This summer, the U.S. government is trying to foster stronger ties between both startups and private foundations to further their mutual goals. Specifically, the IRS is trying to make it easier for foundations to make so called program-related investments (PRIs), which allow them to buy stock or offer loans to commercial ventures as long as the ventures promote the foundations’ charitable ambitions. (A proposed rule provides almost 20 new examples of investments that qualify. The comment period ends next month.)

It seems like a positive development, especially for young biotech companies that often find themselves stranded financially. As argued last week in the Wall Street Journal by Bob Pozen, a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institution: “Some of our brightest, most innovative thinkers are at start-up companies. But these companies often have a hard time raising capital. Venture-capital firms have become more cautious, unwilling to fund start-ups that have bright ideas but whose products are a long way from commercial viability.”

Still, a quick survey of healthcare VCs suggests that they either aren’t paying attention to PRIs or don’t have much interest in seeing PRIs become more ubiquitous.

PRIs “make me a little nervous, to be honest with you,” says Ted Driscoll, a technology partner at Claremont Creek Ventures in Oakland, Calif., which focuses on healthcare among other things. “VCs have gotten the message that in order to raise money, they have to return money to LPs; they’re in the business of looking at businesses. Meanwhile, it’s not in most foundations’ DNA to be profit-oriented,” he says. “It’s similar to the reason that VCs can be nervous about strategic investors; it’s a concern if you have people on the cap table with different goals.”

VCs are missing the boat, say proponents of  program-related investments. “It’s generally true that trustees are very risk averse,” says Pozen, author of the WSJ column. “And many would agree that they don’t have the expertise in-house [to coinvest alongside venture firms]. But foundations can hire the expertise, either directly or indirectly.”

In fact, they already are, observes Pozen, pointing to the Gates Foundation. It made its first equity investment, in the vaccine-development startup Liquidia Technologies, last year after reportedly sorting through the technical, financial, and legal issues involved for more than 12 months.

The foundation also had to overcome some apprehensive venture investors, who’d already poured $25 million into Liquidia, including Canaan Partners and NEA, and had some “pointed questions” about the foundation’s involvement. Indeed, Doug Holtzman, a deputy director at the Gates Foundation, was quick to tell the outlet Xconomy that the foundation’s move into equity investing was “not going to replace grant-based support. We’re a grant-based organization.” He called it instead “another tool we can use to provide resources to companies of specific interest, who have platform technologies with a wide variety of applications, where we can provide flexible support and maintain deep engagement.”

The Gates Foundation isn’t alone in that view. Like-minded peers at the Cystic Fibrosis Foundation and the Juvenile Diabetes Research Foundation have also made equity investments. And Daphne Zohar, founder and managing partner of Boston’s PureTech Ventures, an eight-year-old company that creates life sciences startups, says she hopes many more foundations will follow – and that venture investors will welcome them.

“I don’t understand what the downside [to either the foundations or VCs] would be,” says Zohar. A program-related investment “isn’t unlike a grant,” she says, “and in using one, a foundation might even get some money back, money they could recycle” to further their philanthropic objectives.

VCs also clearly benefit, she says. ” These foundations tend to be very knowledgeable and to have deep relationships with patient advocacy groups and researchers,” she says. “I’d think they add a great deal of value.”

Zohar notes that “people react negatively instinctively” to change, and says that “once [VCs] think through it, I think they’ll see that [PRIs] make complete sense.” And she may well be right.

As Driscoll offers, toward the end of our conversation: “I’d have to look [at related opportunities]. I’d have to approach it cautiously. I’d gently encourage a foundation to make a grant instead, but I’m not going to say no” to a program-related invesment without considering it first.

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