Excel Venture Unveils $125M Fund to Make Life Sciences Ideas Cross Over to IT, Energy

7/7/09Follow @xconomy

Here’s a rare bit of good news from the venture capital world. Boston-based Excel Venture Management has nailed down a $125 million fund to invest in new life sciences companies that it hopes will have broad potential to shake up a variety of industries, including information technology and alternative energy.

Excel has been operating for the past 18 months, but has been tight-lipped about its strategy because it hadn’t yet closed its fundraising. The fund is led by a group of managing directors that formerly worked together for years at CB Health Ventures—including Rick Blume, Enrico Petrillo, and Steve Gullans, as well as Juan Enriquez, the founding director of Harvard Business School’s Life Sciences Project. I got an up-close look at what the firm is trying to accomplish from Enriquez.

The fund’s strategy is to look for ideas that have their roots in life sciences, but have broad potential as “platforms” that can be applied in other industries like IT, energy, agriculture, textiles, and chemistry, Enriquez says. This is becoming possible as biology is becoming more of a digital science, he says. The opportunities in life sciences are already starting to make an increasing impact on the financial statements of industrial giants like General Electric (a big maker of medical devices), DuPont (owner of Pioneer Hi-Bred International seeds), and even classic tech companies like Microsoft, IBM, and Google, which are betting big on digitizing healthcare and life sciences.

“About one-fourth of GE’s earnings come from healthcare and life sciences companies, which is getting larger, while the share of financial services is getting smaller,” Enriquez says. “At DuPont, the single largest driver of earnings is Pioneer seeds. For a lot of companies in a lot of industries, life sciences is the place they are looking for future growth.”

So that’s the lofty vision, but how is this supposed to work out financially? Plenty has been written about how the life sciences venture model is broken, partly because new drug development typically takes a decade or more, costs hundreds of millions of dollars, and has about a one-in-10 success rate in clinical trials. Excel’s answer to that? It will strictly invest in companies with multiple opportunities, not single-drug, single-application companies, Enriquez says.

Excel has already tipped its hand a bit in terms of what kind of company it likes. The fund has made investments in Woburn, MA-based BioTrove, La Jolla, CA-based Synthetic Genomics, and Cambridge, MA-based Aileron Therapeutics.

If there’s a common thread in these companies, it is that they have roots in life sciences, and that they are pursuing really big ideas. BioTrove is developing something called a “universal test tube” which essentially miniaturizes the amount of sample that a scientist needs to squirt in a tube for analysis, bringing down the cost of chemical reagents by 100 to 1000-fold, Enriquez says. This is cheap enough to enable all sorts of new experiments with agricultural seeds, or genetic variations of plants, animals, and people, he says.

Synthetic Genomics, which Enriquez co-founded with geneticist J. Craig Venter, is pursuing the idea of creating new biological organisms that can be used for cleaning up toxic spills or creating efficient alternative fuels, among other possible applications. And Excel’s latest investment, Aileron Therapeutics, is attempting to develop a new kind of treatment called “stapled peptides” that can hit targets on cells that are unreachable by existing therapies, although it could also be used to program cells for uses in other industries, like energy and chemicals, Enriquez says.

That still doesn’t answer how these companies will make money, or how Excel can get positive returns. The firm’s plan will be to invest in 12 to 16 companies over the life of this $125 million fund, with investments as small as $500,000 to $1 million at the seed stage, all the way through some later-stage companies with depressed valuations that need just a little more capital to achieve an exit for investors, Enriquez says. The plan will be for Excel to make its investments, and try to nudge companies toward forming partnerships with big players in industry who can validate the approach as well as provide capital and expertise to further develop them, he said.

Excel sees a lot of the big ideas for life sciences emerging in the Boston area, although it doesn’t limit its investing by geography. Enriquez hinted that his firm has its eyes on a company in California, and another in the Midwest, although he wasn’t ready to name names. One area to watch for from Excel will be the intersection of life sciences and IT. The firm is interested in massive computing power needed to support genetic research that looks at how proteins interact in the body, and further studies of how minute genetic variations can affect human health, Enriquez says.

Given how many biologists still use old-school spreadsheets to try to analyze sophisticated data from new genomic tools—just to use one example of slow technology adoption—it’s no surprise that this life-sciences platform approach has its share of skeptics. Enriquez says he’s undaunted, and he’s convinced that life sciences will become a platform for progress in other industries, much like how IT and the Internet have blazed more efficient trails across sectors.

“It’s easy to be gloomy about the economy,” Enriquez says. “I can remember attending a summit in 1994, and discussing an article at the time about the future of business. It never even talked about the Internet, yet it was already there. You’re about to see the next really big companies, the next Googles, the next Intels, the next HPs, emerging from life sciences.”

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