According to Purohit Ventures founder and CEO Anshal Purohit, the idea to launch an investing firm arose, as new undertakings in business often do, through a pain point.
The new firm was spun off this month from Purohit Navigation, the 30-year-old boutique healthcare marketing agency where Purohit worked as a commercialization specialist. Over the course of her tenure at the company, she was often on the lookout for early-stage companies with which to engage. Over time, however, she learned that doing so wasn’t always a win-win proposition.
“A $16 million, Series A raise is almost 100% allocated to a clinical program. There’s no leeway in there to hire a firm to help strategically,” Purohit explained. “Frankly, we were losing money on a lot of those partnerships. We liked doing the work, but we were not getting paid for it.”
Purohit Ventures transforms the job of selecting and coaching seed companies from a zero-sum gain into a more equitable partnership. The investment firm aims to identify healthcare and biotech startups it deems “behaviorally relevant,” or poised for commercial success. In lieu of capital, Purohit Ventures contributes the services those firms need to achieve that success but often don’t have the cash to pursue, like indication analyses, market-shaping activity and counseling to make sound decisions that will ultimately impact their commercial presence.
It’s a service-as-currency model. “There’s no cash outlay, but really we are still investing in the same way with our resources,” Purohit said.
In return for its work, the firm attempts to negotiate an ownership stake. “The only compensation we have is at exit. We are really looking for folks who are open to us being an equal player at the table,” Purohit continued.
As the managing director of one middle-market investment bank told MM+M, operating several businesses simultaneously is difficult for a typical VC. Even though they may not be raising cash, Purohit Ventures will be identifying target businesses and closing on transactions; applying research methodologies; and managing a P&L with staff and, possibly, outside investors. “It seems like an out-of-the-box idea,” this person said. “Likelihood of success? Not sure.”
Granted, it’s not your typical biotech venture fund, but these are atypical times. Despite the uncertain COVID-19 landscape – or perhaps because of it – investor interest in the healthcare industry remains strong.
Through the third quarter, private equity and venture capital poured some $60.7 billion into the sector. That represented the third-highest single-quarter total for the industry since 2016, according S&P Global Market Intelligence, ranking behind only two other sectors (industrials and IT). Among healthcare subsectors, biotech attracted the highest investment activity in the first half of the year at $12.6 billion, up from $7.2 billion in the first half of 2019.
“There is so much innovation in healthcare. It’s a need that we all have,” Purohit said. “If anything, COVID has shined a spotlight on that.” Moreover, company boards are pushing for earlier IPOs and funding raises “have come quicker than I’ve ever seen,” she added. “Folks have money and they want to put it in the industry.”
At the same time, there’s an appetite for women investors in this space. Only 9.5% of VC investment decision-makers were women in 2019. Purohit’s all-female leadership team also includes co-founder/general partner Ahnal Purohit (who founded Purohit Navigation), partner/chief portfolio strategist Jen Clark and partner/CFO Kim Hogen.
Anshal Purohit will continue as president of Purohit Navigation, and the two firms will share some services, Hogan said. “That will just help our launch.”
In a sense, the new firm represents the culmination of a direction Purohit Navigation had been moving in for some time.
“A lot of the firms who work within Purohit Navigation fit in this behaviorally based investment thesis,” Purohit noted. “Our focus has always been on behavioral and the idea that what determines a commercial success isn’t necessarily just a mathematical potential, or that it can grow over time. It’s actually the idea that relevance in the market and establishing relevance is really important.”
And that work begins, ideally, much further upstream. While the firm has yet to officially add any companies to its portfolio, Purohit is eyeing platform technologies in the genetics area, including molecular diagnostics start-ups. It’s at that start-up phase where budding organizations often lack cash for service providers who can assist with making behaviorally relevant decisions.
“We can do all of that with an eye on a commercial market, because we also understand commercialization,” Purohit said.
For that matter, so do many other healthcare agencies. Does Purohit see the services-as-currency model working for similarly sized marketing agencies with similar growth ambitions?
“A seed company doesn’t really need straight-up marketing support,” Purohit responded. “They need really tailored support: Figuring out how to design clinical trials so they’re relevant from a behavioral standpoint, what’s going to be relevant when they develop their product, what indications they should push for. Those are all questions we will help to answer, not just the marketing piece. I’m not suggesting it can’t be done, but I don’t know how many folks are set up to do it.”
Purohit Ventures’ secret sauce lies in spotting those factors that can change behavior and then helping ensure eventual market uptake. Still, it’s very different from agency support work, not to mention a process which requires careful vetting.
“A lot of the companies that work with Purohit Navigation now, we would actually choose to invest in,” Purohit noted. “That said, the way we approach the decision-making process is very different, because we’ve got skin in the game in a different way.”