Gates Foundation Stepping Up Direct Investments in Private Companies

The Bill & Melinda Gates Foundation, which has awarded billions of dollars in grants to nonprofits and nongovernmental organizations in the areas of global health, education, and poverty alleviation, is increasingly investing capital directly in companies that can help advance its goals, the New York Times reports.

Over the last few years, the foundation has made about a dozen direct equity investments in companies under the umbrella of its program-related investment program. They include a $52 million investment — its largest to date — in CureVac, a German biopharmaceutical company specializing in mRNA-based vaccine technologies, and an $11 million investment in bKash, a joint venture between BRAC and Money in Motion that is working to offer a banking solution to the poor. Whereas other foundations that offer program-related investments or loans tend limit them to nonprofit organizations, however, the Gates Foundation's investments have been focused on private-sector companies. The foundation's PRI program, which is run independently of the foundation's $43.5 billion endowment, was launched in 2009 with $400 million and has tripled in size to $1.5 billion.

"Early-stage investing allows us to tackle problems that we couldn’t tackle before," said Julie Sunderland, who heads the foundation's PRI team. The team of fifteen investment specialists works closely with program teams in education, global development, and global health to identify and appraise ideas, then pitches them to an investment committee focused solely on PRIs, taking into account the social impact of an investment and its economic viability. "In venture capital, you can have a successful exit even if the product ultimately fails," Trevor Mundel, president of the foundation’s global health division, told the Times. "We don't have that option. The things we invest in have to actually work."

To ensure that happens, the Gates team also takes on the role of strategic investor, working with the companies it invests in on research and business development. In a typical market situation, for example, a firm like CureVac would focus on the most profitable applications for its technology. But by taking an equity stake in the company to help it build out its platform — and awarding grants in support of specific projects — the foundation can ensure that CureVac devotes some of its resources to making low-cost vaccines for the poor. At the same time, the company can commercialize and license those products while continuing its work in other areas, including cancer research. "You could be waiting a long time for some of these vaccines to come to fruition," said Andrew Farnum, deputy director of PRIs at the foundation. "We looked at this and said, 'If this works, we want to be in on the ground floor and have broad access to all of our diseases.'"

Sarah Max. "From the Gates Foundation, Direct Investment, Not Just Grants." New York Times 03/12/2015.