Wednesday, April 21, 2010

Christoph Westphal's Two VC Hats

Christoph Westphal is getting a new business card. In an email sent to friends and some well placed bloggers on April 21, Westphal disclosed that his time as CEO at Sirtris Pharmaceuticals has come to an end.

Noting that Sirtris has a "strong team in place under the leadership of George Vlasuk who is now taking on the role of CEO of Sirtris," Westphal confirmed recent speculation: his departure from Sirtris goes hand-in-hand with his decision to jump back into the venture world. In February, SEC filings disclosed that Westphal, alongside Michelle Dipp and Rich Aldrich, was founding the early-stage focused Longwood Founders Fund with about $51 million.

But Westphal dropped another bombshell in his note Wednesday, and it landed in a decidedly off-hand fashion. Via Longwood, he wrote that he aims to "found, build, and run important new medical companies, as we have been doing for the last decade. In addition, I will be overseeing GSK's midstage venture fund, SR1."

Talk about burying the headline.

It's been a revolving door at SR One, with news surfacing in March that Russell Greig was leaving the storied group not even two years after taking the reins. Westphal isn't talking publicly yet. 'Wait until May' was basically the reply this blogger received when she contacted him.

As Steve Dickman of CBT Advisors pointed out April 21 on his subscription-only blog, this isn't the first time Westphal, well known for his indefatigable drive, has held two jobs at once. But it's one thing to wear CEO and VC hats at the same time. It's a different matter to be a financial VC and a corporate VC. There are plenty of synergies, but as Dickman notes there's also the potential for conflict.

Corporate VCs will tell you they are well aligned with their traditional brethren, with financial return the primary driver behind their investments. But corporate funds also bear a critical strategic function: to identify key assets or technologies that lead to tomorrow's innovative products. That mission is only likely to grow in importance with the pullback in the traditional VC community, which is more focused on low-cost innovation that generates returns in three to five years and satisfies antsy LPs.

We're guessing GSK, a backer in Longwood, must be okay with potential conflicts that could arise, including what might happen if Longwood makes a seed investment in start-up X, and SR One wants to back the same company in a later round. Do Westphal's ties to both funds preclude Longwood and SR One from both having board seats? Does SR One get similar equity terms to Longwood? How will this duality play with other traditional or corporate VCs who might be in a syndicate with Westphal/Longwood/SR One?

Perhaps more thorny, how does Westphal manage the conflicts that crop up when he chooses to pass on a certain investment? Is he making the decision as a Longwood investor or an SR One investor? Where does the continuum between SR One's investment philosophy end and Longwood's begin?

It's all very nebulous, as is what's happening at SR One (or GSK Ventures for that matter -- remember them?). Dickman and others speculate the move will rejuvenate the storied venture fund. Funny, we thought Greig was brought in for that, and his efforts seemed to be working. SR One was among the most active corporate investors in the last year, investing in seven firms in 2009, including Aileron Therapeutics, Genocea Biosciences, and Alios Biopharma.

Perhaps Westphal will find more creative ways to ink deals, moving GSK firmly into the realm of option-based venturing. Maybe he'll provide yet another bridge between the corporate and traditional VC realms. Or maybe his close ties to GSK show how difficult it is to be a traditional VC today and just how intertwined venture and pharma truly have become.

Image courtesy of flickrer lokidude99 used with permission through a creative commons license.

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