Paul Brown, managing director, originally conceived the idea for corporate venturing-backed venture firm Sandbox Industries when he was deputy general counsel at the Blue Cross Blue Shield Association, an organisation for US health insurance schemes.
Brown said: “While serving as the deputy general counsel, I had this idea we could do a strategic corporate venture fund, with the individual Blue Cross and Blue Shield health plans as investors. We could go out and not only pursue a good return for them financially, but also provide significant
strategic value by helping the Blues be more innovative and get more exposure into what healthcare entrepreneurs were doing, ultimately allowing the Blues to bring lower-cost solutions and better outcomes to their customers.
“We closed the first Blue Venture Fund in July 2008. We selected Sandbox Industries as manager. For a couple of years I continued as deputy general counsel at Blue Cross and Blue Shield Association, also working very closely with Sandbox running the Blue Venture Fund. After two years doing both jobs, I transitioned to a hybrid role, joining Sandbox as a managing director and shifting to vice-president of venturing at the association.”
Brown is pleased with how the fund is progressing. He said: “I think it has proven to be a wonderful model. We raised our first fund in July 2008 and had 11 separate Blue Cross and Blue Shield health plans with a fund of $116m. That fund is fully invested and reserved. It has 12 companies in the portfolio and two really nice exits have returned nearly 40% of the fund.”
The corporate venturing unit expanded its funding base for a second fund last year. Brown said:“In March 2011, for our second fund we doubled the number of Blue plans from 11 to 22, and went up to $179m in capital commitments. So far this second fund has five portfolio companies and we are actively investing it. We will probably end up with 15 to 20 companies in the portfolio. It has only been investing about a year and we are off to a good start. We have had no writedowns or writeoffs in either fund, which is pretty good.”
Brown was a lawyer for 10 years at US-based law firm Kirkland & Ellis, before leaving in 2002 to join the Blue Cross Blue Shield Association, which had been one of his clients at Kirkland & Ellis.
He is a graduate of University of Utah and the Northwestern University School of Law.
Lessons from the top: Brown said: “Have as many deep and meaningful contacts as you can with corporate partners, not just the business development executives, chief financial officer or treasury people. My hybrid role and our very deep and broad network with the Blues facilitates this. This also insulates against the challenge of necessary turnover through promotions and people moving on. You do not want a single thing to impact your contacts with the company and your corporate venturing programme can be imperilled if this happens.”