Today I had a crazy idea about something to do to get us closer to a cure for eczema.
What if we created a venture capital fund devoted exclusively to investing in startup companies developing eczema therapies? Therapies could include new drugs (oral, topical); new barrier creams; new itch-inhibiting devices, etc.
Venture capital firms invest in small-to-medium size companies that look like they have the potential to grow big in a hurry. Venture capitalists accept a fair amount of risk; perhaps 9/10 of their investments will prove failures, but that tenth one will go off like a bomb and multiply their money a hundredfold.
Small companies need venture capital to build value to the point where they can get acquired by a larger company or hold an initial public offering of stock.
The conventional wisdom that you need to diversify your portfolio, so my idea may come across as foolish. I haven't heard of a specialized one-disease fund before. There could well be some out there and I'd like you to tell me if you know of any. Despite conventional wisdom, my naive experience with investing over the past few years has taught me that the whole market goes up or down in unison like a herd of lemmings. The only exception to this is gold, which goes the opposite way to everything else. So I don't think an all-eczema investment fund is necessarily a losing proposition.
It could be structured as one big investment (say from a philanthropist) or lots of smaller ones. For a first fund, I'd aim for $10 million, and it would probably be best to have 10 investors at $1 million apiece so you don't have one big boss dictating what you do.
The fund would aim to invest about $500,000 in 20 different startup companies across the U.S.
(My model for this idea is a small fund called Mission Bay Capital, the operations of which I am familiar with.)
The key to getting started, to being able to pitch successfully to investors, is to have a solid business advisory board. I expect I could convince some of the National Eczema Association's scientific board to back this fund as advisors, but this is not what I'm talking about--I mean seasoned venture capitalists from Silicon Valley. If you had $1 million to lend out, who would you give it to: a scientist, or a successful businessperson? Face it, you only lend money to people you feel comfortable with--people who know how to make a profit.
And the fund would be for profit. It would exist to make money for its investors. You'd have to pay the manager a fee too. But the plan, in the end (after, perhaps, launching a second fund of $100 million) would be to return a certain fraction of the profit to the NEA to support eczema research.
An eczema venture capital fund could make money and help produce needed therapies for us all.
Am I nuts or what? I'm going to think this through some more. It's absolutely necessary to connect to one or more successful people in Silicon Valley who have personal experience with eczema.