Venture Philanthropy: A Case Study of the Cystic Fibrosis Foundation

23 Pages Posted: 23 May 2019

See all articles by Esther Kim

Esther Kim

Massachusetts Institute of Technology (MIT)

Andrew W. Lo

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Date Written: April 23, 2019

Abstract

Advances in biomedical research have created significant opportunities to bring to market a new generation of therapeutics. However, early-stage assets often face a dearth of funding, as they have a high risk of failure and significant development costs. Historically, this has been particularly true for assets intended to treat rare diseases, where market sizes are often too small to attract much attention and funding. Venture philanthropy (VP) — which, for the purpose of this paper, is defined as a model in which nonprofit, mission-driven organizations fund initiatives to advance their objectives and potentially achieve returns that can be reinvested toward their mission — offers an alternative to traditional funding sources like venture capital or the public markets. Here we highlight the Cystic Fibrosis (CF) Foundation, widely considered to be the leading VP organization in biotech, which facilitated the development of Kalydeco, the first disease-modifying therapy approved to treat cystic fibrosis. We evaluate the CF Foundation’s example, including its agreement structures and strategy, explore the challenges that other nonprofits may have in adopting this strategy, and draw lessons from the CF Foundation for other applications of VP financing.

Keywords: Venture Philanthropy; Venture Capital; Impact Investing; Cystic Fibrosis

JEL Classification: G24; G32; L31; G11

Suggested Citation

Kim, Esther and Lo, Andrew W., Venture Philanthropy: A Case Study of the Cystic Fibrosis Foundation (April 23, 2019). Available at SSRN: https://ssrn.com/abstract=3376673 or http://dx.doi.org/10.2139/ssrn.3376673

Esther Kim

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Ave
Cambridge, MA 02139

Andrew W. Lo (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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Cambridge, MA 02142
United States
617-253-0920 (Phone)
781 891-9783 (Fax)

HOME PAGE: http://web.mit.edu/alo/www

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Computer Science and Artificial Intelligence Laboratory (CSAIL)

Stata Center
Cambridge, MA 02142
United States

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