Achieving venture returns through corporate spinouts

Abstract

As the biotechnology industry matures, the opportunity arises to establish companies by 'spinning out' undervalued but significant assets from larger biotechnology or pharmaceutical parent companies. Recognising the value in such assets and achieving rapid and meaningful returns on investments in corporate spinouts requires the infusion of the operational discipline of start-up companies along with the entrepreneurial spirit of a high-growth company. For this reason, spinout investing seems to be a natural fit with venture capitalists, whose perspective, experience and network can add tremendous value to a company at this stage. And yet spinout investing is also an area that can require significant cash commitments, which exceed the scale at which biotechnology venture capitalists have typically invested. With the emergence of a new breed of larger life science private equity firms that can now bring both the know-how and the capital to spinout investing, this is no longer an issue. Such investors are catalysing and driving the success of this growing class of investments to achieve the kinds of returns that will make these entities compelling opportunities for both parent companies and the limited partners of venture funds.