What makes a venture round a crossover round?
Managing Partner
Recently I invited people in the biotech community on LinkedIn to share their definitions of a “crossover” round. I had long been hearing people use the term in ways that didn’t quite align with how I understood it. I received a variety of responses that only deepened my sense that we’re not all saying the same thing when we’re saying the same thing.
And that’s a challenge, if not necessarily always a problem, in an industry that’s only becoming more scientifically and financially complex as it matures. Because to understand one another and avoid unnecessary hiccups it helps to have a common language.
If a company says they want to raise a crossover round but doesn’t understand that it’s not positioning itself for a crossover round, then it will struggle to raise a crossover round because investors would quickly recognize that it doesn’t meet the conditions for a crossover round. However, if it recognized that what it was really positioned for was a straightforward venture round and approached the raise like a venture round, then it would find that many of the same investors might be willing to engage in discussions.
Some reading this might wonder what the difference is between a venture and a crossover round if not the investors participating. Isn’t a crossover round just the round before an IPO in which crossover investors participate? And a venture round… isn’t that some regular private round that maybe venture investors invest and that won’t be followed by an IPO? Indeed, it seems that this is what many people think, but these definitions don’t explain how investors behave. There’s a better definition of a crossover round that would more fully explain investor behavior.
So what do I mean when I say “crossover round?”
To answer that, we need an example.