10X Genomics – Product Management Confabulation

January 8, 2021

Venrock’s Bryan Roberts on the firm’s new $450 million fund, and where it’s shopping in 2021

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 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.

June 11, 2020

Software’s meteoric rise: Have VCs gone too far?

Steve Sloane Contributor

Steve Sloane is a partner at Menlo Ventures where he invests in inflection-stage companies.

Karius raises $165 million for its liquid biopsy technology identifying diseases in a drop of blood

“What Karius is good at is identifying those novel microbes before they become an outbreak like coronavirus,” says Mickey Kertesz, a chief executive whose life sciences startup just hauled in $165 million in new funding.

While the new money may have been raised under the looming threat of Covid 19, the company’s technology is already being used to test for infection-causing pathogens in immunocompromised pediatric patients, and for potential causes of complex pneumonia, fungal infections and endocarditis, according to a statement from the company.

Liquid biopsy technology has been widely embraced in cancer treatments as a way to identify which therapies may work best for patients based on the presence of trace amounts of genetic material in a patient’s bloodstream that are shed by cancer cells.

Karius applies the same principles to the detection of pathogens in the blood — developing hardware and software that applies computer vision and machine learning techniques to identify the genetic material that’s present in a blood sample.

As the company explains, microbes infecting the human body leave traces of their DNA in blood, which are called microbial cell-free DNA (mcfDNA). The company’s test can measure the that cell free DNA of more than 1,000 clinically relevant samples from things like bacteria, DNA viruses, fungi, and parasites. These tests indicate the types of quantities of those pathogens that are likely affecting a patient.

“We’re through the early stages of adoption and clinical studies show that the technology literally saves lives,” says Kertesz.

Its early successes were enough to attract the attention of SoftBank, which is backing the company through capital raised for its second Vision Fund.

While SoftBank has been roundly criticized for investing too much too soon (or too late) into consumer startups which have not lived up to their promise (notably with implosions at Brandless, Zume, and the potential catastrophe known as WeWork), its life sciences investing team has an impressive track record. “They have the experience and the expertise and the network that’s very relevant to us,” Kertesz said of the decision to take SoftBank’s money. “That’s the team that was on the board of Guardant Health [and] 10X Genomics.”

Both of those companies have proven to be successful in public markets and with validated technology. That’s a feature which Karius shares. The company’s published an analytical and clinical validation of its test in the peer-reviewed journal, Nature Microbiology showing that its test identified the likely pathogens causing an infection when compared to standard methods more quickly and more accurately.

With initial validation behind it, the company raised its new cash to pursue rapid commercial adoption for its tests and to continue validating applications of its technology while exploring new ones.

Among the primary areas of exploration is the identification of new biomarkers, which could serve as indicators for new diseases (like Covid 19).

“As humanity we haven’t figured out infectious diseases yet,” said Kertesz. “Specifically at the stage where the pathogen is identified.” Karius has the technology to do that — although it doesn’t yet have the capability to screen for RNA viruses (which are types of diseases like SARS and the coronavirus), Kertesz said. “It’s the only type of virus that the platform is unable to detect… [We’re] adding that detection capability.”

Karius works by digitizing the microbial information in a blood sample and uses machine learning and computer vision to recognize the microbial signatures. The company uses public databases which have records of over 300,000 pathogens. For the ones that the company can’t identify, it creates a identifier for those as well. “One of the biggest challeges we have here is to know what we don’t know,” said Kertesz.

At $2,000 per test, Karius’ biopsies aren’t cheap, but they’re safer and more cost effective than surgeries, according to Kartesz. It’s obviating the need to dig into a patient for a piece of tissue and the technology is already being used in over 100 hospitals and health systems, the company said.

With that kind of reach new investors including General Catalyst and HBM Healthcare Investments were willing to sign on with SoftBank’s Vision Fund and previous investors like Khosla Ventures and LightSpeed Venture Partners to participate in the latest round.

“Infectious diseases are the second leading cause of deaths worldwide. Karius’ innovative mcfDNA technology accurately diagnoses infections that cannot be determined by other existing technologies,” said Deep Nishar, Senior Managing Partner at SoftBank Investment Advisers, in a statement.

December 10, 2019

$125 million for Inscripta may usher in the next wave of genetic engineering

In these waning days of the second decade of the twenty-first century, technologists and investors are beginning to lay the foundations for new, truly transformational technologies that have the potential to reshape entire industries and rewrite the rules of human understanding.

It may sound lofty, but new achievements from businesses and research institutions in areas like machine learning, quantum computing, and genetic engineering mean that the futures imagined in science fiction are simply becoming science.

And among the technologies that could potentially have the biggest effect on the way we live, nothing looms larger than genetic engineering.

Investors and entrepreneurs are deploying hundreds of millions of dollars to create the tools that researchers, scientists and industry will use to re-engineer the building blocks of life to perform different functions in agriculture, manufacturing and medicine.

One of these companies, 10X Genomics, which gives users hardware and software to determine the functionality of different genetic code, has already proven how lucrative this early market can be. The company, which had its initial public offering earlier this year is now worth $6 billion.

Another, the still-private company is Inscripta, helmed by a former TenX Genomics executive, the Boulder, Colo.-based startup is commercializing a machine that can let researchers design and manufacture small quantities of new organisms. If TenX Genomics is giving scientists and businesses a better way to read and understand the genome, then Inscripta is giving those same users a new way to write their own genetic code and make their own organisms.

It’s a technology that investors are falling over themselves to finance. The company, which closed on $105 million in financing earlier in the year (through several tranches which began in late 2018), has just raised another $125 million on the heels of launching its first commercial product. Investors in the round include new and previous investors like: Paladin Capital Group, JS Capital Management, Oak HC/FT and Venrock.

“Biology has unlimited potential to positively change this world,” says Kevin Ness, the chief executive of Inscripta. “It’s one of the most important new technology forces that will be a major player in the global economy.”

Ness sees Inscripta as breaking down one of the biggest barriers to the commercialization of genetic engineering, which is access to the technology.

While genome centers and biology foundries can manufacture massive quantities of new biological material for industrial uses, it’s too costly and centralized for most researchers. “We can put the biofoundry capabilities into a box that can be pushed to a global researcher,” says Ness.

Earlier this year the company announced that it was taking orders for its first bio-manufacturing product and the new capital is designed to pay for expanding its manufacturing capabilities.

That wasn’t the only barrier that Inscripta felt that it needed to breakdown. The company also developed a proprietary biochemistry for gene editing, hoping to avoid having to pay fees to one of the two laboratories that were engaged in a pitched legal battle over who owned the CRISPR technology (the Broad Institute and the University of California both had claims to the technology).