A new approach to venture investing targeted at family offices

Mira Life Science Ventures is pitching for long-term backing from family offices using a fee structure which remunerates its team through dividend payments, as opposed to a 20% performance fee used in the venture capital world. 

The dividends will only be distributed when subscribers have been repaid, with interest.

To achieve this, Mira is using a Delaware corporate structure seeking returns from a broadly-based life sciences portfolio over a time period which could easily be longer than the VC ten-year average. 

Gehlsen prefers to be paid in the same way as a corporate manager, where results matter

Rob Grundy, Mira’s head of Europe, stressed that VCs play an important role in bringing on life science opportunities. But he argues investors would benefit from a fairer, more transparent, fee structure. 

As a company, Mira is free to take a long-term view of drug licences, which can stretch over decades. In contrast, VCs are obliged to sell their treatments after ten years, including annuity income from licencing. 

Mira believes this long-term approach will appeal to family offices. It is also prepared to offer family offices the chance to invest extra money in portfolio opportunities, if they wish. 

If things don’t work out, Mira is giving its investors the vote on liquidation after five years. It is prepared to consider listing its stock, giving family offices the chance to take advantage of a liquidity event. It wants to publish straightforward annual reports so investors can judge the calibre of management, and their decisions – not always easy through VC reporting structures. 

Mira accepts that family offices sometimes like to invest directly in specific life science opportunities, often for personal reasons, but believes it is important to take emotion out of investment decisions. It argues that diversified portfolios validated by experts are far safer bet. 

Chief executive Kurt Gehlsen is critical of  VC structures where managers, known as general partners, can invest a small sum of money for a big return without achieving much: “Let’s say a GP puts in $10 million, and uses it to raise $250 million. He gets a 2% management fee for 10 years, and gets $50 million. He would generally keep half and pay half to his partners, and for administration, leaving him with a $25 million gain on his $10 million, without needing to pay a profit or make good investments.” 

Gehlsen prefers to be paid in the same way as a corporate manager, where results matter. He has come across well-established funds charging 2% while losing money for years: “Mira is trying to flip this model and do it with investors in mind. We create value for our investors and we are 100% aligned.” 

He wants to raise $250 million from investors through an interest-bearing loan plus share warrants. The plan is to let investors take a 60% stake with management owning 40%. If the business develops as expected, Mira’s investors will have multiplied cash returns 8 to 10 times over, while retaining a similar sum via their equity position by year ten. 

Gehlsen built on his early career in biotech at companies such as Pharmacia to become chief scientific officer at Research Corporation Technologies for 13 years to April 2018.  Gehlsen handled 300 licence agreements when he worked at RCT. 

One of his biggest discoveries was Ceplene, which was approved as the first remission therapy for patients with acute myelogenous leukaemia. 

Like Mira, RCT followed the corporate route, and remains active. It started with a $25 million loan, turning it into a business with revenues of $2 billion over twenty years, returning $1 billion to universities and investors and developing a fund worth $500 million. 

Another corporate biotech, Roivant, founded by Vivek Ramswamy, raised $200 million in 2018, putting a value of $7 billion on the business.

According to Grundy, Mira wants to apply a commercial edge when scouting out opportunities, and ensure its prospects shepherd their resources. 

Mira also wants to make full use of its freedom to grant and manage licences in ways not permitted to VCs. It intends to take a flexible route to achieve this, by the use of options, licences, royalties and incubations. 

Grundy added Covid-19 led to a greater willingness by regulators to bring drugs to market promptly, while AI increases the options available to developers. Mira’s portfolio is likely to be broader than a narrowly defined VC, straying into medical devices, therapeutics, diagnostics and digital health.