Venrock, the 51-year-old firm that started as the venture arm of the Rockefeller family, has closed its ninth fund with $450 million, the same amount it raised for its last two funds. The outfit, with offices in Palo Alto, New York and Cambridge, clearly feels comfortable with the fund size, but it says change is otherwise a constant, given that trends and tech shift so fast that so-called pattern recognition can prove a liability if an investment team isn’t careful.
To learn more about what the team is tracking at Venrock — whose newest exits include last year’s IPOs of Cloudflare and 10x Genomics IPO, and the recent sales of Corvidia and Personal Capital — we were in touch earlier today with longtime partner Bryan Roberts, who has spent his 24-year career in venture with the firm.
Our exchange has been edited lightly for length and clarity.
TC: I talked with your colleague Camille Samuels earlier this year about aging biology. How big an area of focus is that for Venrock and why?
BR: It’s one of many interesting areas of biology on a go-forward basis, along with immunology, CNS (central nervous system) and other areas where there has been little progress and great unmet need.
TC: Speaking of unmet needs, Camille also talked about why infectious disease isn’t good business for new companies, as are cancers and orphan diseases. As she explained it, with something like the coronavirus, it’s hard to get funding before it’s an actual problem; once a treatment is developed, it has to be sold at low cost, and then you hope you won’t have repeat customers. Do you agree, and do you think this needs to change?
BR: Yes, I think things need to change, but there are several issues. In the case of one company on which I lost a bunch of money — Achaogen, which made a successful drug for a big unmet need [but faced] screwy commercialization dynamics in the infectious disease space — and for many historical infectious disease companies, the cost of a drug is borne by the hospital, not billed separately.
It has also been hard historically to get anyone to pay attention to much of anything from a preventive perspective — even more so in communicable diseases. COVID was, on the one hand, not a particularly hard biological problem to solve, but from an investing perspective, the issue was it was a problem tailor-made for an existent or large company to tackle, not a startup. Startups take 12 or more months to find their way out the front door, and the problem is largely solved by then by one of the very large competitors.
You saw this with Moderna. Its tech turned out to be specifically suited to vaccines — and then a pandemic hit.
TC: Venrock recently helped incubate a new microbiome startup called Federation Bio, which is the firm’s first bet on the space. Why not move faster into this area, and how would you describe the size of the opportunity now? Is this something you want to delve into more aggressively?
BR: We did spend 12 months or so helping get Federation started, including my partner Racquel Bracken acting as the initial CEO. We weren’t compelled by the prior approaches and teams, and it is really the intersection of those two dynamics that get us involved in new projects.
In this case, a terrific academic, Michael Fischbach, had generated great data, so we ran with it. We recently spent more than 12 months incubating a new gene therapy startup in the same manner — in the latter case, a couple of great academics generated exquisite cell type specificity — so we went out and found some leadership and just seeded the business.
TC: It’s one way to avoid crazy valuations. Where have valuations gone up the most?
BR: Everywhere, but especially for companies that appear — or actually have — reduced binary risk and become growth-stage businesses [and that’s] across sectors.
TC: You focus on so much: biotechnology, diagnostics, genomics, healthcare IT, medical devices. What are some of biggest trends you’re watching in some of these areas, and where do you think you might be spending a little more of your time in 2021?
BR: Personally, I am compelled these days by first, value-based care in healthcare delivery — meaning it’s more efficient, there are better outcomes, there’s better customer experience — and mostly from full-stack platforms versus point solutions. I’m also focused on biological insights and applications that new genomics tools — single cell; gene editing — can bring. Last, [I’m tracking what] novel therapeutic modalities can bring to really bad diseases. It feels like we’re in the first inning of cell and gene therapy.
TC: How do you think the new administration in Washington could impact your work?
BR: I think there will be lots of talk about material changes to healthcare and other stuff, but I think it will mostly be talk given the slim margin in the Senate, as well as the decreased and small margin [that Democrats have] in the House. I think it will be a positive in that a bunch of the silly stuff around the [Affordable Care Act] will fade to nothing and people can get on with trying to improve implementation and go build.
TC: What do you make of the recent collapse of Haven, the joint venture of Amazon, JPMorgan Chase and Berkshire Hathaway to reduce the healthcare costs of their own employees? Would you like to see Amazon focused more — or less — on healthcare?
BR: We’ve long been bears [about its odds] for a bunch of the reasons folks cited over the last few weeks [including lack of transparency into healthcare costs].
I would love to see Amazon use its brand, delivery logistics excellence and ability to compete at super-tight margins in healthcare. I don’t think it extends to real regulatory, privacy or risk appetite, but the company could be an awesome pharmacy/pharmacy benefit manager — and I hope they do it.
TC: Regarding Venrock’s new fund, have there been personnel changes? Will check sizes change?
BR: We made Racquel Bracken and Ethan Batraski partners; it’s always fun when you can promote terrific young talent from within.
As for our high-level strategy, check sizes and stages all remain the same. We’ve raised $450 million for each of the last several funds because we like that size and our culture and personality is way more focused on performance than on asset accumulation. It also feels really hard to raise increasing amounts of capital without affecting performance excellence.
TC: Healthcare has never been hotter. How much of Venrock’s capital is focused on healthcare, and will that change with this newest fund?
BR: We’re pretty bottoms-up allocation driven; we invest based on the projects we find and fall in love with. Life sciences usually ends up being around 30% to 40% [of capital invested]. Healthcare IT, which depending who you talk to in the universe gets lumped into healthcare or tech — I confess those software-enabled services businesses feel much more tech-like than biotech — usually ends up being about a quarter of the fund and there are no anticipated changes. The balance will go into tech — primarily tech and data-enabled software and services businesses.
TC: Has Venrock considered forming a blank-check company to take a company public, as more VCs are doing?
BR: We have not. I feel like most investors that have formed SPACs have done so more because of the compelling sponsor economics than a compelling, durable mechanism to get awesome companies public in a much more efficient manner than they otherwise might. It’ll be interesting to see how the economics change as the supply and demand of SPACs versus “great targets” changes and the SPACs get closer to the end of their hunting-license period.
