The Mission to Help the Diabetic Son Endure with a Different Way of Giving

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Like any parent of a sick child, Sean Doherty wanted to help his son Finn, who has Type 1 diabetes. Unlike many parents, she had the professional and personal resources to truly make a difference.

Four years ago, Mr. Doherty, who was then general counsel for private equity firm Bain Capital, met with other parents of children with Type 1 diabetes. T1D Fund, a private subsidiary investment vehicle organized as a not-for-profit entity. The idea was to give pharmaceutical companies a financial incentive to develop a treatment for Type 1 diabetes, an autoimmune disease different from the more common Type 2 diabetes.

“We have the luxury of taking risks by making this fund philanthropic” Mr. Doherty, who lives in Boston, told me: then. New fund receives early support JDRF, a foundation focused on type 1 diabetes research, and has attracted large donors who can afford a minimum donation of $500,000.

The fund was launched as venture philanthropy gained traction. The model was: Cystic Fibrosis Foundation. Rather than simply giving money, donors can contribute to a fund that will invest in a cause and stay in the fund and generate a return that will be invested in promising ideas.

Today, some of these investments have paid off. There are no others. Leaving Bain to concentrate on the T1D Fund, Mr. Doherty said he and the other trustees of the fund learned some valuable lessons about what works and what doesn’t.

As a result, the fund was a success. This has come in part because of a base of wealthy, connected and committed donors, but also because of the smaller scale of the disease. In contrast, a similar fund initiated by the American Cancer Society is restarting after it stopped during the pandemic. This fund has struggled to stand out among the many organizations trying to raise funds to fight cancer.

Mr Doherty said the purpose of his fund was to “activate a market”. He said type 1 diabetes “is a disease that affects 20 million people worldwide and the market ignores it.”

“People thought that insulin devices were a cure, but they were just treating the symptoms,” he added. “When 85 percent of the affected people were adults, people thought it was a childhood disease. We are focused on our definite, distinctive value.”

The fund received start-up capital from JDRF, and the foundation also covered the operating expenses of T1D for several years, so all donations went to invest in companies working on the disease. The fund’s trustees also sought support from the Helmsley Charitable Trust, a leading funder of Type 1 diabetes research. The relationship with Helmsley gave credibility to the burgeoning T1D Fund with venture capital firms that could invest alongside it.

Helmsley saw the fund as a way to grow his endowments: His money was matched with other donations to the T1D Fund and leveraged again when the fund brought in venture capital partners.

“It became clear that we could raise three to five times more money if we were in the fund,” said David Panzirer, a Helmsley trustee. “What the fund is doing is very complementary to what we’re doing and what we’re doing going forward. We have partnered with companies with JDRF and others to speed things up.”

The fund has also attracted donors willing to connect more directly with the recipients of their money.

“Having a technical background, I’ve seen how effective venture capital can be.” said Mike Fisher, Etsy’s chief technology officer and parent of a child with Type 1 diabetes. “For years I’ve worked with the local board here in Cleveland helping them with marketing and organizing walks to raise money. All this time I thought what they needed was VC support.”

Mr Fisher said he has donated more than $1 million to the T1D Fund. “They succeeded,” he said.

Others, like David Nelms, former CEO of Discover Financial, said the fund provides a different way to approach Type 1 diabetes. He and his wife, Daryl, said they will continue to donate to JDRF to support the scientists and their research. But they also give to the T1D Fund – over $3 million so far – because they are more involved in the investment process.

“It’s gratifying to feel that you’ve seen some of the specific things they do with money,” said Mr Nelms. “It’s a bit more like a donation at a university that you’ve given money in advance and hope will become self-sufficient over time.”

Mr Doherty said the fund currently has $160 million, but $50 million comes from the returns on the fund’s investments. His 2017 investment in Semma Therapeutics, which focuses on using stem cells to treat type 1 diabetes, was a huge success. Vertex Pharmaceuticals bought $950 million in cash in 2019.

“Pharmaceutical companies are inherently risk-averse,” said Mr Doherty. “So in this case, you are using risk money to start the pump and keep the cycle going. Vertex will invest in that for years to come.”

The fund plans to raise another $50 million to increase its assets to over $200 million, which will allow it to be self-sustaining.

But the fund faced some problems. Jay Eastman, who works in private equity and has contributed over $1 million to the fund, struggled initially when private equity firms missed some of the staff, but as the fund became a success, talent got better at retaining.

Mr Doherty said the fund needs to rethink at what stage in a pharmaceutical company’s evolution it makes the most sense to invest. “It was harder to bridge the early-stage gap between big research in the lab and starting a company,” he said. “We thought it would be more, but it didn’t.”

Instead, the fund invested in companies that were already in operation. He also held talks with companies working on the treatment of other autoimmune diseases. One of them is Pandion Therapeutics, which develops drugs for diseases such as ulcerative colitis.

“Now Type 1 treatments are being researched by 20 companies with much stronger balance sheets than if we had started small companies on our own,” said Mr. Doherty.

Beyond the basic logistics of hiring staff, expanding operations, and paying people with private equity expertise on a nonprofit budget, current interest in a disease is also crucial.

“Type 1 diabetes is a relatively minor disease, but we are not an entirely orphan disease,” said Mr Panzirer. “But we’re also not Type 2 diabetes where the big money comes from.”

Diseases that affect more people and already have solid supporters present a different challenge. Earlier this year, Alice Pomponio became executive director of BrightEdge, the American Cancer Society’s venture fund, and was tasked with reviving the fund. BrightEdge received nearly $35 million from the American Cancer Society in 2019 to make venture philanthropy-like investments, but it didn’t grow much.

“Oncology is a crowded field and a lot of money is already being spent on it,” said Ms. Pomponio. “This is what makes it more difficult than rare diseases or orphan diseases.”

Still, she sees it as another option for donors who want to donate to organizations trying to treat and cure cancer.

“What I’ve seen over time is that we’ve improved the model so we can meet a number of fundraising goals,” said Ms. Pomponio. “There are philanthropists who would be happy to give to the American Cancer Society and others who find this model more attractive because it is self-sufficient. Then there are others who want to partner with us on investments and have shared returns.”

Mr. Doherty said he was pleased with the T1D Fund’s approach to self-sustaining. But he said he was more than happy to have around $500 million in foreign venture capital invested alongside the fund over the past four years.

“They had almost never invested in the diabetes field before,” he said. “Now, we come to terms by them.”

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