Puretech Ventures has teamed up with non-profit JDRF in bid to launch a new model of company creation.

The lowdown: Venture capital (VC) biotech funding has flagged since 2007, forcing entrepreneurs to find other backers to bankroll their projects. Puretech Ventures' Valley of Life initiative — and a recently announced partnership with JDRF — could see non-profit charities stepping into the breach, and being rewarded for the risk.

For the first Valley of Life undertaking, JDRF has committed US$5 million to launch T1D Innovations, a “venture-creating entity” that will found four to ten companies focused on developing drugs, diagnostics and devices for type 1 diabetes. Puretech is working to raise a further $25 million from other investors and will oversee project selection. T1D aims to launch its first company within 6–12 months.

Puretech's David Steinberg says that most non-profits typically use grants to drive their research agendas, and do not receive a return on their investments for fear of violating their tax-exempt status. The Valley of Life initiative generally, and T1D Innovations specifically, is instead designed to potentially reward charity investors for their contributions without violating their tax status. A paper published last year in Trusts & Trustees outlined the model.

Some non-profits have found other ways to get returns on their investments, including the Cystic Fibrosis Foundation, which earns milestones and royalties from the $75 million it invested into Vertex's ivacaftor. But whereas these solutions have been useful for funding science in established companies, the beauty of T1D Innovations is that it will offer aid to entrepreneurs who are starting from scratch, says Steinberg.

Puretech is looking to set up more Valley of Life programmes in other disease areas as well, especially in those that have been neglected by the pharmaceutical community.