M Ventures, the Netherlands-based corporate venturing subsidiary of Germany-headquartered pharmaceutical firm Merck Group, has had a busy start to the year, as its wide technological remit allows it opportunities other pharmaceutical companies might not have.
The unit invested in Future Fertility, a provider of diagnostic software for in vitro fertilisation, in January and followed that by participating in a $56m series A round for Celestial AI, the developer of a hardware and software platform for use in machine learning chipsets; a $30m series B round for industrial robotics technology provider Micropsi Industries; and a $102m round for protein degradation technology developer Plexium.
Owen Lozman, managing director at M Ventures and head of its technology investments, told Global Corporate Venturing: “For M Ventures, it is an interesting time for business since we are continuing to invest in highly valuable innovation where market demand in increasing.
“Where do we see the growth coming? Smarter clinical drugs and designs to maximise value to patients, next generation approaches in precision medicine, novel modalities, better, faster and cheaper biomanufacturing, and technologies driving digitalisation – we are producing materials that make semiconductor devices, and that is driving things like Web3 and the metaverse.
“And Merck Group as our mother company is extremely well positioned at the forefront of many of these exciting areas.”
While it is best known for its pharmaceuticals, Merck’s healthcare business is complemented by its life sciences and materials businesses, and that is reflected in M Ventures’ investment activity.
M Ventures is split between a larger biotech fund which comprises roughly two-thirds of the unit’s portfolio and which has been investing for a longer time, and a technology fund which makes up the balance.
Lozman said: “From our perspective, the venture fund team is truly adding a significant parallel value to our external innovation, working alongside our research and development function.
“Venture activities allows us not only to build additional future optionality and pipeline for the organisation, but also help build the next generation of high value innovative companies in the ecosystem. Every investment is unique.
“Merck is one of the very few companies that still healthily carries multiple businesses – healthcare, life science and electronics businesses – under the same umbrella. There are many opportunities where we see digital technologies, healthcare and life sciences overlapping in a multiplex form.”
M Ventures’ entry investmnent in a company is typically between $5m and $10m, though it can bump that up to about $15m in subsequent rounds. It has typically been an early-stage investor but is fairly stage-agnostic, having been involved in its share of first-money-in and spinout deals, as well as typical seed and series A and B rounds.
As round sizes have increased in recent years, the unit has steered itself more toward the earlier stages, but it has benefitted from an evergreen fund structure that allows it to remain a shareholder in portfolio companies over the long term.
Just before Christmas, Merck topped up M Ventures’ coffers with a €600m ($658m) commitment to be deployed over the next five years, marking the third increase it has made to the unit’s allocation since it was launched in 2009. Given the rising valuations on the market, Lozman said, the additional capital will go a long way.
The dual mandates of financial and strategic objectives are not mutually exclusive, he added, and while certain deals may swing closer to one end of the spectrum, they balance out on a portfolio basis.
“A strategic investment that is not going to be successful is not a good investment for either purpose,” Lozman said. “The financial prioritisation ensures that the companies are set up well for success and that they are self-sustaining, so I do not find that [the dual mandates] are mutually exclusive.”
Having a parent like Merck, which has extensive capabilities in terms of both acquisition power and R&D, means there is a balancing act in deal origination where you want to make sure the investee has the potential to become strategic down the line, but is not yet strategic to the extent that it would be better suited for an M&A play outside of the CVC’s scope.
Lozman said: “What we need to do is see if there is an intersection in the future of our roadmap to make it strategic”
Being the corporate venturing vehicle for a company that has been in an innovation-focused industry for hundreds of years means M Ventures benefits from a parent that understands the importance of taking calculated science risk when looking for disruptive technologies.
Market research can help solve risks centred on market fit, and engineering risk can be countered with sufficient money and manpower, so science risk is effectively the biggest question mark in any given investment that M Ventures makes.
Merck is no stranger to the sub-10% success rate of preclinical drug discovery or comparable early-stage materials R&D success rates, and so understands the unit may need to take well-grounded punts – as long as risks can be understood, quantified and mitigates – to find winners, and has been supportive on that front, Lozman said.
The pandemic has had minimal effect on M Ventures. Meeting people over Zoom instead of in person is an obvious difference, but it has not had any real impact on its execution according to Lozman, with deals still able to get done. Some portfolio companies may have seen delays in R&D or other milestones but have been able to weather the storm.
On the flipside, the covid-19 pandemic has highlighted several openings across M Ventures’ focus areas, such as the proven adaptability of vaccine platforms like mRNA, the growing market for augmented and virtual reality and the crucial importance of communications supply chains and the onset of 5G technology.
Moving forward in 2022, areas like sustainability in the semiconductor sector are in M Ventures’ sights, and it plans to put in a call to arms of sorts for entrepreneurs to solve problems in a sector where sustainability is increasingly becoming a key performance indicator in addition to quality and price.
Lozman said: “We are in an operational mode, the team is at full strength, so it is really about executing on new excellent opportunities and continuing to build value in our growing existing portfolio companies.”
