SAN FRANCISCO — As early-stage biotechs grapple with the funding and IPO challenges associated with a down economy, some adjacent and more recession-proof areas are still seeing robust investments.
Jenny Rooke, founder and managing partner of Genoa Ventures, sat down with Endpoints News yesterday to talk about her investments in early-stage companies that blend biology and technology, but aren’t working on a therapeutic.
“These are R&D tools that get used up and down the value chain — discovery, translation, development, manufacturing, QA/QC, and also diagnostics,” Rooke said.
Below is a lightly edited Q&A with Rooke.
Endpoints News:
How has your investment portfolio changed as the economy has changed?
Jenny Rooke:
A feature of focusing on these types of companies that are product-oriented and in the R&D tool chain is they tend not to be subject to as much hype as the classic biotech drugs company.
So we’ve found over the last few years that when preclinical biotech companies were going public at the height, now that’s coming back to earth. We didn’t really ride that ride, our companies didn’t ride that ride. It’s a more recession-robust space. We don’t get the high highs or the low lows. It’s like you went to the party early, had one or two drinks, went home, and weren’t there when the crazy happened. But you got to go the party.
As first round investors, we set valuations. We are working with decades of historical data on appropriate values by stage. It’s OK to not go for the ride or buy the ticket.
Endpoints:
How do you differentiate between the companies that are going on the ride and the ones that will bring in returns for your investors?
JR:
That’s the art of investing. Much has been written about qualifying early-stage investments, but I would call out what’s specific to a general company where, unlike biotech where you’re focusing on a clinical asset, we’re looking at physical products protected by intellectual property.
So it’s possible to look at the underlying science and tech and judge whether that tech will address an important unmet need in a marketplace. As a science-driven firm, we don’t invest in science for science’s sake. We do look for teams with a very clear idea of what problem they’re trying to solve, for what customer, in what marketplace.
The kind of rigor you’d be accustomed to in tech investing — does the team know the market, are they clear on the value proposition and solution, and is there an underpinning that’s novel science and technology that’s specific to them so if they are successful in bringing it to market, they really are differentiated.
Endpoints:
How many companies do you invest in every year, and is that growing or declining?
JR:
In launching Genoa, the idea was to bring early-stage venture best practices so we execute a high-conviction, high-concentration portfolio strategy, very similar to biotech investing.
Each partner makes one to two investments per year, so we do about four investments per year. Partly because we do deep diligence with the investors and we work actively with our portfolio companies to get them off on the right foot in that crucial seed to A stage. That neither accelerated nor declined over the last few years. We’ve been steady with our pacing as we know that kind of vintage discipline is what drives returns over time. So we really stuck to that.
Hundreds to thousands of companies come to us every year. We will take probably 500 pitches, and see many more than that doing landscaping and talking to other people. You need a really big funnel to find the handful we choose, which we select very carefully.
We usually lead one-third to half of the round, so that’s from a few million dollars to $15 million, depending on whether it’s seed or A.
Endpoints:
Where do you acquire your funds for Genoa?
JR:
Before I founded Genoa, I was an active lead on the AngelList syndicates platform, and I built up one of the largest and most successful syndicates for mostly tech. Our kinds of companies appeal to people coming from tech, because they’re so tech-heavy, data-driven and tangible. That created a big base of individual investors who came over with me, and that’s really got us going.
And we’ve been steadily growing, reaching out to family offices whose interests might echo the same journey. Maybe they’ve made their wealth in the tech space, looking for exposure to exciting things in bio and innovation. It has not hurt that Covid has educated the whole world on the importance of biological innovation and the potential impact. As a fundraiser in this space, everyone has some degree of literacy in diagnostics, vaccines, epidemiology, and they care as well. And that’s been an interesting shift.
Endpoints:
What do the companies/founders look like that you invest in?
JR:
Geography-wise, we’re open, we’re looking for the very best companies. That said, we can be active and more supportive with companies who are closer, in the Bay Area or West Coast. When we invest beyond our backyard, that importance of building syndicates really increases.
As far as sourcing, we definitely have some founders who are classic academic, postdoc wanting to commercialize. We’re always up for that story. But more often for us is someone who’s an experienced mid-career founder, coming from industry, had experience developing and/or commercializing products and has an insight into that market need, and is developing that new technology to meet it. It’s a market-first opportunity as opposed to a technology trying to find an application.
We love those founders because they tend to be really focused, it’s not about ego, they tend to be more skilled working in teams, more efficient, they’ve learned things along the way, and they’re looking for a thought partner, and that’s where we come in.
Top quartile would be 3x net in seven to 10 years, which is very hard to hit but also standard venture returns. We’re not re-inventing venture. Companies typically take seven to 10 years to go from that seed A to real maturity where they’re going public or being bought.
An attractive feature of a Genoa company, because they’re building tangible products protected by IP, they start building value from the very beginning. In contrast to an asset-based biotech company, where you’re not considering an exit until five to seven years out, gone through Phase II trials, we look at companies that will have potential off-ramps, hitting milestones, so the attractiveness can grow at each stage.
Endpoints:
What advice can you give to companies that are pitching you? Are there things that stand out as red flags, or other potentially important must-haves?
JR:
One recommendation we talked about is being really clear about a market opportunity and why the technology provides a unique advantage. That’s really important to have that clarity. The flip side is you see many wonderful people, teams, and technology come in, but they haven’t figured out what to do with it or how long that will take or how much money it will take. That’s a big differentiator.
We’re very happy to talk to a would-be entrepreneur who’s trying to figure out what to do with an innovative technology. Sometimes those companies come back and say, we’re going to be this kind of company, with this product, and that’s exciting.
Another important recommendation for bio-based companies is getting experience around the table. There are so many complexities and pitfalls trying to bring science to market — from commercial to regulatory — and they don’t have time to learn on the job and figure that out.
So we are very happy to back a lot of first-time founders, many of whom have experience in industry, and so making sure to build out the team with advisors and making sure the right experience is there is very important, and that can be the difference in getting a meeting with investors. If they see the founders have someone who has walked that path before and can be helpful and put their name behind it, that can be really important.
I’d rather see an up-and-coming professor who can really spend time on the company. But what I’m talking about is people who have built these companies as founders, investors, etc. who are not the scientists but will help the team be practical, and may not always be successful but have walked the walk from startup and through that journey.
What has changed in the last 17 years I’ve been investing, is that there are more and more great success stories like Illumina, 10X Genomics, Twist Bioscience, and other tools companies bought by companies like that.
Endpoints:
What would you suggest to someone who’s a mid-career scientist in industry and has a great idea to improve on an R&D tool? What would you suggest they do or start that process?
JR:
Often the next step is a small number of conversations to test out the idea and find someone else who wants to be part of that journey. That can be talking to one of your vendors, selling you mass spec, or another tool, and there might be someone else already working on it.
But as those conversations progress, you find there’s momentum and start to build ideas to attach people to. It can be very hard for introverted scientist-types to get going, but if you let the love of the science drive you, and you find other people get excited too, you can find a co-founder who’s better at pitching, or find complementary people that can have a snowball effect. We’re all scientists on the Genoa team, so if anyone wants to chat, we’re here.
It’s definitely a team sport because the success is the result of the integration of so many teams and areas of science, development, regulatory, manufacturing — all of that needs to come together over time. We’re sometimes talking to single founders and they can’t get to the end game by themselves but can they build the team they need over time. You don’t need to hire head of sales as the first hire, but you probably need a VP of R&D to show that the science works, and you probably need a head of product sooner than you think. But that all comes step by step, and that’s where experience can be helpful.
This content was originally published here.
