The world has anxiously waited for encouraging news about COVID-19 vaccine candidates. Happily, this news came right before Thanksgiving, with Moderna reporting that its vaccine is more than 94% effective and Pfizer indicating that its vaccine was similarly effective.
Pfizer is a well-known U.S. drug company, but few Americans had heard of Moderna before the company made headlines for pursuing a COVID vaccine. The company is a fascinating case study in American innovation and provides a roadmap for policymakers to support U.S. leadership in scientific and technological advancement.
How did Moderna rise to prominence so quickly?
Created just ten years ago, Moderna set out to create transformative medicines based on messenger RNA (mRNA). Today, Moderna is a public company with a market cap of nearly $39 billion and appropriately traded under the ticker symbol MRNA. The company’s COVID vaccine could be the path out of the health and economic crisis in which the world finds itself. Moderna is an incredible example of the audacious entrepreneurship powered by venture capital in the United States. Dan Primack of Axios has written that:
“Moderna wasn’t just a VC-backed startup. It was a VC-created startup, inside an incubator program run by Cambridge, Mass.-based Flagship Pioneering. It didn’t even have a name for the initial nine months of its life, just a project number.”
Moderna might seem like a one-off success story. The reality, however, is that this is just the type of new company formation that venture capital backs to the benefit of our country. Many startups are founded and then seek venture capital to grow and innovate, while other startups are conceived jointly by investors and entrepreneurs. Moderna is one of those latter companies. The company’s ties with its VCs run so deep that when Moderna was publicly announced, investors at Flagship Pioneering served as the company’s CEO (Stephane Bancel), board chair (Noubar Afeyan), and occupied another seat on the board (Stephen Berenson).
As Moderna grew, Flagship Pioneering brought in additional venture capital investors to syndicate investment rounds before launching as a public company that allows retail investors to share in value creation. Creating public companies is another attribute of venture capital, as VCs build the IPO pipeline in the United States.
What does Moderna teach policymakers about U.S. competitiveness?
The world is rooting Moderna on as it moves toward a distributable vaccine. A challenge to now meet is how to create more companies like Moderna. One can only imagine how humanity would benefit from similarly successful companies tackling clean energy, cybersecurity, Alzheimer’s, or other areas where innovation can solve major societal problems.
Policymakers appreciate the role entrepreneurship plays in our economy, but too few appreciate how challenging the company creation process is, and how public policy can support or hinder the experience. It is not enough for an entrepreneur to have a good idea. In fact, companies with good ideas die every day. What separates world changing companies like Moderna from those that fail is the successful marrying of talent, capital, management, and timing. Public policy plays a major role as well and can create headwinds or tailwinds for these companies.
The Moderna experience demonstrates three lessons for policymakers who want to see entrepreneurs tackle other big problems:
Attract the world’s best entrepreneurs
Moderna is just the latest in an avalanche of companies founded by immigrant entrepreneurs. Stuart Anderson has detailed how immigrants make up critical leadership posts at Moderna, including its founder, CEO, and Chief Medical Officer. Fortunately, Moderna’s leaders were able to navigate the byzantine immigration system, but U.S. immigration policy pushes away foreign-born entrepreneurs who want to launch high-growth startups in our country. What is needed is a dedicated startup visa for foreign-born founders to ensure the next-generation of iconic companies are founded in the U.S. Short of legislation creating a startup visa, the Biden Administration can put the International Entrepreneur Rule—which operates similarly to a startup visa—on firm legal footing after years of attack by the Trump Administration. This straightforward action would unleash fresh entrepreneurial talent in the U.S. when we need new jobs the most.
At last, Hamilton and Lafayette said it best:
Government as jet fuel (not sandbags) for innovation
Moderna has benefitted in the last several months from a robust partnership with the federal government through Operation Warp Speed. The company received nearly $2.5 billion to develop and manufacture its COVID vaccine and then sell it to the federal government. There is much to be gained from public-private partnerships, but they must be done in a way that burnishes the company and the government. For example, the Air Force has created AFWERX to partner with startups in the defense space. AFWERX recently invested nearly $1 billion in defense tech companies using flexible contracting techniques. This initiative was welcome news in the startup ecosystem that was long pushed out by incumbent defense contractors. There is much more that can be done: the bipartisan, bicameral Endless Frontier Act is a bold, $100 billion commitment to federal basic research that offers a range of tools to support the transition from lab-to-market. The Biden Administration should join congressional leaders and throw weight behind this proposal.
Stable regulatory and tax environment
The Moderna story might seem to start with venture capitalists deciding to create a company. But the tale of Moderna begins when the company’s VCs raised a fund that was composed of the capital of limited partners, be they pension funds, endowments, foundations, or individuals, whether American or otherwise. Those VCs were able to pool capital and deploy it for a long period into risky, but promising companies like Moderna. This equation is made possible by smart policy decisions that should not be disrupted. These policies include a globally competitive capital gains rate that incentivizes long-term investment (and applies to VCs carried interest capital gains); foreign investment regulations that allow VCs to raise passive capital from foreign LPs without being overly scrutinized by CFIUS; and a regulatory model at the SEC that allows new funds to be established without a high entry hurdle. These are just a few examples, but the message is clear: policies have consequences, and the United States should double-down on what we have done right and pledge to do better with what we have not. Only then can the U.S. maintain our leadership edge in an increasingly competitive world.
The challenges for the United States seem overwhelming at times, but technology can lead us to a better tomorrow. Neither the government nor the private sector can solve these problems on their own. But if we recognize the collaboration that produced companies like Moderna, then we will be better equipped to apply this model to the next set of challenges.
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