asset classes to choose from, with varying levels of risk and return rates ranging from below-market to market-rate (Figure 1). The approach an investor takes will typically depend on their short-term and long-term financial interests and expectations and impact goals. For individuals looking to invest in socially responsible stocks while making market-rate returns, Arctic Aurora LifeScience is an example of a global healthcare equity fund that invests in US and European public life-science companies developing treatments that can significantly change the lives of patients and benefit the society . Since its inception in 2016, this fund has yielded a cumulative year-to-date (YTD) trailing return of 10.57% . Another global equity fund in the small/mid category is the Hartford Global Impact Fund that operates in both developed and emerging markets and has yielded a cumulative YTD return of 8.13% since its inception in 2017 . It has holdings in various public companies whose core businesses are addressing social and environmental challenges, including those in the healthcare sector. For individual investors aiming to achieve specific social outcomes even if returns are concessionary or below-market, community investment notes offered by Calvert Impact Capital, a global non-profit investment firm, are a great option . These notes are fixed-income securities that give a bond-like return (1-5% per year depending on the length of the note) and investments are made in high-impact organizations (non-profits and social enterprises) working towards achieving UN’s Sustainable Development Goals, which includes improving access of lower- and middle-income populations to quality and affordable healthcare . Just recently, the biotech industry’s largest ever impact investment fund, called the Oncology Impact Fund (OIF-2) worth $850 million, was raised by MPM Capital, one of the world’s leading biotech investment firms, in partnership with UBS, the world’s leading global wealth manager, with an aim to invest 80% of this funding in private companies (startups) and 20% in public companies (corporates) that are advancing cancer research and innovation and improving access to cancer treatments, without compromising investor returns [19-20]. As the healthcare impact investing market expands and taking into consideration the fact that philanthropy, government funding and corporate investments are usually not sufficient to accelerate innovation and generate impact, it is expected that private equity investments disruptive life-science startups by individual as well as institutional investors will continue to play a significant role in commercializing transformational technologies that save and/or improve the quality of patients’ lives.
VIC portfolio companies are solving some of the healthcare sector's biggest challenges and interested investors will find a pool of high-impact opportunities to choose from. The most recent addition to the VIC portfolio—Solaris Vaccines—is commercializing a vaccine platform technology with significant manufacturing and supply chain advantages over existing vaccine production, storage and distribution systems. As the world slowly comes out of the shadows of COVID-19 and prepares itself to fight several other infectious diseases such as Influenza that could be the next pandemic, this platform technology could be transformational in terms of commercial opportunity as well as societal impact. On the therapeutics front, Neurexis Therapeutics is developing a new medication for the prevention of brain damage following ischemic events such as stroke and cardiac failure. BiologicsMD is developing smart therapies for the treatment of hair loss diseases and severe bone disorders. Each portfolio company addresses critical unmet needs in the healthcare sector. On the medical device front, Nob Hill Therapeutics is developing a portable, easy-to-use, dry powder nebulizer for efficacious treatment of severe respiratory diseases. Solenic Medical is developing a non-invasive device for treatment of infected medical implants. In the digital health space, CardioWise has developed imaging software for cardiac health monitoring that has the potential to become a new gold standard of care in heart health analysis. VIC’s overarching aim is to create companies that significantly improve the quality of human life by commercializing breakthrough technologies (drugs, vaccines, medical devices, diagnostics, etc.) through privately held (pre-IPO/non-publicly traded) startups that provide excellent private equity investment opportunities to individual accredited investors aiming to generate impact, diversify their portfolios and realize attractive returns in the process.
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