Investor’s corner: interview with Jimmy Melton of Carolina Research Ventures

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May 26, 2020
By Hallie French, Innovate Carolina

Tell us about yourself, your background, and your new role at the Carolina Research Ventures Fund (CRV).

First thing to put out there is I’m a Blue Devil, through and through.  I was an undergrad at Duke with double major in English and Biophysics, worked in a lab, went back for my MHA, then worked there for 15 years.  Most of my time there was helping to start and build the Duke Clinical Research Institute (DCRI) which really brought out and strengthened a few core elements of my development and career. First, we built something new inside an academic institution, bringing together some unique capabilities and a dedicated team of talented people. Second, we created a new “company” that grew rapidly and large with partners and collaborators around the world. From a couple of dozen to nearly 1400 when I left, the pace was often insane, invigorating and exhausting at the same time. Lastly, we created a bridge across academic, commercial and government entities in a way that we grew and funded new ways of doing things, while supporting new therapies and information getting to clinicians. Leaving Duke, I pursued a number of endeavors from international consulting to being a C-level executive for a few companies. I stepped away from life sciences for about a decade to run a material sciences company, which taught me a great deal more about commercializing technologies in multiple countries, raising money, manufacturing, and market development. After that, I came back to medical product development with a local incubator and also took on a role with a young firm serving small/medium sized businesses of all types.

In February, I became the first Managing Director for Carolina Research Ventures, and I couldn’t be more excited about how things have gone so far and the potential for where they will go.

Tell us about CRV in terms of history, fund structure, industry focus, investment thesis, etc.

CRV manages the CRV Investment Fund, which was created by the UNC-CH Board of Trustees in 2016 as a separate company to further the commercialization of its assets by investing in UNC-associated companies, specifically in the life sciences and IT. There are only two investors, UNC-CH and UNC Health. Until I arrived, CRV was operated by its impressive Board of Directors, support from various University offices as needed, and Hatteras Venture Partners as the fund manager. In that time, 8 companies have received funding through the Hatteras relationship, and 1 has been a direct investment. There has been considerable success in that 2 companies have already had exits and none have failed.

Going forward, I see an expansion in both the number of companies where we invest and the models we use to do so, all to support their commercialization goals.

Give us an idea of how many investment opportunities you see in a year and how many of those make it to an actual investment?

Since Hatteras has driven things to-date, I’m not sure how many they have looked at to reach the 8 where investments were made. I expect it’s similar to other firms that literally review dozens, and sometimes hundreds of opportunities, while investing in a small percentage. However, as I mentioned, the success rate in those that did receive funding has been very good. Interestingly, I have been approached directly by about a dozen companies already and through various relationships, I see that continuing to grow. I do believe CRV will expand its efforts with IT companies and with more direct investments but those will require more infrastructure than what we now have, which will take 12-18 months to create. There may be a small number of one-off, direct investments in there, like Falcon Therapeutics, but we have to be judicious in how we move forward until we have capacity to do the diligence needed and support the funded companies toward successful ends.

What are the two or three things you look for in doing your first review of a startup?

I’m still learning to be a “venture capitalist” as I’ve more often been the one asking for funding and putting it to work, or advising funds and investors on the placement of their investments. I’m also learning how Hatteras approaches company selection and diligence. They have a strong and talented group, and I look forward to that relationship growing more robust.

For me personally, I’ve been exposed to a great many technologies, products and businesses over my career, so I have a small set of areas where I start. One is the depth of development of the technology involved from the standpoint of how many iterations have been involved, and not just a single, successful experience. I also look for a sense that the development plan has been thoughtful, looking at the competition, contingencies and best use of resources. The two real areas to consider at this point from my perspective, are the potential to develop a commercially viable product and creating a company to develop that product and make it commercially viable. The first involves strong market research and knowledge of how customers operate in the targeted space; always good to have founders or team members who have “practiced” in the targeted market. The second involves an appreciation by the founders and initial team that they are building a company and not a technology. These tie to an understanding that CRV is an investor, not a grant-maker, so commercial success is a goal.

What stage of company does CRV typically invest in? How much is a typical first investment and how much capital does CRV usually invest per deal?

Mostly seed stage and early transition companies, though I’d like to see a mix with others that are ready to move to commercial activities and operating growth. To date, the range of investment has been $100-600,000 with healthy reserves for add-on investments in each. We don’t really have a target range at the moment.

What is CRV’s “value-add” beyond capital?

CRV has an exceptional Board of Directors made up of University leaders, entrepreneurs and experienced investors. The combination of their skills, their networks, and their commitment to the University are a powerful tool I believe we will tap into more in the future. As I mentioned, the Hatteras team brings experience and resources, along with connections within the University, the local community and the investment world that benefit our portfolio companies. I can’t overstate the value that our Board chair, Sallie Shuping-Russell brings to all of this. She has unparalleled experience as a venture capitalist with an extensive network with energy and dedication that is equally strong. Different from many firms, I believe my experiences as an entrepreneur and connections across various sectors allows me to bring a different perspective and support to these firms. Finally, we’re planning other things to support our activities with the first being the formation of an advisory group made up of experienced investors and venture capitalists with connections to UNC located across the country.

What is your current involvement in the CRV portfolio companies?

None really. All but one have come through Hatteras, which has been their role. We do have a board presence with our one direct investment company and I know the CEO from past interactions. I foresee our having more involvement but again, we need to build more infrastructure to do that effectively.

Any final comments you would like to share about CRV?

I’m excited beyond even my own expectations. I see this as the culmination of the things I really enjoy: seeing new science, technologies and therapeutics, working with faculty and founders, and helping new teams and companies succeed.