After graduating from Cornell, William Werkmeister started his career as an investment banker at Salomon Smith Barney and Citigroup and then worked for a series of state-sponsored venture capital funds that supported translational research and building technologies out of various academic labs in Texas and New York. He then launched his own venture capital funds and founded several companies in the life science and the clean tech space. After developing a long-term friendship with the leadership of NFCR, he initiated an effort to launch a second venture fund involving NFCR, ICIF. NFCR’s first fund, an L3C and subsidiary of NFCR called AIM-HI, provides recoverable grants (convertible notes with no liquidity preference and no expiration date) for the commercialization of oncology IP and technologies. ICIF will focus on clinical stage assets.
Mr. Werkmeister holds a B.S. summa cum laude from Cornell University where he studied finance and bioengineering, an MPA from Harvard University with a focus on Economic Policy, and an MBA from Yale University. He also completed graduate studies at the London School of Economics and participated in the Program in Structured Finance at NYU. He was interviewed by Brett Johnson of OneMedMarket.
Brett Johnson: Can you tell us about the Impact Fund. What is the origin of the fund?
William Werkmeister: Sure. So, our fund is associated with the National Foundation for Cancer Research, which owns a significant fraction of the general partner. NFCR is one of the leading foundations that supports core academic research at the lab and scientist level. One of the core origins of our fund is really the realization by the National Foundation for Cancer Research that a significant amount of the technology that they are supporting with grants to at the academic level isn’t getting commercialized to the extent that it should due to the lack of funding at the earliest stages of life science startups. The Foundation really felt compelled to start supporting venture capital in the pre-clinical and also clinical stages to help push development of various scientific technologies at the academic lab into the commercialization stage – consistent with its mission of supporting cancer research and the development of viable treatments from “bench to bedside.” So, we very much view this as an impact fund. Based upon limited amount of early stage cancer funding, as well as the expertise of NFCR, the supply-demand balance for this funding creates a significant opportunity to have an impact while at the same time driving above average returns with our investments.
BJ: Why have there not been more funds like this in the past, in your view, to deal with the valley of death issue?
WW: I think there are a few core issue. One is life science venture capital is inherently risky at the earliest stages, especially when you’re looking at pre-clinical investments. I think, secondarily, there’s an issue with specialization as well. I think generally you have three types of venture funds: you have generalist funds that try to invest in life science and other areas that have a very limited expertise in life science, then you have life science funds themselves that invest in a range of various different companies ranging from devices to different types of therapeutic companies with different indications. You then have funds like ours which are particularly interested only in oncology. Our whole team are experts in venture capital, investing in the oncology space, they’re former leaders in top oncology companies as business advisors. We have several top oncology researchers in the country and in the world on our science team. They’re all very focused on oncology, which I think is something that makes us quite different. I think that relative to a lot of other spaces, let’s say med tech and medical devices, oncology is very specific. It requires a certain level of scientific acumen. As a result of that, the risk of oncology investing and the requirement of having that acumen available to your team, I think that a lot of companies and venture funds shy away from oncology investing in the early stages unless they’ve got a team to mitigate and control that risk.
It is also well known that narrowly focused funds have outperformed generalist funds in nearly two-thirds of years, by year of formation.
BJ: That makes sense. Can you talk about how large of a fund it will be, and the types of investors that will be involved in the fund?
WW: Sure. I think that before we move on, I would highlight a point which is that we’ve collected a lot of data on venture capital performance. Life science funds over the last ten years have actually outperformed general venture capital funds by about 500 basis points per annum. They actually have shorter holding periods; oftentimes in the life science you’re exiting in a pre-clinical stage versus exiting in a stage where commercialization would be necessary for an exit. Moreso, within life science space itself, oncology yields abnormal returns – at the very least on a non risk adjusted, but perhaps also, risk adjusted basis. So, within the twelve sub sectors within life science venture capital, which is already outperforming general venture capital, oncology is the top performing of the twelve life science subsectors. We think there’s a huge opportunity in oncology investing, which is why we’re very interested. We also think we have the team to control that risk. So, I just wanted to add that on since we’re talking about risk and reward.
To answer your next question, we were really interested in targeting about $300,000,000 to $350,000,000 for our fund, which we think is large enough for us to make about 15 investments on the order of about $20,000,000 or so inclusive of the follow along capital that would be necessary in future rounds. So, we anticipate an initial investment average of probably around $10,000,000 to $15,000,000 plus the follow along capital and the majority of those investments being pre-clinical, phase I or phase II, which is really where the value inflection point is in oncology investing.
BJ: I assume you’ll have to try to be a lead investor than try to syndicate these? Will you act as a lead only, or be part of a syndicate? What’s your position on engaging other investment assets in your projects?
WW: So, we would be very interested in most of our deals in participating in a syndicate with other leading venture capital funds, and also with Big Pharma and strategic funds as well. One of the things we have realized when we have been in communication with a lot of other life science funds is that they really value our science team and our scientific acumen. So, we have the head of translational research at Yale University, the former CEO of MD Anderson. A real top-notch science team. I think other venture capital firms in the life science space really value our team especially from a scientific acumen standpoint. So, we really are interested in syndicating deals to get their expertise and relationships involved as well and also to access their deal flow, but at the same time allowing them to leverage our scientific acumen. Having two or three funds in the deal allows us to invest in more companies and hedge the risk of early stage investing as well. Some of the rounds will be quite large.
BJ: So, do you envision that most of these will be private companies or rather companies just out of research universities? How will you find and identify the companies that you will be investing in, or the projects you’ll be investing in?
WW: To address that, with regards to the stage, we already have an existing effort called AIM-HI, an L3C wholly-owned and operated by NFCR, which is essentially a low income L3C structure fund which focuses on translational medicine opportunities. It essentially provides the first round of funding in the form of what we call ‘recoverable grants,’ which are convertible nodes with no expiration date and provides translational funding. These are targeted to $2,000,000 to $5,000,000 investments over the lifetime of a company that are made in the commercialization of companies that are taking technologies and licensing technologies out of academia and creating companies. AIM-HI currently has 7 portfolio companies.
This new fund that we’re focused on, the ICRF fund, is more of a traditional GP LP 2 and 20 structure (2% of money managed and 20% of upside) that is really focused on making a profit for investors. NFCR will own a minority stake of the ICIF Fund GP through a holding company. The AIM-HI is focused more on impact completely and backed by NFCR and a family office. So, what we’ll be doing with the ICIF fund is more later stage opportunities relative to AIM-HI. So, it would be not translational but mostly clinical, mostly phase I and phase II investment opportunities. This would all be pre-commercialization still.
To answer your second question about sourcing, we have several advantages relative to other funds. One of which is that we have a plethora of top level scientists as advisors to our fund, at some of the leading academic institutions in the country. They’re also on the advisory boards and founders of many leading cancer startups, so that gives us some visibility with regards to opportunities that are out there. NFCR is also funding a lot of these major cancer centers, so that gives us another in road into seeing technologies at the very earliest stages in academia and early stage startups before many funds even see them. I’ve been in venture capital for about 15 years, running various funds and have a significant network within the space, as do several of our team members, one of which founded a major pharma company which was sold for billions, and several others which worked as C-level execs are large pharma and healthcare companies. We have multiple ways to source deals, but I think really that we have some significant advantages with the relationship of NFCR and seeing some of these academic opportunities and translational opportunities at the earliest stages. That can really bring value to our syndicate partners and identify opportunities that they might not see.
BJ: Interesting. So, what do you see as the biggest challenges to getting the fund up and running?
WW: I think for us right now, it’s really just a matter of raising capital. We’ve established a timeline, and will begin in the next two months on the capital raising process now. The National Foundation for Cancer Research’s board just approved their relationships with the fund about a month ago, so we’re just in the process of setting up the entities and will be kicking off the fundraising process soon. We have been fortunate to have several unsolicited investors approach us about investing.
One core difference between us is that the foundation, because of its charter, really can’t support the fund so one of the things that we’re trying to do is find a family office or two that may be interested in supporting the $2,000,000 or $3,000,000 of startup expenses and general partnership contributions before we go out and speak to some more of the major investors. Because of NFCR’s relationships and the individuals that we have involved on our team, we’ve had institutions come to us with an interest in investment. One institution with tens of millions of dollars, it was unsolicited. In some cases, the smaller startup money is more difficult than the larger funding to get the initiative going. Unlike a traditional fund, where a venture capital management company would provide the general partnership funding, in this case we’re backed by the Foundation and their charter and board doesn’t allow that.
BJ: I see. What is the timeline on the fund?
WW: Our real goal is to start the fundraising process in the next month or two, to have a first close in the third or fourth quarter of this year and a second close in the second quarter of next year. So, the goal is to have this process completed in about an 18 month time frame.
BJ: Can you talk a bit about your background and how you got involved in this?
WW: Sure, so I’ve spent the majority of my life in three roles: I was an investment banker at Salomon Smith Barney and Citigroup when I started my career after graduating from Cornell, I then worked for a series of venture capital funds that were actually state-sponsored venture capital funds. They really supported things like translational research and building technologies out of various academic labs and institutions in several states including Texas and New York. So, I worked for a fund called Newtek that did that, and then I launched my own series of venture capital funds called Aegis that operated in the space for a number of years. I also have a bit of an entrepreneurial streak, so I’ve founded several companies in the life science, media, and healthcare space. I really got involved in this initiative because I’ve been friends with the CEO and President of the National Foundation for Cancer Research for almost a decade, through my academic networks. We jointly saw the need for oncology venture fund to ensure the efficient bench to bedside process.
BJ: What do you see as the big opportunity here?
WW: I think what’s very compelling, as I mentioned before, is really the outperformance of life science venture capital. Within life science venture capital, the oncology sub sector has really performed at the top of all of the other sub sectors over the last decade or so. From a numbers standpoint, it makes sense to invest in the oncology space. I think that, secondly, we tend to have the ability to add significant value to de-risk investments in a number of ways. We have relationships with the major cancer centers, which enables us to have slightly better clinical trial access. We have some of the top research oncologists in the country on our team, which allows us to not only review these deals in a manner that is more sophisticated and detailed than any other fund, but to also source deals in this space that other funds don’t see. We will have former big pharma and healthcare execs examining the exit opportunities for our companies before investing, positioning them for exits throughout the portfolio management stage, and helping to effect those exits through their relationships. We also have various relationships on a global basis with Dr. Ba, who is the President of the National Foundation for Cancer Research and a Partner in our fund, to really bring value with regard to expansion of some of these companies and technologies to China as an additional market and also looking at the value added from large multinational trials for some of our companies.
In addition to really looking at the de-risking factor and the potential upside of funds in oncology investment in general, there is also the impact element. A lot of the team members that we have, they’ve made a significant amount of money in the private sector of their accord in venture capital and business; we have C-level executives from several Fortune 500 companies that are on our team providing business advisory. The team is involved to make an impact, as well as money for our fund.