Publications
Publications
- MIT Sloan Management Review
Lessons From Hollywood: A New Approach To Funding R&D
By: Gary P. Pisano and Andrew W. Lo
Abstract
Companies find it increasingly difficult to justify long-term, risky R&D investments—particularly in science-based fields such as biotechnology, advanced materials, and energy. We argue in this article that the traditional venture model has limits for such investments and suggest an alternative structure focused on financing of individual projects, rather than financing of whole firms. We call this structure a "project-focused organization" (PFO). PFOs are entities that are created with the sole purpose of conducting a specific R&D project. When the project is completed, the PFO is disbanded, residual returns (if there are any) are distributed to investors, and intellectual property and other assets are sold-off. We argue that PFOs are an attractive alternative to both the traditional vertical integration model and the venture capital/entrepreneurial start-up model. Analogous structured are commonly used to finance and organize the creation and production of movies. We discuss how PFOs could work in practice, using the example of biopharmaceutical R&D, although we argue the structure has much broader applicability.
Keywords
Financial Innovation; Financial Strategy; Project Management; R＆D; Start-up; Innovation Strategy; Business Model; Research and Development; Financial Management; Risk Management; Strategy
Citation
Pisano, Gary P., and Andrew W. Lo. "Lessons From Hollywood: A New Approach To Funding R&D." MIT Sloan Management Review 57, no. 2 (Winter 2016): 47–54.