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Biotech start-ups struggling to raise funds may find hope in DAOs

In a recent blog post, Joseph Perkins and Stephen Thau, partners at the investment firm Orrick Herrington & Sutcliffe, discuss a potential new funding avenue for biotech start-ups.

Perkins and Thau point to decentralized autonomous organizations (DAOs), which are designed to enable communities to fund projects they have a vested interest in.

“Many early-stage biotech companies are struggling to find their way through the valley of death — that time period between initial scientific discovery and proof-of-concept human clinical trials, when funding sources are sparse,” say Perkins and Thau. “Decentralized autonomous organizations might provide an alternative to traditional sources of capital, giving early-stage biotech companies the boost they need to get across the valley and develop life-saving drugs.”

DAOs generally launch with a stated purpose or goal, then raise money by selling tokens. The purchasers of the tokens become members of the DAO by default and can voice their opinions on which projects the organization should fund.

Perkins and Thau explain that, once a funding proposal passes, the DAO would automatically send funds to the target recipient, either as a grant or an investment, and that any returns on investment would be put back into the DAO treasury and could be used to fund additional projects.

“The key here is that no DAO member has any financial interest in the target projects by reason of being a DAO member,” Perkins and Thau write.

The authors cite Pfizer’s recent commitment of $500,000 to VitaDAO, an organization created to fund longevity research. To Perkins and Thau, this suggests that DAOs might be moving toward  the mainstream.

“Folks like to say, ‘Where there’s a will, there’s a way,’ write Perkins and Thau. “When it comes to developing new drugs, there’s certainly a will. The question is whether DAOs can be the way.”

Source: Bloomberg Law

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