Quest to help a diabetic son endure a different kind of donation
Like any parent of a sick child, Sean Doherty wanted to help his son, Finn, who suffers from type 1 diabetes. Unlike many parents, he had the professional and personal resources to make a real difference.
Four years ago, Mr. Doherty, then legal counsel to private equity firm Bain Capital, partnered with other parents of children with type 1 diabetes to create the T1D Fund, a vehicle for non-profit organized private equity type investment. The idea was to give pharmaceutical companies a financial incentive to develop a cure for type 1 diabetes, an autoimmune disease different from the more common type 2 diabetes.
“By doing this fund in a philanthropic way, we have the luxury of taking risks,” Mr. Doherty, who lives in Boston, told me at the time. The new fund got early support from JDRF, a foundation focused on type 1 diabetes research, and attracted large donors who could meet its minimum donation of $ 500,000.
The fund was launched as venture philanthropy gained ground. The model was the Cystic Fibrosis Foundation. Instead of just giving money, donors could contribute to a fund that would invest in a cause and generate a return that would stay in the fund and be invested 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 other fund trustees had learned valuable lessons about what works and what doesn’t.
As a result, the fund has been successful. This is in part due to its rich, connected and engaged donor base, but also because of the disease’s smaller scale. A similar fund launched by the American Cancer Society, by contrast, is being restarted after stagnating during the pandemic. This fund has struggled to stand out among the many organizations trying to raise funds to fight cancer.
Mr. Doherty said the purpose of his fund was to “catalyze a market”. Type 1 diabetes, he said, is “a disease that affects 20 million people worldwide, and the market ignored it.”
“People thought insulin devices were a cure, but they only treated the symptoms,” he added. “People thought it was a childhood illness, while 85% of those affected are adults. We focused on our precise differential value.
The fund received seed money from JDRF and the foundation also covered T1D’s operating expenses for several years, so all donations were invested in companies working on the disease. The fund administrators have also sought support from the Helmsley Charitable Trust, one of the major funders of type 1 diabetes research. The association with Helmsley has given the T1D Fund credibility with corporations of venture capitalists who could invest alongside it.
Helmsley saw the fund as a way to amplify his giving: his money was matched with other donations to the T1D fund and rose again when the fund brought in venture capital partners.
“It became clear that if we got involved in the fund, we could raise three to five times as much money,” said David Panzirer, a director of Helmsley. “What the fund does is very complementary to what we have done and what we are doing in the future. We have partnered with companies as well as JDRF and others to speed things up.
The fund has also attracted donors keen to have a more direct connection with the recipients of their money.
“Coming from a technological background, I saw how much impact venture capital can have. Said Mike Fisher, CTO of Etsy and parent of a child with type 1 diabetes. “I have spent years working with the local board here in Cleveland, helping them market and organize fundraising walks. All the while, I thought what they needed was support from VC.
Mr Fisher said he donated over $ 1 million to the T1D Fund. “They have been successful,” he said.
Others, like David Nelms, former CEO of Discover Financial, said the fund offered a different way to tackle type 1 diabetes. He said he and his wife, Daryl, would continue to donate to JDRF to support its scientists and the research they do. But they’ve also donated to the T1D Fund – over $ 3 million to date – because they feel more involved in the investment process.
“It’s gratifying to feel like you see some of the specific things they do with the money,” Mr. Nelms said. “It’s a bit more like an endowment at a university, where you give money up front and hope it can become self-sufficient over time.”
The fund currently has $ 160 million, but $ 50 million comes from returns on investments made by the fund, Doherty said. A big success was its 2017 investment in Semma Therapeutics, which focuses on using stem cells as a cure for type 1 diabetes. Vertex Pharmaceuticals bought it for $ 950 million in cash in 2019.
“Pharmaceutical companies are naturally averse to risk,” Doherty said. “So in this case you’re using venture capital money to prime the pump and keep the cycle going. Vertex will invest in this for years to come.
The fund is seeking to raise an additional $ 50 million to raise its assets above $ 200 million, which would allow it to be self-sufficient.
However, the fund encountered some problems. It struggled early on when private equity firms recruited some of its staff, although talent retention improved as the fund became more successful, said Jay Eastman, who works in the fund. private equity and contributed over $ 1 million to the fund.
Mr Doherty said the fund also had to rethink at what stage in a pharmaceutical company’s development its investment made the most sense. “It was more difficult to bridge the early stage gap between great laboratory research and starting a business,” he said. “We thought it would happen more, but it isn’t.”
Instead, the fund invested in companies that were already in business. He has also participated in meetings with companies working on treatments for other autoimmune diseases. One of them is Pandion Therapeutics, which has developed drugs for conditions like ulcerative colitis.
“Now Type 1 treatments are sought after by 20 companies who have much stronger balance sheets than if we had created small businesses ourselves,” Doherty said.
Beyond the basic logistics of hiring staff, expanding operations, and paying people with private equity expertise on a nonprofit budget, existing interest in a disease also matters a lot.
“Type 1 diabetes is a relatively minor disease, but we are not quite an orphan disease,” said Panzirer. “But we don’t have type 2 diabetes either, where the big money comes in.”
Diseases that affect more people and already have well-heeled supporters present a different challenge. Earlier this year, Alice Pomponio became Managing Director of BrightEdge, the American Cancer Society’s venture capital fund, with the task of re-energizing the fund. BrightEdge received some $ 35 million from the American Cancer Society in 2019 to make risky philanthropy-like investments, but it hadn’t grown much.
“Oncology is a crowded space, and there is already a lot of money for it,” said Ms. Pomponio. “This is what makes things harder to do than with rare diseases or orphan diseases.
Yet she sees it as another option for donors who wish to donate to organizations trying to treat and cure cancer.
“What I see over time is that we evolve the model so that we can achieve a range of fundraising goals,” Ms. Pomponio said. “There are philanthropists who would be happy to donate to the American Cancer Society and others who see this model as more attractive because it is self-sufficient. Then there are others who would like to partner with us on investments and have shared returns. “
Mr. Doherty said he was satisfied that the T1D Fund is on the verge of being self-sufficient. But he said he was happier that around $ 500 million in outside venture capital had been invested alongside the fund over the past four years.
“They had hardly ever invested in the diabetes space before,” he said. “Now we have to make agreements with them. “