Like all parents of a sick child, Sean Doherty wanted to help his son Finn, who has type 1 diabetes. Unlike many parents, he had the professional and personal resources to actually make a difference.
Four years ago, Mr. Doherty, then General Counsel of the private equity firm Bain Capital, founded the T1D Fund, a not-for-profit, private equity-like investment vehicle, with other parents of children with type 1 diabetes. The idea was to give pharmaceutical companies a financial incentive to develop a cure for type 1 diabetes, an autoimmune disease that is different from the more common type 2 diabetes.
“When we run this fund philanthropically, we have the luxury of taking risks,” said Mr. Doherty, who lives in Boston, to me at the time. The new fund received early support from JDRF, a foundation focused on research into type 1 diabetes, and attracted large donors who could meet the minimum donation of $ 500,000.
The fund was launched when venture philanthropy was growing in importance. The model was the Cystic Fibrosis Foundation. Instead of simply giving away money, donors could contribute to a fund that invests in a good cause and generates returns that remain in the fund and invest in promising ideas.
Today some of those investments have paid off. Others don’t. Mr Doherty, who left Bain to focus on the T1D fund, said he and the fund’s other trustees had learned some valuable lessons about what works and what doesn’t.
The fund is successful with this. This was partly due to the wealthy, connected and committed donors, but also due to the lesser extent of the disease. A similar fund launched by the American Cancer Society, on the other hand, is restarting after the pandemic stall. This fund struggled to stand out among the many organizations trying to raise money to fight cancer.
Mr Doherty said the purpose of his fund was to “catalyze a market”. Type 1 diabetes is “a disease that affects 20 million people worldwide and that the market ignores”.
“People thought insulin devices were a cure, but they only treated the symptoms,” he added. “People thought it was a childhood disease, even though 85 percent of those affected are adults. We have focused on our precise, differentiated value. “
The fund received seed capital from JDRF, and the foundation also covered the operating costs of T1D for several years, so all donations went to companies working on the disease. The fund’s trustees also sought support from the Helmsley Charitable Trust, a leading funder of type 1 diabetes research. The Helmsley association gave the fledgling T1D Fund credibility with venture capital firms that could invest in parallel.
Helmsley saw the fund as a way to increase his donations: his money was paired with other donations to the T1D fund and again leveraged when the fund brought in venture capital partners.
“It became clear that we could raise three to five times as much money if we contributed to the fund,” said David Panzirer, a Helmsley trustee. “What the fund does compliments what we have done and what we will do in the future very well. We’ve teamed up with businesses along with JDRF and others to help speed things up. “
The fund has also attracted donors who want a more direct connection with the recipients of their money.
“Having a technical background, I’ve seen the power of venture capital,” said Mike Fisher, Etsy chief technology officer and the parent of a child with type 1 diabetes. “I’ve worked with the local board here in Cleveland for years, helping them with marketing and organizing walks to raise money. The whole time I thought what you need is VC support. “
Mr Fisher said he donated more than $ 1 million to the T1D fund. “They succeeded,” he said.
Others, like David Nelms, a former CEO of Discover Financial, said the fund offered a different avenue to approaching type 1 diabetes. He said he and his wife, Daryl, would continue to donate to the JDRF to support its scientists and their research. But they have also donated to the T1D fund – over $ 3 million so far – because they feel more involved in the investment process.
“It’s good to see you see some of the specific things that they are doing with the money,” said Nelms. “It’s a bit more like a foundation at a university where you give money up front and hope that it will become self-sustaining over time.”
The fund now has $ 160 million, but $ 50 million came from the proceeds of the investments the fund made, Doherty said. A major success was the 2017 investment in Semma Therapeutics, which focuses on the use of stem cells as a cure for type 1 diabetes. Vertex Pharmaceuticals bought it in 2019 for $ 950 million in cash.
“Pharmaceutical companies are inherently risk averse,” said Doherty. “So in this case, you’re using venture capital to prime the pump and keep the circuit going. Vertex will invest in the coming years. “
The fund aims to raise another $ 50 million to grow its net worth to over $ 200 million, which would allow it to sustain itself.
However, the fund faced some problems. It struggled in the beginning when private equity firms poached some of its employees, although talent retention has improved as the fund succeeds, said Jay Eastman, who works in the private equity space and is over $ 1 million contributed to the fund.
Mr Doherty said the fund also had to rethink which stage in a pharmaceutical company’s development would make the most sense to invest. “It was harder to bridge the gap between great research in the lab and starting a business in the early stages,” he said. “We thought that would happen more, but it doesn’t.”
Instead, the fund has invested in companies that are already operating. It has also had discussions with companies working on treatments for other autoimmune diseases. One of them is Pandion Therapeutics, which is developing drugs for diseases such as ulcerative colitis.
“Now Type 1 treatments are being researched out of 20 companies that have much stronger balance sheets than if we had started small businesses on our own,” said Doherty.
In addition to the basic logistics of hiring employees, expanding operations, and paying people with private equity expertise for a nonprofit budget, existing interest in an illness is also important.
“Type 1 diabetes is a relatively minor disease, but we are not an entirely orphan disease,” said Panzirer. “But we are also not a type 2 diabetes that brings in big money.”
Another challenge is diseases that affect more people and already have well-heeled supporters. Earlier this year, Alice Pomponio became General Manager of BrightEdge, the American Cancer Society’s venture fund, with the task of reinvigorating the fund. BrightEdge received roughly $ 35 million from the American Cancer Society in 2019 to make philanthropic-style venture investments, but it hadn’t grown much.
“Oncology is a crowded space and a lot of money is already being invested,” said Ms. Pomponio. “That makes it more difficult than with rare diseases or rare diseases.”
Still, she sees it as another option for donors who want to donate to organizations trying to treat and cure cancer.
“What I see over time is that we are evolving the model so that we can meet a number of fundraising goals,” said Ms. Pomponio. “There are philanthropists who would like to donate to the American Cancer Society and others who find this model more attractive because it is self-supporting. Then there are others who want to work with us on investments and generate returns that are shared. “
Mr Doherty said he was pleased that the T1D fund was nearing self-sufficiency. But he said he was happier that about $ 500 million in external venture capital had been invested in addition to the fund over the past four years.
“They had invested more than ever in diabetes,” he said. “Now we’re being taken to business by them.”
