Lessons from Hollywood: A new approach to funding R&D

• Autores: Andrew Lo, Gary Pisano
• Localización: MIT Sloan management review, ISSN 1532-9194, Vol. 57, Nº 2, 2016, págs. 47-57
• Idioma: inglés
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• Resumen

  • Even though the traditional venture capital/entrepreneurial model has been shown to stimulate innovation in a wide range of technology settings (software, computers, Internet, electronics, etc.), it wasn't designed to deal with the costs, risks, and slow payout of science-based industries. The typical science-based business startup is not unlike a long-range multistage rocket mission: Each stage must fire perfectly for the next step of the mission to begin. If any stage fails to execute, the entire mission fails. As Ramana Nanda and Matthew Rhodes-Kropf of Harvard Business School have argued, there are even good theoretical reasons why the venture capital model fails for long-gestation, high-risk science-based businesses. A key concern is that lack of availability of future rounds of financing can shut off the flow of VC funding abruptly, even when there are no indications that current funding is in jeopardy. Project-focused organizations (PFO). PFOs are entities that are created with the sole purpose of conducting a specific R&D project. When the project is completed, the PFO is disbanded, residual returns (if there are any) are distributed to investors, and intellectual property and other assets are sold off. PFOs are an attractive alternative to both the traditional vertical integration model and the traditional venture capital/entrepreneurial startup model. This article discusses how such PFOs could work in practice, using the example of biopharmaceutical R&D.