If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck. The Duck Test
Last week Luke Timmerman at Xconomy arranged for Daphne Zohar from PureTech Ventures to discuss the challenges facing life science venture capital (VC) these days. (You can see a storify version of the conversation.)
In my opinion, a key part of the discussion was about the nature of the VC firms themselves. About ten years ago when I started with Quintessence, the VC model seemed fairly established. A fund would invest, giving them board representation, but the company’s employees managed the business. One of the interesting features of PureTech is their model involves hands on work to advance the technology even prior to establishing a stand alone company.
Which leads me to another key distinction: If these investors are rolling up their sleeves to get their hands dirty, one might wonder if their compensation model is different from a traditional VC. During the chat, Daphne responded to a question about PureTech incentives by saying that they “get founders equity, preferred shares & even royalties on our inventions”. While I didn’t have the chance to follow up, this approach seems in contrast with the more traditional VC incentive structure of “2 & 20”, which provides annual management fees of 2% of committed capital and a 20% share of profit.
So if the activities and incentives are different, are firms like PureTech Ventures truly VC? Are these translational investors rather than venture capitalists? Perhaps a different name for these investors would better capture the possible evolution of risk capital rather than focusing on the downward trend of traditional VC.
(If you want to learn more about this type of firm, Daphne mentioned a few other firms in the space: Allied Minds (founded ’05), Flagship Ventures (founded ’00) and Third Rock Ventures (founded ’07).)