What VCs Look for When Investing in Bio and Healthcare

Speaker 0:00 All right. So welcome back. And then this next panel features bio and healthcare investors from Andreessen Horowitz, Khosla Ventures, and Venrock are some of the most respected firms out there. So before we bring them up on stage, um, I wanted to introduce you to our moderator, Ethan Perlstein. So Ethan is a YC alum, and he's a founder and CEO of Perlara. Perlara was the very first bio public benefit corporation. They focus on helping families find cures for rare diseases. He's also co-founder and CEO of Maggie's Pearl, which is a clinical stage joint venture that is currently sponsoring a phase III clinical trial at the Mayo Clinic. He is also an active seed investor himself. So I would like to introduce Ethan, Camille, Vineeta, and Morgan. Welcome.

Ethan Perlstein 0:51 [clapping] You should go next.

Alex Morgan 0:57 They'll go in order of names. You can go.

Ethan Perlstein 1:02 All right. Welcome everybody. It's a pleasure to have this responsibility to moderate this great panel. So everyone's settled in here. So I'd like for our distinguished guests to introduce themselves. So maybe we'll just start, um, in the sequence here. Cami, sitting next to me, please go first.

Camille Samuels 1:23 Hi, guys. It's Cami Samuels, and it's a pleasure and an honor to be up here talking to you. Um, I'm gonna tell you a little bit m- about myself as a human first, a little bit about Venrock, and then a little bit about my v- approach to venture. As a human, what I think is relevant is first, I grew up in New York City, but have lived in San Francisco forever and I'm now dyed in the wool Californian. But I, um, I lost both my parents at a young age to the biggies, one cancer and one heart disease. I have a son with autism, and I myself have a rare disease. So healthcare is deeply personal for me, so don't just look at what I say through the lens of cynical venture capitalist. Please look at, at someone who really wants to get products to patients. Um, Venrock has been around since the late 1960s. It's one of the original venture firms. We have right now about 6 billion under management. Um, we were lucky enough to be a part of some of the earliest companies in biotech, like Biogen Idec and Gilead, and then on through Illumina and 10x Genomics and so on. Um, and I feel like I'm very much standing on the shoulders of giants working at Venrock. Um, I myself am most in love with just complete unmet medical needs. Um, so I do a lot of orphan disease investing, but just, um, diseases for which there aren't great therapies. I major in therapeutics. I minor in consumer health and in, uh, medical devices.

Ethan Perlstein 2:56 Thank you. And Vineeta, representing the notorious a16z.

Vineeta Agarwal 3:00 Thank you, Ethan.

Camille Samuels 3:01 Good game.

Vineeta Agarwal 3:01 I was waiting for how much shade there would be on this panel from Ethan. [laughs]

Camille Samuels 3:05 Ayo. [laughs]

Ethan Perlstein 3:06 That was a compliment.

Vineeta Agarwal 3:07 [laughs]

Vineeta Agarwal 3:08 Um, well, thank you all for having me. Thank you, Surbhi, for inviting us all here to, to get to meet some of you. Um, my name is Vineeta Agarwal. I'm one of the investing partners at Andreessen Horowitz, um, part of our Biohealth fund team. And so similar to what you heard Surbhi describe, um, for YC, we love that structure. We love the idea of dedicated teams and, you know, resources and, and people really to help, um, uh, great founders in the space like yourselves build companies in, in very special areas. Um, I, uh, I'm a physician by background, so I echo, echo what you said about, um, being super, super patient focused and ultimately everything that, um, that we back, we hope has a transformative impact on patient lives. Um, and we share a lot of the DNA that YC brings to you all, um, and that, you know, for both prospective and current YC founders. Our, our firm was founded by technical founders. That's, that's our mission as well. Um, and so it's, it's really exciting to be here and we look forward to, to working together.

Ethan Perlstein 4:15 And Alex.

Alex Morgan 4:16 I thank you, uh, also for having me, and it's nice to see a lot of my portfolio companies or our firm's portfolio companies in the audience, including some that have already exited, which is fantastic. Um, the firm Khosla Ventures, as probably many of you know, broadly invests in everything from consumer technologies, consumer food tech, things like Impossible Foods, all the way through to aerospace, companies like Rocket Lab, but also companies like DoorDash and GitLab and all kinds of things. Um, but I lead our health and bio investing practice, and for us, that's everything from healthcare services, AI radiology, um, drug discovery platforms, deployed healthcare, digital health, and some devices. Um, and I'm, by personal background, I'm originally a physician scientist. I was an AI researcher and then kind of moved into biomedicine. Um, but I've been at Khosla Ventures for seven years now.

Ethan Perlstein 5:06 Fantastic. So let's dive right in, and we'll just sort of continue that order. Maybe Cami, Vineeta, Alex, as we go through these questions. And if you have nothing to add or, um, we can, we can of course, you don't have to speak. Uh, we can go, uh, to the next person, then go to the next question. So first, uh, first up. So what do you look for in an early stage deal? Anything specific about the entrepreneur, the company itself? Uh, do you have a certain investment thesis?

Camille Samuels 5:29 Sure. So I already hinted about unmet medical need. I don't-- Early stage technical founders tend to, um, emphasize near term risk and de-emphasize long term risk. I don't love investing in a big commercial scrum 15 years from now, right? [laughs] So, um, so I'd rather take on a meaty technical risk, um, looking to de-risk it relatively early in the investment cycle. Um, I... You know, everyone says they back great people, um, big markets, um, orthogonal and hard technology. Um- On the people side, one th- I wanna say something like vague that may be unexpected. Truth-seeking is a quality I look for in entrepreneurs. Um, and yet it c- emerges often in the first and second meeting. And what I mean by that is, um, nothing's perfect. Your deal inevitably has warts. Um, are you seeing them, trying to address them, admitting that you don't know how to address it, looking for help, um, all that. Because if you are trying to shove it under the rug, which is a natural human instinct, then I won't be able to help you, and I'm worried about the, the risk that w- we're not identifying. Um, so that's a quality that you may not hear about all the time that means a lot to me as an investor.

Vineeta Agarwal 6:54 Um, my very first investment at Andreessen Horowitz was in a YC company. I think Mano is here somewhere, but I invested in MemoraHealth, and I often look back to, um, to the founder qualities to your question, Ethan, that, that got us excited about an investment like that. And we often talk about, um, a, sort of a trope in venture, but maybe you've heard it before, and I thought maybe it'd be helpful to explain, which is something called the idea maze. And I think it might ... It sort of, it gets used in this way without people describing what it means, and it sounds, it sounds, um, uh, l- you know, confusing. But really, it's, it's we like to figure out, can we be on an intellectual journey with someone, and what does that feel like? And at the earliest stages of company building, most of what you think's gonna happen is not gonna happen. Um, and I think that's just important to be, as Cami said, honest about and upfront about and be okay with, actually. It's really important for us to know that a founder is okay if hypothesis X didn't work out because we don't expect it to work out either all the time. Sometimes it does, sometimes ... You know, I think you heard a phenomenal story from the Asher Bio founders, and Ivanna told just a beautiful story of, of some things really working out, um, as intended with really great plans, but that doesn't always happen. And so if it doesn't happen, we like asking questions about, you know, what if? What if this doesn't happen? What if this customer doesn't bite? What if this science doesn't pan out? What if, you know, you spend this much capital on, on this experiment, what would you do next as your next experiment? These are all questions that we, we call navigating the idea maze. And a lot of that is intellectual horsepower, but a lot of it is personality and [clears throat] your willingness to be collaborative with, with an investor and, and bring us along for the ride, right? You're always gonna know more about your science and your space and your technology than we ever will, but we wanna be able to, to share a little bit of what we've learned from pattern matching across a lot of companies and founders. And from time to time, that's a journey that we think will be fun to take together. And so, um, I think that's actually probably the number one thing I look for is, is do I feel like it would be really fun to navigate the company building journey, um, with you.

Alex Morgan 9:23 So I think as, as Cami, Cami said first, most everyone would say at a, in principle everyone's looking for a strong differentiated team. You know, are the, is this the best possible team working for this problem? Is there fit to purpose? You know, is this a big enough market opportunity? Because if it's a big enough market opportunity, you can screw up a little bit, which is great for an early stage company, and still find your place. If you, if it's a narrow opportunity where you really have to thread many needles to get there, that can be hard. Um, but I think one of the things that may be worth just jumping to, I think,

Alex Morgan 9:54 maybe the elephant in the room that was sort of alluded to in the, in the partnering session, is that I think more than ever there i- especially for an early stage deep tech company, there is a lot of future financing risk. And as I'm looking at companies now, one of the big questions I have is where, what do I think about the future financing risk of this company? And a lot of that hinges on something Vineet, Vineet and Cami both were kind of talking about is, does this company have full clarity into my, into our weaknesses and is very hon- intellectually honest about the ma- the, this process that I'm gonna, you know, that, that I as an entrepreneur and my team are gonna have to navigate, um, and not have unrealistic expectations. You, I hear a lot of companies, and I'll, uh, you know, I do ... Many of you in the audience here, at various times I've heard talk about how everything in your company is great. The team you have in per- in, in place is the exact one you'll ever need. It's not true, uh, in most cases, right? I mean, you're, you're going to evolve your company, and you have to know what the holes are, what your weaknesses are, and lean into them, otherwise it's very hard to address them. You know, and, you know, other things that I also look for, especially in this environment where you're gonna need a very strong team to navigate the, the journey ahead, is we'll often see teams say, "Oh, I just need to hire a couple techs, so I don't need a big option pool." That's, I don't think, the right way to frame an early stage company, that it needs to bring on excellent talent. So success as an early stage company is the consolidation of amazing talent trying to do the impossible, and you really are about consolidating that group to overcome the challenge you have. 'Cause an early stage company, you're half-baked or even, like, one-tenth baked, so you can't assume that everything's perfect.

Camille Samuels 11:32 Can I just build on that, Ethan? Sorry.

Alex Morgan 11:34 Please. Please.

Camille Samuels 11:35 Um, so part of this truth seeking is accepting the financing environment that you're in and having the mental fluidity to adjust, right? So for, call it five years, we've been in the land of Bacchanalia, and the right business model might have been to boil the ocean. Um, today, people need to see you make progress, typically towards the clinic, um, with at least one program that folks understand where it lives. Um, the, and, and obviously that's a therapeutic specific example, but- Um, breadth versus depth is a real trade-off you have to make, and the right business model also has to fit the right moment. You may... I'm not asking you, we're not asking you to, uh, eliminate all your dreams. Um, you just may need to step w- in a stepwise fashion, wait until your valuation's r- higher, i.e. the capital's cheaper, um, until you do everything you wanna do. Um, and that's an example of, um, of something we're looking to see, that you're sort of, your antenna are up, you've adjusted. And again, dream all you want. I wanna dream right there with you, but also adjust.

Ethan Perlstein 12:51 So yeah, I'm glad you brought this up because I was gonna get to this, the question of the current funding climate. I'm sure there are folks who are fundraising or have been fundraising since the early, when sort of the music stopped earlier in the year. So do you wanna amplify anything on that point about what entrepreneurs should be thinking about, uh, to survive this, this winter? Um, you wanna continue and then we'll go to Ivonna?

Camille Samuels 13:10 Oh, yeah. So, um, I actually had an associate come sit in my r- room depressed on Monday. So a young guy who thought he was gonna, like, make his first investment last week and, and, you know, make partner, um, next year. Um, and he was just so bummed about the environment that he's in. And I honestly started my venture career a long time ago in a, uh, first in a boom that went into a downturn within a year. Um, and I actually think it's, it's, you know, you've heard the, the trope that what... the best companies are created during a downturn. I actually think, um, there's a risk that we as VCs or we as entrepreneurs act like pally high school adolescents [laughs] if we only live in great times. And, and learning that not everybody has a Tesla at, at 16 is actually a really good thing. Um, so you do have to be clever. Um, so strategics might become more important. You know, strategy is about making choices. One of my, my saucy sayings is, "Last time I checked, it wasn't luxury is the motherhood of invention, it was necessity." So, so take, take this moment and say, all right, this is what makes for the difference between a good entrepreneur and a not so good entrepreneur is figuring it out. So maybe it's, you know, waiting for three years to work on a third program, or maybe it's, um, as Ivonna said, you know, doing that animal model a little on the come because it'll validate us for the next investing round. Whatever it is, but show progress, and if you need to partner one of your babies, and all your drugs will feel like babies, they do to me as well, you might have to.

Vineeta Agarwal 14:57 [clears throat] I think I would echo what Alex said, is just be thinking ahead about the next rounds. One of the things that's challenging in this environment is that pre-seed, seed has not corrected as much as A and B, and I just think that's a harsh reality that we all have to figure out together. Everyone on this panel actually does a lot of seed investing. Something like 70% of the dollars that we invest out of the BioHealth Fund at, at a16z is actually first money in, so it's not like we're not right there with you. At that point, your seed investors are in the same boat as you, and you have to figure out how to navigate the future financings together. Um, [clears throat] but the correction is different at different stages, and so that's just something that, you know, I think work with investors that, you know, just as you're, they're picking you, you're picking them. And hopefully, you know, you can navigate that collaboratively as you move forward. But it's never been more important to, at the time of your seed financing, be working backwards from your Series A financing and at every step of the way have that kind of a, that kind of an approach to it. That's not to say, you know, sometimes you're, you know, sometimes you might be discharging something that feels like existential risk on the seed, and that's why, you know, you got... you're really fortunate to have people betting on you at that stage, and you may think, well, I just can't predict past that. You know, I don't know if this is gonna work. If it doesn't work, I might have to do a 180. Sure. But try to think through, okay, if this does work, here's where we're headed next. Here's what we'd have to fundraise to. I often tell, um, seed founders to make their Series A deck. Have it be empty slides, but use it as a way to think through what milestones are gonna be really attractive to a Series A investor, and record some of the feedback you heard from multi-stage funds and funds that could be, um, investor partners for you at, at future stages.

Ethan Perlstein 16:48 Alex, any thought about the downturn or the current climate?

Camille Samuels 16:50 Uh, yeah. I mean, we could keep talking, but maybe we want [laughs] to talk about something more uplifting for a second.

Vineeta Agarwal 16:54 [laughs]

Ethan Perlstein 16:55 Yeah, yeah.

Camille Samuels 16:55 [laughs]

Ethan Perlstein 16:56 So well, well, maybe we'll do a little twist here.

Camille Samuels 16:58 All doom and gloom.

Ethan Perlstein 16:58 Yeah, no, no, okay. No, no more doom and gloom. So YC's always, YC always tells their founders not to get too discouraged by no's from investors, that investors make mistakes. Can you tell us about a miss that you've had?

Camille Samuels 17:10 I'm gonna tell one that's really in the Venrock family. So, um, uh, I did a lot of work on investment on a company called AveXis. Um, I was doing it supporting, uh, one of my, uh, late stage investment partners, Bong Koh. Um, and AveXis ultimately got acquired by Novartis for, I think it was $9 billion. And, um, and the round that Bong invested in, it was the first institutional round, but Roche had gone in there prior, so it was the first VC round, um, was like at 120 million pre. So I did a bunch of work on it. It had a cop from Long Island as its CEO, um, and it had twin sisters doing all the sort of RA work, and that was it. So it violated sort of every stereotype of, like, what VCs are supposed to invest in. And so I ended up kind of copping out, um, and being like, "Too expensive, doesn't have the right CEO, not gonna invest." Now, I got- Carrie in the public fund because I helped doing the work, but I didn't put the early stage fund's money in it, saying it was too expensive, and it ended up being a really nice outcome. And I will have to say, so the disease, SMA, kills children at 14 months old, and they have before and after videos for AveXis, and there's not a dry eye in the house. So here I am, the person who wants to really make an impact on, on kids in particular, and I missed the boat.

Vineeta Agarwal 18:44 There are too many.

Camille Samuels 18:45 [laughs]

Vineeta Agarwal 18:45 Mo- Any, any honest investor will tell you there are too many misses to name. Like, a no does not mean that it was kind of the most thought out, correct answer. They empirically are. Like, it has to be false, right? That most of the nos, um, are false because m- many of you will succeed in extraordinary ways. So that's just... I think the spirit behind your question was, you know, h- how do I interpret a no, and it absolut- it basically doesn't... The binary doesn't mean much. I think what's worth paying attention to are, you know, people's thoughts on what made them hesitate and what might be actionable advice. Even that, I would say a lot of it is probably not actionable because, again, we don't understand your businesses as well as you do. Um, [clears throat] I'll give, um, I'll... I won't say... I didn't tell Surbhi I would tell her about this, but [laughs] I thought I would say this, but I missed Surbhi's first, um, couple financings at her company. Um, it was a phenomenal med device product. I was super excited about it. Surbhi passed all the idea maze tests and everything that one could possibly put into, um, put into a diligence process. Um, but at the time, our fund, um, I was at another fund, and we didn't do med device. And so sometimes just remember that your investors have certain mandates with their LPs and certain, you know, kind of areas in which they plan to or f- you know, think that they want to invest, and it might just not align with where you are, but sometimes that can still mean that you become friends with them and [laughs] spend, and you know, and hopefully work together in, in lots of ways. So I think, um, uh, that's, uh, it i- it is a... I think that's a good example of, um, where keeping in touch can, can really be great from a, at a personal level even. If you connect with folks who get to a no, don't take that grudgingly. Just recognize that they have some of their own constraints. And then another example I'll share since I'm on a panel with Alex is, um, a DNA sequencing company called Ultima that Khosla was in very, very early. [clears throat] I finally, after many years [laughs] of trying to invest in this company, um, uh, we came in via our growth fund at Andreessen Horowitz. We're incredibly excited to back the company, but you know, that was a really, really different technology. And so I think you can't expect every investor at every stage to get it and be right there with you on seeing the potential for a technology. In the DNA sequencing space in particular, there are a lot of, um, what investors call dead bodies. There are a lot of companies that didn't make it. And so, uh, having awareness about why that is the case, having an explanation for why that might be the case, and why you might be different, and what your unfair advantage is can really help combat, um, the biases that some investors will bring, you know, to those decisions, and guilty myself of, of having those biases.

Ethan Perlstein 21:31 See, it happens to the best of us. Alex?

Alex Morgan 21:33 Like, one that did, I think is, strikes m- uh, all I, I always think about is recursion because we saw that right when it was coming out in the seed stage. It was right in my strike zone. Thought it was very interesting, easy for me to evaluate, one that I knew, you know, the space really well. But my partners really had had poor experiences building complex companies like that in, in, let's say, unusual ecosystems, and there was a lot of skepticism that they would bring in the, as, you know, the, uh... There also there was, like, even more... Even though we may think now that the fight for AI ta- AI talent is hard, there were just fewer people coming out of school and everything at the time. So would they get the AI talent that they needed and the biopharma talent to move to Salt Lake City? And that was the reason we passed, and, and I've sort of like, I think I was maybe too weak-willed or something to fight against my partners and say, "Yes, I think they can do it." And now in a post-COVID world, I think it would be, it's a little silly to think you could only build companies in certain areas, but at the time, there was a lot of bias, uh, on... And that was, that was something that was gonna require a lot of on-prem, and they have a huge facility now. So that's one. I was just looking in my email in our notes on Asher.

Vineeta Agarwal 22:39 [laughs]

Alex Morgan 22:40 And Vinod Khosla and I are emailing back when it was a YC company, I guess, in the whatever batch in '19, and we were both like, "This looks really interesting." Vinod's like, "Yeah, I could easily be a one on this. This seems really cool." And there's a lot of back and forth. I'm like, "Well, there's a lot of activity in the space. We are not experts in the area that they're doing, but there are," you know, we, we did a little quick background of how many c- companies and acti- how many drugs there were in the space, and we're just like, "We don't know enough to feel confident. We're not the ones to be the..." We didn't feel like this was an area of our expertise and, you know, so we missed out, I guess. The company seems like it's doing great, and it's a good company.

Ethan Perlstein 23:14 Awesome. So let's now go from the other tack. So when you get really excited about a company, can you share with us, uh, what happens behind the scenes a little? What happens in those Monday partner meetings? Um, can you talk about diligence process or how, how do you gauge your partnership when you're trying to, uh... when you're the one who's sort of bringing the deal to the, to the partnership?

Camille Samuels 23:33 Do you wanna start this time? I feel bad that you're-

Ethan Perlstein 23:35 Yeah, we can mix it up. Alex, you wanna start?

Camille Samuels 23:36 You're always last.

Alex Morgan 23:37 No, um, I guess, you know, one important thing to remember, of course, is it varies. If you do different stages of investing or different s- types of investing, it can actually vary tremendously. So, you know, many of the early stage coming right out of YC, companies raising a couple million dollars in an area that we already feel like we know something or we're just kind of doing a small seed investment, that can be a very quick decision-making process, all the way through to we have SPACs and do SPAC mergers and $250 million deals, which as you may imagine requires a lot of work, uh, over a month sometimes. So there's a huge spectrum, um, and there are also different styles of companies. So deep tech companies where we have to do a lot of IP work, that is a whole different process, and we, uh, actually recently hired a full-time JD, MD, uh, IP attorney to help us do diligence in particularly bio- bio and healthcare related IP questions. So it... I wanna give you a It's hard for me to give a simple answer because there are so many different styles of companies that require different kinds of questions. And like I said, an early seed stage company, there's often not a whole lot of their due diligence, and it may just be we have some thoughts about the founders and roughly the problem they're working on all the way through to, like, very serious metrics about, you know, very sub-cohort analysis, in particular growth in different markets and time to pay back and different kind of CapEx investments that take a lot longer.

Ethan Perlstein 25:01 And y- y- Vineeta?

Vineeta Agarwal 25:03 I-- No, I, I was gonna say I agree that there's dramatic diversity in the, [clears throat] in the process. I think, um, most venture partnerships, even though they seem large, like, ultimately you're gonna converge on one or two people who are gonna spend the most time with you and, um, and, and really kind of ultimately advocate for an investment. And, you know, I think sometimes venture partnerships feel large or you feel like you have to convince a lot of people or at a partner meeting you're worried you didn't get in front of everybody. This is a human business. Like, ultimately you're, you're gonna get to know a couple of people who shepherd you through and to whom you should be able to ask, um, questions and they'll ask you back questions. And so I, I think that's just one thing I'll point out is that partner meetings at, at most of our funds are an opportunity for us to collect input from our full partnership, but ultimately it's always gonna be one or two people who hopefully go deep with you on, on the idea that you're bringing to the table. For me, the biggest thing I look for at seed stage, um, uh, is what to the discussion before kind of plan for the next fundraise, w- ironically enough. Um, it's a question that comes up across our partnership very, very early and, um, and sort of unfair advantage, right? Like a simple answer to the question, why is this company unfairly positioned to win in the space that they're talking about going after? Sometimes that can be as simple as the people, and sometimes it's something really, really technical. It's the creative assay that they've invented. It's the ability to do more with less capital and screen something-- screen a very large space, for example, to, to learn some SAR insights in a very short amount of time. But I gotta have a quick answer actually to that question, um, to, to feel comfortable at seed stage.

Ethan Perlstein 26:48 It's like why do you wanna be president? You're gonna have to know that one.

Camille Samuels 26:51 Is there-- Everything we do is geeky tech. I don't say deep tech, I just say geeky. So when-- even on the tech side, um, all of our companies are geeky. Um, so we generally don't participate in the, like, consumer VC one week to term sheet process. Um, and, um, so we, we tend to take two, two to three months getting to know a company. I'm sorry, I know that sucks, but we do. Um, and there are just a, a one or two or at most three people doing deep diligence. Um, and then the process at Venrock, I can't hide behind my partners when I pass because I could be the only person in the partnership that loves the deal, and I could do it. So some-- I-- Prior to Venrock, I was a managing director at Versant Ventures, and at Versant it was a group decision. Um, I could d-do-- and we have actually had really nice outcome deals where the rest of the firm functionally vomited on it. [laughs] So, um, so every firm has its own culture and style. Venture firms are like marriages. You have no idea what's going on inside them unless you're inside them. Um, so ex-expect a different process in each firm. If you've got a deep tech, most of you do, um, it's not gonna be an overnight process, and particularly in a, in a financing environment like this.

Ethan Perlstein 28:23 All right. Maybe let's get, uh, let's return to the saucy questions. So, um, where do you-

Camille Samuels 28:27 I'll, I'll make it saucy even if it's not though. [laughs]

Ethan Perlstein 28:29 [laughs] Okay. Where do you situate yourself on the biotech/tech-bio continuum? Um, and you could reject the assumption or the premise of the question, um, but I know that, you know, this is a-- the founder-led bio movement or the tech-bio movement is just, is, is marketing itself and branding itself as different from biotech. So I guess how do you see yourself in this?

Vineeta Agarwal 28:49 I think we should, we should ask you to answer that one first, Ethan.

Ethan Perlstein 28:51 Ooh.

Vineeta Agarwal 28:51 [laughs]

Ethan Perlstein 28:52 Where do I see you guys?

Alex Morgan 28:54 I need a definition.

Ethan Perlstein 28:56 Oh, boy.

Alex Morgan 28:57 It's like a spelling bee. May I have the definition please?

Ethan Perlstein 28:59 Well, we know what biotech means, right? I guess, right? Traditional life science investors. Uh, do we, do we agree on what that means? And that sh-- you know, that sh-- you know, biotech is shorthand for that. Um, and I guess tech bio [laughs] is I don't really know.

Vineeta Agarwal 29:11 And used in a sense-

Camille Samuels 29:11 But does biotech include genomics?

Ethan Perlstein 29:14 Sure.

Camille Samuels 29:15 Okay. So tools, tools are in biotech in your mind.

Ethan Perlstein 29:18 Absolutely.

Camille Samuels 29:18 'Cause different people don't include-

Ethan Perlstein 29:19 I do. Not just-- I'm not just a, I'm not just a therapeutics knob. Yep.

Camille Samuels 29:22 Yeah. And then tech biotech means like-

Ethan Perlstein 29:25 I mean, I'm-

Camille Samuels 29:26 ... AI and biotech?

Ethan Perlstein 29:27 Again, that's, that's definitely a strain. I mean, I, I identify more with the operational side of it, like it's, it's more about the founder-led and the profile, like the, the, the, the PG thesis. But, but yeah, I mean, I know it means-

Camille Samuels 29:38 So-

Ethan Perlstein 29:38 I don't wanna get into a whole debate about AI and ML, but, uh.

Camille Samuels 29:41 Yeah.

Vineeta Agarwal 29:41 So, so my sense is that there are a lot of things that have been confounded in these spectrums of founder-led, not founder-led, tech bio, biotech. Like at the end of the day, I think, you know, Surabi said it well on, on her, in her discussion. You know, these are-- all of the companies in this space do converge on a very special regulatory pathway and a very special set of constraints that, that the world uses at some level to decide whether or not the thing is working. Um, and so as a result, my feeling is I reject the dichotomy. [laughs]

Camille Samuels 30:15 [laughs]

Vineeta Agarwal 30:15 I humbly reject the dichotomy. I mean, I think, you know, founders are important for every company. Show me a company where the founder didn't matter. The founder could be a senior management, you know, executive, or the founder could be somebody who just finished their PhD in a lab. We've got, we've got all in our portfolio, and they always matter.

Camille Samuels 30:32 Many CEOs too, by the way.

Vineeta Agarwal 30:33 The one thing that's clear is that the founder [laughs] always matters. Um, and so I, I think that's a, that's a shared theme. I think, you know, kind of, um- Someone mentioned the great blog post on, you know, why YC Bio and what might be different about funding biotech companies in a more tech way, and that references potentially a lower amount of capital required to stand up a company. I think that's interesting, right? There, that there's something to that. And I think some companies will have a certain set of achievements maybe that are possible, that are tech enabled, that may be more capital efficient than a traditional biotech regime. Maybe. Maybe others won't, that are still really exciting companies working towards therapeutics. I- Daphne Koller in our portfolio often says, you know, machine learning is going to become something like a computer. It will be impossible to say, "I'm a company and I, like, refuse to use the technologies and the tools that are available." And, like, that's how I feel about technology. That doesn't have to be your, the first three words of your pitch, but it'd be kind of crazy if you refused to apply novel analytic regimes to the data you are collecting, and that's why every large pharma company is talking about that, too. So, so I reject. [laughs]

Ethan Perlstein 31:50 Noted. Camille?

Camille Samuels 31:52 Yeah. I, I, I think historically the, the traditional biotech VC, VC put a little too much emphasis on experience in hiring CEOs, and maybe that's why you create that tu- dichotomy. But we, we are known for founder VC- CEOs, as an example, even though... And then, you know, we were the first investors in Illumina and have this long history in doing, um... So I think that as long as genomics and tools are under biotech, and, and, and we're-

Ethan Perlstein 32:24 Don't shoot the messenger. I'm just-

Camille Samuels 32:25 We're, we're deep in healthcare IT as well, right? Then honestly, the, what we're looking for and how we support these companies in any way we can looks exactly the same.

Ethan Perlstein 32:37 Any thoughts, Alex, or...?

Alex Morgan 32:39 Pluto a planet? I don't know.

Camille Samuels 32:40 [laughs]

Vineeta Agarwal 32:41 [laughs]

Alex Morgan 32:41 Um, is an $800 million Arch-led initial financing a seed round? I, you know, some of these things, it's, like, very hard. I mean, we're investing in fundamentals and companies and the team in place and the market they're in. It is, by the way, I do think what is AI is a whole other separate, like, thing. Um, I do think it is-

Camille Samuels 32:57 Pluto

Alex Morgan 32:57 ... important.

Camille Samuels 32:58 [laughs]

Alex Morgan 32:58 It is actually, although let me step back. It is pretty important. I think where it's most important is in the later stages when you're dealing with investment bankers and analysts and they're trying to put you into sector buckets, and there are some very substantial differences and very important branding that you may want for your company at that stage, more so than now at the seed stage. And your, what you think your company is and what brand you use for it now may evolve and you may ma- you may have strategic reasons for how you position th- your company three or four years from now when you are trying to talk to investment bankers and they're gonna put you in a report and s- try to look for comps in your sector. Then it's actually pretty, [laughs] I think it's more important than it is probably now.

Ethan Perlstein 33:42 Maybe we can get back-

Alex Morgan 33:42 Do you... I don't know. I guess, do you agree?

Camille Samuels 33:45 Yeah, I-

Ethan Perlstein 33:45 Keep going. Keep going

Camille Samuels 33:46 ... I think that, um, how you describe yourself should, even if you're in deep tech, should speak to investors' hearts, not just their minds. Um, and you need to journey through the gunk of understanding what your business is and get to the simplicity on the other side of complexity, and it may change, right? So you may define yourself as an AI company today and by the time you go public, um, you may be an immunology company. Um, but, uh, to the extent that investors are lazy, and many of us are, it's helpful to be able to categorize you.

Ethan Perlstein 34:26 So maybe we can go back to just some brass tacks fundraising questions. So given the current climate or looking ahead, what are the sort of milestones you're looking for for a seed stage company a- and for the A round, for the B? And you don't all have to answer if, uh, one of you thinks you can kind of consolidate the, the current zeitgeist.

Camille Samuels 34:45 I'll tell you what w- we look for in our companies when we build them. Um, if it's a therapeutics company, we look for usually de-risking on whatever the key risk is, 'cause it might... Our companies are usually platform therapeutics companies. Um, we usually look for some animal data, even if this isn't the final drug that's gonna go into patients. Um, ideally we get to development candidate, but that's rare. Um, but the most important thing is my ass will be in your conference room at a whiteboard helping you prioritize indications, um, [laughs] 'cause we really want you to, to not only be boiling the ocean, but figure out how you're gonna apply it. Um, in our healthcare IT companies and genomics companies, it's a little bit, there's a little bit of nuance on that. There's usually one fundamental risk that we need to de-risk. In healthcare IT, maybe we need a payer customer already.

Vineeta Agarwal 35:40 Yeah, I think the round sizes are so variable that it's hard now to s- to say what a seed A or B milestone specifically is. But I think the mindset that I'd encourage is that every round is about discharging risk. Risk is, you know, inversely proportional to price, and that's just how, that's how fundraising, that's the momentum and that's the wheel of fundraising is that every single round you have to be laser focused on discharging some risk. That risk could be that, that you can hire somebody. Um, that risk could be something about your technology. But every single round, that's kind of the steady march and drumbeat that I find it's really helpful if, if founders are, are very acutely aware of. Um, you know, I'll give you an example. We invested in Scribe Therapeutics, a really phenomenal founder who came out of Jennifer Doudna's lab, Ben Oaks, and he started the company in his last year of grad school. Um, and so at the time it was, it was just him, right? So the first round of financing, a big risk that he discharged was can he stand up a company? Can he hire people who know more than he does about building a therapeutic? And can he validate the core enzyme that- He built, he ultimately is building a company around. The next round of financing required more de-risking. Can you deliver that thing? Can you get to in vivo data? Can you get to, you know, all these other proof points? But a steady march towards, you know, risk, uh, discharging, um, helps you raise future rounds.

Alex Morgan 37:13 Yeah, I think that's the most important thing for you all to think about is what is your value creating milestone? And also clear ownership in your own mind that you own the value creating step, right? That it's, that there is a something that you're trying to achieve. And it is sometimes nice in very early seed if there is a clear failure point. Because if it's a failure point, then it's like, okay, let's, let's just embrace that, go and do something else, and not kind of be stuck on this path where things haven't quite failed, but they aren't quite succeeding. That's sort of the most painful place to be in.

Ethan Perlstein 37:44 So last question, everyone says they're a platform company. Uh, what truly defines a platform in an era when new modalities are being discovered seemingly at an ever faster rate? I mean, it's not just David Liu's lab that is publishing a new thing every week in Nature. Like that just seems to be, that's just a secular trend. So maybe we'll leave with that, maybe more philosophical question. Anyone, this is now the free for all round.

Vineeta Agarwal 38:07 [laughs] All right. Sure, I'll start. So I have a lot of empathy for kind of this feeling that you almost get penalized once your platform lays an egg. And so I just wanna acknowledge that I think it's a spectrum, and it's hard to know exactly what is a platform versus a product company, and the whole point of a platform company is to make products and, you know. But what if you found a product that was too good to, to leave on the table, but it didn't come exactly from your platform? And so I just think this goes-- for me, it goes back to that idea maze. Help us understand, if you do have a product, how you get to the next product. If you don't have a product, how does your platform help you get to that first product? Um, help us understand what, [clear throat] what your special sauce is. Is it target identification? Is it uncovering new biology? Is it creating a modality with a novel mechanism of action? Gosh, there's really few of those. How many therapies do we all know of that have a completely novel mechanism of action? Any of that, you know, I think we have a pretty loose definition of a platform, um, as long as we can see line of sight to what comes after the first product you choose to prosecute.

Camille Samuels 39:14 I've also made money in a platform and a product. So I've had lots of wonderful exits, most recently in a company, um, Corvidia, that sold to Novo on-- You know, we, we had some backup programs and so on, but it was fundamentally one product that was just doing something important. My-- I generally do platform companies, but I don't exclusively do it. I try not to bring religious fervor to any of my decision-making. [laughs]

Vineeta Agarwal 39:42 I think one, one last-- Sorry, Alex, I'm gonna say one last thing, which is I think hypothetically, the reason investors will often tell you they like platforms is that the cost to stand up a second program should, in principle, be lower than the cost of that first program, whether that's for target discovery or for modality design or for clinical studies. Exactly. And so I don't know if that is always empirically the case, but if you can make a really good argument to that effect, that is the underlying reason people have been attracted to platforms historically. It's a little bit like in the healthcare world, you know, a CAC argument. Like, once you get your first, is it gonna cost more or less to get to acquire your next customer? It's a, it's sort of a similar thought process as to why, why investors like platforms in, in principle.

Ethan Perlstein 40:31 All right, final word to you, Alex.

Alex Morgan 40:33 Oh, just well, there's a continuum of how platformy you are, right? And I like to look at companies on that spectrum. You know, if you are fully, like you're an antibody discovery platform, right? You just how, how productive or how much output can your platform deliver? Or are you really when you actually-- they call it a platform, you really have a stack rank list of discoveries, and the top few are really good and everything below that is junk. That's not re-- It's kind of on the platformy spectrum. That's sort of not so platformy. So there's a continuum, and it is nice to have optionality, especially in this market. If you can do-- provide lots of value without taking on lots of risk, binary risk with a particular clinical program, let's say, that's a good position to be in.

Ethan Perlstein 41:15 All right, let's congratulate these VCs. See what I did there? [clapping]

Alex Morgan 41:19 Well, congratulations for you all. You're doing the hard stuff.

Vineeta Agarwal 41:21 Yeah. Let's congratulate the entrepreneurs.

Alex Morgan 41:22 Yeah. Yeah. [clapping]