Novartis Option Fund Managing Director Says First Responsibility is to Portfolio Companies, Dislikes “Corporate VC” Moniker

10/31/08

Don’t be confused by the name of the Novartis Option Fund. The fund’s purpose isn’t to gain options in companies for Swiss drug giant Novartis to later acquire, says Lauren Silverman, the fund’s managing director. And it isn’t a traditional corporate VC firm that operates as an extension of the parent company.

Rather, Silverman prefers to think of the fund as a more general venture capital fund that happens to have a single limited partner. That partner, to be sure, is Swiss drug giant Novartis (NYSE:NVS). However, says Silverman, “We really don’t consider ourselves as a strategic fund (to Novartis) at all. In terms of our investment mission, we can invest on strategy with Novartis or not on strategy with Novartis.”

For all the ways it is similar to mainstream VC outfits, however, the Cambridge, MA-based Novartis fund is different from most venture firms in other ways. For one, the fund plays a role in helping Novartis purchase options to certain uses of its portfolio companies’ technologies. Silverman acknowledges that this aspect of her fund is indeed “strategic,” in terms of serving the product interests of Novartis, but she notes that the option rights return to the startups if Novartis doesn’t exercise them within a set period.

Also, unlike other VC firms that must tap numerous limited partners to raise money for their own investments, the option fund launched out of the gate in January 2007 with $200 million from its parent company—an enviable trait to venture investors struggling to raise money amid the current economic crisis.

Good news for newly hatched life sciences startups. With its considerable resources, the option fund searches for opportunities to invest in biotech firms at their earliest stage of development—even as many traditional VC firms steer their resources toward more mature enterprises. Over time, Silverman says, the fund aims to invest between $20 million and $25 million in its portfolio companies.

To be clear, the option fund’s own board is composed both of Novartis executives and independent members. Further, the option fund is part of Novartis Venture Funds, which is one of the largest corporate biotech VC units in the world with more than $600 million under management. (Here’s our list of some of the Boston-area corporate VC firms focused on life sciences.) Yet Silverman was adamant about the limits of Novartis’ influence over her fund, noting that the board is led by independent chairman Spyros Artavanis-Tsakonas, a professor of biology at Harvard Medical School.

Thus far, the option fund has placed bets on the following five startups:

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