Starting Big

Increasing fund size, a depressed but competitive public stock market, and rule-bound money managers unable to even consider investing in small firms are compelling private investors to seek new, deliberately big models for start-up firms. Some VCs are making long-term bets on star-powered teams of people trying to integrate brand-new technologies. If fully-formed start-ups can dramatically improve the drug discovery process, and retain the value they build, they stand to enjoy huge step-ups in valuation when they eventually do go public. Investors seeking faster-than-average returns think they can quickly build integrated-technology companies by buying the basic underpinnings at discount-for instance, by acquiring experienced research groups from major drugmakers anxious to cut costs-then quickly taking the start-ups public. In-licensing may also offer a faster route to ROI. Investors are updating the old model, applying stacks of cash to help certain start-ups acquire operating infrastructure, and reach for big opportunities. Backers expect that big-name founders will be able to net products that elude less experienced people.