CVC Masterclass — Merck Global Health Innovation Fund's Bill Taranto

Fred Schonenberg
Hello everyone and welcome to the VentureFuel Visionaries podcast. I'm your host, Fred Schonenberg. I'm so excited today to welcome Bill Taranto. He's the Founder and President of Merck's Global Health Innovation Fund. With over a decade of experience leading one of healthcare's most impactful corporate venture funds, Bill invests in digital health companies transforming the future of care. He looks at everything across drug discovery, clinical development, supply chain, patient access, and data. Bill was just named the Global Corporate Venturing Power List for, ready for this, the 14th time. I think the fund, I think it's in the 15th year. 

So we gotta find out why that one year didn't happen, Bill. That's for later. But today we're gonna talk about his journey from J&J to Merck's $600 million GHI fund, as well as what sets corporate venture capital apart. As part of the research for this, I found some amazing quotes from Bill on, I'll give a couple here in the intro: The strategic value we bring, technical expertise, long-term partnerships, and access to global commercialization opportunities. So today we're gonna talk about CVC moving beyond simply investing capital and how alliance development can make innovation tangible for large organizations.

Before we dive in, I want to read one other quote that Bill made on LinkedIn, which I think is a perfect way to set the tone for the conversation. So corporate venture capital isn't just about financial returns. It's about building real lasting bridges between startups and large enterprises. When done right, CVCs can offer startups the scale expertise and strategic support they need to grow while unlocking long-term value for both sides. I know you all will enjoy this episode with Bill Taranto. Bill, welcome to the show.

Bill Taranto
Thank you, Fred. I appreciate it. Thank you for taking the time to speak to me. I'm really excited about the conversation we're gonna have.

Fred Schonenberg
I know I'm reading lots of quotes to start here, but I just felt that, you know, we have such a similar point of view on CVC in terms of the value it can add to both sides of the equation and that it is beyond just writing a check. So I'm so excited to dive into that, but maybe we could start with maybe some highlights of your journey from J&J to the fund and perhaps the inspiration behind Merck's GHI fund.

Bill Taranto
Yeah, so, J&J was actually a wonderful time for me cause it's really where I learned to hone my investment skills. What was really interesting about that time and what they had asked us to do was to look at the future of healthcare five years out and see if we could predict that future and then invest in something that would prepare J&J to be ready for whatever was going to happen. 

What it really taught me and my team and then what we were able to bring to Merck was really understanding how the ecosystem works. Who are the players in the ecosystem of healthcare? How do they touch each other? And then really thinking about how the future is going to look? How are you going to get there? What are all the pieces of the puzzle that you have to put together in order to actually predict that future and how do you actually prepare for it? 

And so the great thing about J&J that I really liked was, you know, they let us learn. We really got to hone our sort of investment skills around learning how to build those kinds of investments that have impact but also prepare you for where healthcare was going at the time. And I think that was just a wonderful way to learn and build a career. We built such a successful practice that literally out of the blue, I got a call from Merck and they said, we love what you're doing at J&J and would I be interested in coming over and starting? And they're a venture capital firm. 

What was interesting is that they hadn't really done it, they didn't even have a therapeutics fund at the time. I didn't start till five years after us. And I was almost kind of asked, do you want to do a digital and tech fund? And they were like, yeah, we do. We really liked what you guys were doing. What was the other good thing there about J&J too was that, you know, you learn lessons, right? Things you like, things that work, things that maybe you think you can do differently.

And so I had this really great, you know, idea that if somebody would offer me a kind of a fresh start to create my own fund, you know, what would I do differently? What would I do the same? How would I set it up? And that was really the inspiration of the way I structured what GHI is today. Literally the way I presented it to Merck is the way it's structured today. And we have become one of the most successful firms in the world investing in what we call today digital health. In the early days it was just tech in healthcare. Then it was HIT. We keep changing the name, but it's all really the same stuff.

Merck gave me this sort of white space open pallet to create what I wanted to create. And really it was around, a lot of it was around what I call freedom to operate. What we wanted to be able to do is you hired us, Merck, to be venture capitalists to create something that brings you value. Let me do what you hired me to do and I have ideas around how to do that, and some of the simple things were like, we didn't want a tin cup around the organization. We wanted all the money up front. We didn't want to have to have business unit sponsors. We want to be able to make the kind of investments we want to make. I wanted to bring my own team over from J&J, which I did. 

So it was a lot of structural things, but it allowed us what we use this term today, freedom to operate, which again, I think made us really successful in what we do today. And, but couldn't be more happy with what I got to learn at J&J and able to bring all that experience over to Merck, where to your point, we've just completed our 15th year anniversary. We're now in our 16th year and we're keeping going strong, but again, a really nice transition from what I got to learn and then bring over to where we are today. 

Fred Schonenberg
I have so many different questions. I'd love to come back to sort of the business unit part of it, because I know you talked about alliances, which I thought was very interesting in some of the research we did. But maybe just to set up a little bit about how you've structured the practice at Merck. From what I understand, there's sort of a three-pronged strategy with a couple of different elements to it. Can you walk through what that is and why you chose to set it up that way?

Bill Taranto
Yeah. So before I get into sort of the structure and the three pillars we have, maybe if I just gave you a little bit about what our investment thesis and strategy is and how we execute, that'll then set up, why did I set up the way we did? So very similar to J&J about looking at the future of healthcare, that is in a sense what we're trying to do. Understand where healthcare is going and how we best prepare not only Merck, but the industry to adapt it. That's why we invest in pharma services, because essentially we're all solving the same thing, what we call use cases, and a use case is just a problem we're trying to solve. And a lot of the pharmaceutical companies are very similar in the sense that we're all trying to solve a lot of the same things. So if it's good for the industry, it's good for Merck. If it's good for Merck, it's probably good for the industry. 

One of the things that I mentioned earlier about learning at J&J was about this whole ecosystem. So one of the things we really learned was that the way you think about healthcare and the strategy and investment thesis we have is that we believe that data is the currency we're gonna use to transact in the future healthcare markets. We want all our companies to be data companies in the end, whether capturing data, throwing off data or anything around data, generally speaking. 

The second biggest lesson learned that we had from J&J was that point solutions actually don't work in healthcare, but everything starts as a point solution. What you have to think about is where do they fit within the bigger scale of the ecosystem? What gaps do they have? And how do you build scale out of these companies? Because that's what ultimately farmers are looking for. Most entities that work within the healthcare industry are looking for scale, and the hardest thing to do in digital health is create scale. 

The way we do that is we do it through what we call ecosystem investing. And so we take that strategy and what we do is we identify a use case, which is again, the problem we're trying to solve, and from that, we'll make an investment around a company that maybe solves 50 or 60% of it. And then we invest around it to fill the gaps. Then ultimately what we try to think about doing is how do you maybe bring some of those companies together to build an integrated healthcare solution? So how does that translate into the pillars that we set up? 

So we have three different pillars. The first is that we have something that we call accelerators and ideas studios. And those are really early stage investing and what that allows us to do is to do two things. The accelerators are slightly different from the labs. Accelerators are a true accelerator that you see in healthcare where we're investors with other investors. We have a bunch of startups that come through a cohort, but they're focusing on one thing, AI and ML and drug discovery and MRL is our Merck resource and is a big sponsor of that. And they're trying to understand how these kinds of assets work in the world. So we get to invest in a lot of early stage companies that hopefully move through the cycle of getting to the A round, the B round, the C round and so forth. 

The labs are something different. Those are set up in both Europe and Asia Pacific. And what that allows us to do is work with our local organizations, we could call MSD when we're outside of the United States and they have their own unique use cases that are unique to their own market. So it could be Germany, France, Italy, for example, in Europe or India, Korea, or South Korea. It could be Thailand, Philippines, any one of those markets have very unique things you're trying to solve. What the studio allows us to do is to invest in companies that are solving very local use cases, but at an early stage. So it allows us to A, invest globally, but look at some really early things that are solving really early use cases.

The next part of the fund then is our standard fund, that is basically the GHI fund. And that's a growth equity fund. We don't do any startup or seed capital, but we'll do an A and B round occasionally when it fits that ecosystem. We're trying to fill a gap of the larger sort of integrated solution that we're trying to solve for, but it is a growth equity fund. We typically invest anywhere from 5 to 15 million is our sweet spot and it's really around those companies that are looking for growth, like you're trying to blow out their sales force, they're trying to create bigger science pieces of their company. Whatever they're trying to do, it's the growth that they're trying to do.

And that's where we come in. The private equity firm we set up for very specific reasons, does something called roll up. And a roll up is the piece I was talking about is how do you build scale? How do you bring two or three companies together that actually create a fully integrated solution that best serves the market? Whether for us, it's obviously pharma and for other areas of healthcare, you could think about, would you build something that could help other parts of healthcare, but it's an integrated solution.

What we do is then we take that private equity firm and we partner with other big private equity firms that can put a lot of capital together to basically combine companies. Again, like I said, you have that initial company that has 60% of the solution, but then you have the gaps that you can fill in and you then get 100% of the solution that you're trying to do. So each of those three things solve what we're trying to do when we think about what is our investment thesis and what's our execution strategy. It allows us to be very flexible as you think about how venture capital works. So we bring many tools in the toolbox to deliver to Merck what we're trying to deliver, which is a solution around a use case that they're trying to solve. And that's kind of how we set up the three pillars to serve what we're trying to do.

Fred Schonenberg
Yeah, I love that it's based on that use case, that challenge, that problem worth solving, right? I think oftentimes people begin this journey very much from like the startup petting zoo theater vibe or just placing some bets. And it's like, you've got to start with a real problem that matters to the industry and to yourself, obviously. 

I'm curious to dive back into a comment you made about the integration between maybe some of your investments or companies that have gone through some of the accelerators, back to your core business. You didn't want to be beholden to that, but you're talking about use cases and obviously there are synergies there. So I'm curious how you think about the mothership and what you're doing coming together. 

Bill Taranto
So it's really important for a corporate CVC to work with their parent. And it's not that we don't, we actually work very closely with the business. We have something called enterprise coverage, which is just kind of a way of working in which we go out to all parts of the business and we have three kinds of parts, our human health, our Merck research labs, it's a science side and then our Merck manufacturing and supply vision. And we go out and we sit on all the leadership teams and we're there just to ask what are the use cases you're trying to solve? What are your biggest issues you're trying to solve? 

Then what we're going to do is after we get all those problems, we're going to go out and see if we can solve them by doing equity investments for you. We can't solve everything, but the larger the problem and the more enterprise it is, the better off we think we can actually solve it for you. But it does start by going out. The one thing we don't do is take direct direction from the business unit in which they tell us what to do. All we're doing is asking them, you tell us your biggest issues and needs. If you solve those issues, your business would flow much better than it does today. Then we go out and try to solve those by placing equity somewhere. So it's important for all CVCs to work with their corporate parent.

The bigger issue I see around commercialization is whether or not you're taking higher risk by getting closer to the sun, if you will. The closer you get to the parent, the higher risk your investments are because you're becoming more strategic. The way we approach it is, and in which I coach almost all CVCs, is that you have to be both financial and strategic. You can't just be strategic. And the reason is that you have to build a good viable company from a financial perspective, which then brings strategic value. 

If you can't basically create a viable company, there is no strategic value then. I've never met a CFO that says it's okay to lose money, right? No matter what the CVC says, even if they say they're 100% strategic, that's not true. So the way we go about it is, yes, we're looking to solve a use case. We're trying to get very close to the business, but we also are trying to create really successful, strong, viable, long-lasting companies. And you have to take a financial lens to that and a business lens to that. Because we do find there are use cases that we can solve, but we can't maybe find an investable company and just tell the business unit, at this time, we can't solve that. 

In most cases, we can find that company that we can help solve it. And then the Holy Grail is we make an investment and the business unit creates a commercial agreement. That's the synergy, where they're working with the portfolio company and they're creating value for themselves, but in turn, they're creating value for a portfolio company by working with them. Then hopefully that brings in other farmers to work with it because they see validation from our parent company, or even vice versa, where Merck sees other farmers working with our portfolio, and they go, oh, I can work with them and build value.

So it's important to commercially work with your parent company. But I think there's rules of engagement that you have to be very wary of, making sure that you're not just 100% beholden to the business where, again, you're only strategic. And if you do that, that's typically where I see corporate venture capital firms probably not survive past three years.

Fred Schonenberg
Yeah, it's really interesting. There are two things in there I'd love to ask a follow-up on. One is that flying too close to the sun, actually being too strategic, right? Sort of getting into their business. And I guess an adjacent question to that is, a lot of corporations that do this do want it to be that strategic, and then they also want to have exclusivity. They want to kind of carve out whatever it might be to prevent their competitors from seeing it. It sounds like you're taking a larger view. I'm curious, you're thinking too close to the sun, and that, I'll call it competitive moat-type arrangements.

Bill Taranto
You know, look, I'm not saying our way is the perfect way, right? There's a mix of corporate venture firms and the way they do business and what's really important to the parent. And in some cases, that's really important to the parent is to just get IP and really build something that's proprietary to them. What we found is that the broader view, I think, is a little more accessible and makes you more successful because we're trying to solve real problems that not only our company has, but the industry has. 

I think if you take that, you know, and actually we co-invest with all of our competitors. The reason is, we want things to exist in the world. We've kind of come to an agreement sort of as the venture capital firms in the pharma industry that we don't need to own everything, right? It's better that these things exist in the world. And the circuit sauce is what we do. 

So for example, if we invest all of us in an AI and ML drug discovery company and Pfizer's better than Merck, guess what, Merck, you better get better at it, right? It's not the company, it's you, right? It's not the portfolio company you invested in. It's that you're not adopting the technology in a way that makes you better at what you do. So the whole idea is it's better that these things exist in the world. There are some industries and some corporations that it's probably the reverse where, no, we don't want those things to exist or we wanna have them for ourselves.

But I just found over all the years I've done this and all the corporates I have talked to across multiple industries, the ones that take this broader view tend to be the more successful ones because you're really building solutions that can last. Because what we find is most corporations that acquire these things, they get lost in the business over time. And most people don't even remember half the acquisitions that they made. So the idea is to get these things to exist in the world. You partner with them, grow them into bigger businesses, and we all benefit from it. And I think that's the right way to do it.

Fred Schonenberg
I love it. I think it's such an interesting approach to this. I'm curious, you said very succinctly, right? Like part of your job is to predict five years out and then prepare for it. I'm curious, what are you looking at now? What are you predicting in terms of new technologies or areas that have you excited, thinking specifically in the health world?

Bill Taranto
You know, as we talked, as you mentioned in your intro, we invest in pharma services and that covers four areas. We cover sort of the R&D area, so drug discovery and clinical development, and all the things in there that can help us be better at what we do. We do IT and supply chain. We do real-world evidence data and then access medicines. In all those areas, what we try to do is understand where the market's going. 

Part of the biggest area we're investing in in the first bucket in that R&D is AI and ML and drug discovery. That's a really exciting and fascinating area. There's so many companies, they all do it slightly differently. And we know that if one of these hits, that's probably the one area that is proprietary where a pharma probably buys the company.

That being said, if you can get a drug to market five years faster because you're using technology that allows you to scan thousands and thousands of potential future targets, that's creating an efficiency that doesn't exist today. And it's one of the most exciting areas because that would fundamentally change the way R&D works. If you can think about it, if you can get a drug to market 5 or 6 years sooner than before, it's gonna be less costly for the patient, better healthcare because the drug gets out there faster, and then creates more efficiencies in the pharma to do it even better as they go forward. So I think that's probably one of the most exciting areas we're investing in. 

Another really exciting area that, but it doesn't get a lot of attention, but it's really important to pharma, and it is all data, is the supply chain. We tend to lose a bit of our product to fraud, theft, damaged goods, lost goods, we might ship it the wrong way. The whole idea is, if you think about, if we could create a control tower, if you will, like you see at an airport, and we can track all raw materials coming in and finished goods going out, and create digital twins of our warehouses and our trucks and how we're shipping everything, and track it all the way from that material all the way to the patient, that creates an efficiency that we don't have today. And that's one of the really the biggest areas that I think is really exciting for pharma anyway, and if you think about pharma services, it's not sexy sounding, but it's actually one of the most neat areas that we're investing in because it's, again, it's all around data. 

I think the other interesting area that's starting to change is that whole access. You saw really direct where patients could get a drug directly from the manufacturer around weight loss, and that's changing the industry is the consumerization of it. How do we think about that in the future? How do we get better access to medicines across the globe? It's not just here, it's everywhere. And access is one of the most important things if you think about medications in general, is when you look broadly across the globe, that's probably the biggest issue that affects any healthcare sector is people don't have access.

And that's what we have to think about: if you're in a rural area, how do we get a vaccine to you that's perfectly chilled and the temperature needs to be, but you're out in an area that's not close to any hospital? We can do those things today. We have investments in that area. So the whole idea is just thinking about where healthcare is going, right? So investing in the things that you believe healthcare is going to is the way we think about predicting that future. And hopefully we've been pretty good the last 15 years. 

I think we've been right in a lot of areas. I always give the example back in 2010, monitoring was in its infancy. And today monitoring is so ubiquitous that devices are so small, they collect so much data and you can monitor anything just about in healthcare today. But people forget in 2010, monitoring was at its infancy. That's kind of where AI is, right? Today and how we're thinking about where AI is. But today, like I said, monitoring is just one of the greatest things that impact healthcare today. We were very fortunate to be early in the cardiovascular monitoring piece of it around AFib. 

We created this unbelievable company called Preventus that did AFib monitoring that we sold to Boston Scientific, but it was early. We created that company in 2011 and didn't sell it till almost 10, 15 years later. But it just shows that you have to have patience in digital, but you have to do a little bit of predicting and kind of think about where you think healthcare is going. It takes a lot of research to do that. We spend a lot of time scanning the market, trying to understand trends, trying to understand technologies, what's coming, what's been working, what's not working, why doesn't it work, who's adopting, who's not adopting, what's getting paid for, what's not getting paid for. All these types of things inform you about where the future is going. But it's a constant 24 seven monitoring of what's happening in the market in order to do that.

Fred Schonenberg
For any startups out there listening that I believe they can solve some of the use cases that you've been discussing a little bit, or at least the larger picture, how do they go about finding out more about the fund and how do they get in front of you all? 

Bill Taranto
It's really easy. We're very accessible. Our email addresses are available on LinkedIn. We have our website. You can contact us through that. We will answer pretty much any email that comes in because this is a numbers game. And I would say 60% or 65% of our deal comes from our own research. Another 30% comes from other investors that we know, but there's still probably 5% of people just co-pilot. We haven't seen something. That's the great thing about technology. There's always a kid in a garage inventing something that we haven't seen yet. We want to hear from you.

And even though it might be too early for us, we'll help direct you maybe to an investor that does earlier stage. Because we need all parts of that ecosystem of investing where we need the angel capital, we need the A round, we need the B round to get to us in the C round. So we're gonna help as best we can that the portfolio company gets directed in the right direction. But just contact us. We're accessible as a team and it's not a problem getting in touch with us. It's usually pretty easy, whether it's through LinkedIn or our website, but our emails are public so you can get us.

Fred Schonenberg
Perfect. And I'll get you out of here on this. For any C-suite, large corporation, maybe the new head of strategy, chief innovation officer that's entering a new company that's thinking about external innovation, that's thinking about corporate venture capital. You've been doing this for a long time. Is there any piece of advice that you wish you had known when you started that you would want to give as one nugget? I'm sure there's, I'm asking you to take 15 years and put it into one, but curious if there's anything that comes to mind as the one thing you would give somebody as advice as they get there.

Bill Taranto
I would, yeah. Things like structure and all those things are pretty easy. You can come up with your investment thesis and strategy. The biggest lesson that I've learned, even during my time at Merck, is you have to communicate really effectively. You have to get your narrative down about why you exist. What is your investment thesis? How are you going to execute? And what are you going to deliver to your parent? 

But you can't communicate just up. That was probably the mistake I made at the beginning of my time at Merck. We only communicated up. But when Merck did their big shift in 2016 to become a biological, we realized that we have to communicate across the entire organization, up, down, and sideways. Because everybody contributes to what we're trying to solve. If you're only communicating up, you're missing really probably the most important part of the organization. It's the worker bees who do everything. And that's who you really want to interact with.

But probably communication, understanding your narrative, and the story you're going to tell your parent, having that down to a really solid, short message that you can communicate consistently. Because we've had the same message since I started the fund. Our strategy has not changed. Our investment thesis hasn't changed. Merck has changed. We've been very consistent that no matter how you change, our investment thesis, the way we work, can solve anything that you want us to solve for, no matter what you choose to do, Merck, in the future. We're still here. We're still that steady piece of you. But you have to learn, and we call it your narrative. You have to learn to communicate that, but to all parts of the organization. And that's what I'd recommend to any startup corporate venture firm.

Fred Schonenberg
I love it. Bill, thank you for taking the time today. And thank you for everything you're doing to spark change in the world, as well as within the CVC world. It's really appreciated. And thank you.

Bill Taranto
Thanks so much. I really appreciate it. And I'd love to talk to you again if you're interested. I really appreciate it. Thanks.

Fred Schonenberg
Awesome.