Venrock, a firm with a 51-year history originating as the venture investment division of the Rockefeller family, has successfully completed the closing of its ninth fund, securing $450 million – consistent with the amounts raised in its previous two funds. The organization, which maintains offices in Palo Alto, New York, and Cambridge, expresses satisfaction with this fund size while emphasizing that adaptability is crucial, as evolving trends and technological advancements necessitate careful consideration to avoid potential pitfalls in investment pattern recognition.

To gain further insight into the areas of interest for the Venrock team – whose recent successful ventures include the 2020 IPOs of Cloudflare and 10x Genomics, along with the recent acquisitions of Corvidia and Personal Capital – we spoke with Bryan Roberts, a long-serving partner with a 24-year tenure at the firm, earlier today.

The following discussion has been edited for conciseness and clarity.

TC: Earlier this year, I spoke with your associate, Camille Samuels, regarding advancements in aging biology. How significant a priority is this field for Venrock, and what drives that focus?

BR: It represents one of several promising areas within biology, alongside immunology, CNS (central nervous system) research, and other fields characterized by limited progress and substantial unmet medical requirements.

TC: Continuing on the subject of unmet needs, Camille also discussed the challenges of investing in infectious disease, cancer, and rare diseases. She explained that securing funding for something like the coronavirus is difficult before it becomes a widespread issue; treatments must be affordable, and the expectation is that repeat business will be limited. Do you share this perspective, and do you believe adjustments are needed?

BR: I concur that changes are necessary, but several factors contribute to this situation. In the case of Achaogen, a company where I experienced a significant financial loss despite developing a successful drug for a critical unmet need, the commercialization process within the infectious disease sector presented unique difficulties. Historically, the cost of such drugs is typically covered by hospitals rather than being billed as a separate expense.

Furthermore, there has historically been a lack of interest in preventative measures, particularly concerning communicable diseases. While solving the biological challenges of COVID-19 was not exceptionally complex, the investment landscape favored established, large corporations over startups. Startups generally require 12 months or more to bring a solution to market, by which time larger competitors often have already addressed the problem.

This dynamic was evident with Moderna, whose technology proved particularly well-suited for vaccine development coinciding with the onset of the pandemic.

TC: Venrock recently played a role in the creation of Federation Bio, a new microbiome startup representing the firm’s initial investment in this space. Why wasn’t there an earlier entry into this field, and how would you assess the current opportunity? Is a more substantial commitment to this area anticipated?

BR: We dedicated approximately 12 months to assisting in the launch of Federation, with partner Racquel Bracken initially serving as CEO. We were not convinced by previous approaches or teams, and our involvement in new ventures is often driven by a combination of compelling data and strong leadership.

In this instance, the exceptional research generated by academic Michael Fischbach prompted our investment. We recently spent over a year incubating a new gene therapy startup using a similar approach – in that case, groundbreaking research from a pair of academics yielded remarkable cell type specificity, leading us to recruit leadership and initiate the business.

TC: This approach helps to mitigate inflated valuations. In which areas have valuations increased the most?

BR: Across the board, but particularly for companies demonstrating reduced risk and transitioning into growth-stage businesses, spanning various sectors.

TC: Your firm’s interests are diverse, encompassing biotechnology, diagnostics, genomics, healthcare IT, medical devices, and more. What are the most significant trends you are monitoring in these areas, and where do you anticipate focusing your efforts in 2021?

BR: I am currently particularly interested in value-based healthcare delivery – systems that are more efficient, yield improved outcomes, and enhance the patient experience – and especially those offered through comprehensive platforms rather than isolated solutions. I am also concentrating on the biological insights and applications enabled by emerging genomics tools, such as single-cell analysis and gene editing. Finally, I am closely following the potential of novel therapeutic modalities to address severe diseases. It appears we are in the early stages of cell and gene therapy development.

TC: How might the incoming administration in Washington influence your work?

BR: I anticipate considerable discussion regarding potential changes to healthcare and other policies, but I believe substantial alterations are unlikely given the narrow margins in both the Senate and the House of Representatives. I expect a positive outcome in that debate surrounding the Affordable Care Act will subside, allowing stakeholders to concentrate on improving implementation and fostering innovation.

TC: What is your assessment of the recent dissolution of Haven, the joint venture between Amazon, JPMorgan Chase, and Berkshire Hathaway aimed at reducing healthcare costs for their employees? Would you prefer to see Amazon more or less involved in the healthcare sector?

BR: We held a pessimistic view of its prospects from the outset, for many of the reasons cited in recent reports, including a lack of transparency regarding healthcare costs.

I would welcome Amazon leveraging its brand recognition, logistical expertise, and ability to operate on narrow margins within the healthcare industry. While I question its appetite for navigating the regulatory complexities, privacy concerns, and inherent risks, the company could excel as a pharmacy or pharmacy benefit manager – and I hope they pursue that opportunity.

TC: Concerning Venrock’s new fund, have there been any personnel changes? Will the size of investments change?

BR: We have promoted Racquel Bracken and Ethan Batraski to the position of partner, which is always gratifying when you can recognize and advance exceptional talent from within the firm.

Regarding our overall strategy, investment sizes and stages will remain consistent. We have consistently raised $450 million for our recent funds because we are comfortable with that scale, and our culture prioritizes performance over asset accumulation. We also believe that increasing capital raised could potentially compromise our performance excellence.

TC: Healthcare is currently experiencing unprecedented growth. What percentage of Venrock’s capital is allocated to healthcare, and will this allocation shift with the newest fund?

BR: We adopt a bottom-up approach to allocation, investing based on the projects that resonate with us. Life sciences typically account for approximately 30% to 40% of our capital investments. Healthcare IT, which some categorize as either healthcare or technology – I would argue these software-enabled service businesses are more akin to technology companies than biotech – generally represents around a quarter of the fund, and we do not anticipate any changes to this distribution. The remaining capital will be directed towards technology, primarily tech and data-driven software and service businesses.

TC: Has Venrock considered establishing a special-purpose acquisition company (SPAC) to take a portfolio company public, as some other venture capital firms have done?

BR: We have not. I believe that most investors who have formed SPACs have been motivated more by the attractive economics for sponsors than by a genuinely effective and sustainable mechanism for bringing promising companies public more efficiently.