Thèse n° 10 146 Financing Biomedical Ventures - Myths and Realities Présentée le 28 mai 2020 au Collège du management de la technologie Chaire de stratégie et innovation d’entreprise Programme doctoral en management de la technologie pour l’obtention du grade de Docteur ès Sciences par Jeffrey Scott BEHRENS Acceptée sur proposition du jury Prof. K. Younge, président du jury Prof. C. Tucci, directeur de thèse Prof. J. Krieger, rapporteur Prof. C. Mitteness, rapporteuse Prof. B. Clarysse, rapporteur 2020 Abstract Angel funding is an important source of capital for startup ventures (J. Sohl 2019), providing a similar level of capital as institutional venture capital (OECD 2011). But angel funding is challenging to study due to the informal nature of the activity. A common paradigm for new venture funding argues that new ventures initially fund their activities with angel investment and then, as they show success, make progress to commercialization and de-risk core venture propositions, ventures transition to more professional institutional (venture capital) funding. A belief in this paradigm can strongly influence early venture creation activities, and assumptions about the later availability of capital from institutional venture capital underpin many startup business plans. However, the literature exploring this phenomenon is very sparse, and the question of the relationship of angel to venture funding transition has rarely been studied. By analyzing a large and robust dataset, this thesis advances the understanding of the actual behavior of investors and the impact this early behavior, and the funding choices involved, have on company outcomes. This thesis also explores a novel form of venture investing and places it into a broader context of new venture funding that may help explain some of the key observations discussed. These fundamentally empirical studies examine the nature/reality of important entrepreneurial phenomena of interactions between angel and venture funding in novel ways, pose questions, and identify a set results that point to a potential market failure. Attempts are made to understand these results and place them into the contexts of both research theory and a broader understanding of entrepreneurial behavior; there certainly remain a set of unanswered questions and potential fruitful directions for future research. Keywords: Biomedical ventures, angel financing, venture capital, corporate venture capital 2 Acknowledgements Completing a PhD while running a biotech firm and launching an incubator is a daunting task. I am grateful for the ongoing support, encouragement, and critical feedback from Dr. Chris Tucci, my PhD Advisor. I also want to thank the following: • Steve Mortimer and Asher Schachter for R Programming support; • Dr. Joshua Krieger, Harvard Business School, for his insightful comments, discussion, and suggestions; • Dr. Cheryl Mitteness, Northeastern University, for her expertise in researching angel investment and helpful input throughout the process of writing this thesis; • Crunchbase (www.crunchbase.com), which provided access to their entire dataset under an academic research license; • The R programming language, R Studio, the R community, and key R packages (see Appendix for list); and • Lori Rutter, my very patient wife. 3 Table of Contents Chapter I. Introduction ........................................................................................................... 6 A. Overview of the Dissertation .................................................................................................... 6 B. Empirical Motivations and Research Questions ......................................................................... 7 C. Assumptions and Methodology ................................................................................................ 8 D. Contributions to the Literature ................................................................................................. 9 References for Chapter 1 ................................................................................................................ 10 Chapter 2: The A2VC Paradigm Fallacy: Path Dependency Creates Two Distinct World of Startup Financing ................................................................................................................. 11 A. Introduction ............................................................................................................................... 12 B. Background and Literature Review ............................................................................................. 14 C. Data Source and Methodology ................................................................................................... 18 D. A2VC Rate – Definition, Calculation, Analysis ............................................................................. 23 E. Success Rates ............................................................................................................................. 28 F. Discussion ................................................................................................................................... 30 G. Implications and Future Directions ............................................................................................. 34 H. Conclusion ................................................................................................................................. 36 References for Chapter 2 ................................................................................................................ 37 Appendix: R Language Details and Packages Used .......................................................................... 39 Chapter 3: Is Biotech VC Dead? ............................................................................................. 40 A. Tale of Two Venture Worlds ................................................................................................... 40 B. The Traditional VC Model Is Dead in Biotech: The Evidence .................................................... 41 C. A New Taxonomy .................................................................................................................... 43 D. How We Got Here ................................................................................................................... 43 E. Learning and VC Math ............................................................................................................ 44 F. Implications ............................................................................................................................ 45 G. Lessons for Other Industries ................................................................................................... 47 References For Chapter 3 ............................................................................................................... 48 Chapter 4: Is the Impact of Corporate Venture Capital Meaningful for Venture Outcomes? .. 49 Abstract ......................................................................................................................................... 49 A. Introduction and Literature Review ............................................................................................ 50 B. Data Source and Analytic Methodology ...................................................................................... 55 C. Data/Findings ............................................................................................................................. 58 4 D. Discussion .................................................................................................................................. 63 E. Conclusions and Future Research Opportunities ......................................................................... 65 Appendix – Summary Stats: US vs. ex-US ........................................................................................ 66 References for Chapter 4 ................................................................................................................ 67 Chapter 5: Conclusions .......................................................................................................... 69 A. Key Findings ........................................................................................................................... 69 B. Contributions to the Literature ............................................................................................... 69 C. Generalizability ....................................................................................................................... 70 D. Future Research Questions and Directions .............................................................................. 71 Consolidated References ....................................................................................................... 73 Jeff Behrens Curriculum Vitae ............................................................................................... 77 5 Chapter I. Introduction A. Overview of the Dissertation A common paradigm for new venture funding argues that new ventures initially fund their activities with angel investment and then, as they show success and grow, transition to more professional institutional venture funding. Angel funding is an important source of capital for startup ventures (J. Sohl 2019), providing a similar level of capital as institutional venture capital (OECD 2011). But angel funding is challenging to study, due to the