Excel Venture Management, Starting With Clean Slate, Shows Early Returns on Broad Vision
All year long, I listened to venture capitalists talk about the steady decline their industry is facing. Returns in a number of sectors just aren’t there anymore to justify the risk. Big pension funds and endowments that provide the fuel for innovative VC-backed companies are still licking their wounds from the downturn, and looking for more reliable places to park their assets.
Then, a couple months ago, I had an odd conversation with Steve Gullans, a managing director with Boston-based Excel Venture Management. He was talking about how his venture firm was having a good year, and the market dynamics were tilting in its favor. And he had some hard facts, not just fluffy adjectives, to back up what he was saying.
Excel first started talking about what it was doing in July, when I interviewed one of Gullans’ partners, Juan Enriquez, who was the founding Director of the Harvard Business School’s Life Sciences Project. Enriquez talked then about how Excel had closed its first $125 million fund, and provided a detailed glimpse into the firm’s strategy of investing in life sciences companies with platform technologies that could give rise to a number of different products, and which could cross over and disrupt other industries, like IT and energy. There would be no classic biotech investments betting the-farm on a single drug with billion-dollar potential. The odds of success were too low to justify the huge amount of capital investment in that model, Enriquez said. He described a long-term, broad vision that says we’re still in the early days of the era of genomics, and that biotech will give birth to “the next Googles, the next Intels, the next HPs.”
Nothing that successful has emerged yet from the Excel strategy in the early days of the firm, but when I followed up with Gullans a little before Thanksgiving, he certainly had some legitimately positive things to talk about. Just one week after I profiled Excel in July, one of its portfolio companies, San Diego-based Synthetic Genomics, received a $600 million investment from Exxon Mobil to develop algae-based biofuels. It’s the latest venture founded by genomics pioneer J. Craig Venter.
“We’re still excited about alternative fuels,” Gullans says. “There have been disappointments in that space, but Synthetic Genomics is a clear winner.”
In November, another portfolio company, Cambridge, MA-based Aileron Therapeutics, published an important paper in Nature with some academic colleagues that validated its technology for hitting previously unreachable drug targets inside cells. That’s not exactly the same as scoring a $600 million investment, but it certainly didn’t hurt to validate a company that raised a $40 million venture round a few months earlier.
The same week as the Nature paper involving Aileron, Excel’s very first portfolio investment—Woburn,MA-based BioTrove—generated some more good news. The company, which makes a “universal test tube” to speed up the efficiency of genetic analysis, was acquired by Carlsbad, CA-based Life Technologies for an undisclosed sum. I pressed Gullans for details on the magnitude of this return, and while he wouldn’t provide specifics, he did say “it’s meaningful.”
“For Excel to have gotten a meaningful exit in this climate is very rewarding,” Gullans says.
And Excel didn’t just take all the money and run. A new company spun out from BioTrove called Biocius, which will handle the RapidFire technology for handling samples that go into mass spectrometer machines, which can provide researchers with data on precise molecular weights. Gullans has retained a board seat with the new company.
Then last month, the firm was confident enough that it made another new investment last month in Cambridge, MA-based Fina Technologies, a spinoff from Gene Network Sciences that uses massively parallel supercomputing that was developed for the world of biotech drug development and apply it to the world of finance.
What’s going on here with all this optimism? Part of it is the luxury of being a relatively new venture fund. It means that a lot of your investments haven’t been around long enough to hit many serious rough patches. That’s one of the great differentiating factors that’s been in Excel’s favor the past year. Because it hasn’t been around for very long means it doesn’t have to carry around a lot of baggage. It doesn’t have old portfolio companies that need to be continually propped up with rounds of capital.
“We’re not spending our time with companies that have financing problems. We’re able to look forward,” Gullans says.
Those kind of headaches at traditional VC firms—and their associated worries about whether they will be able to raise new funds anytime soon—has created an opportunity for a young firm like Excel, Gullans says. Not having to worry as much about those issues means it can spend more time looking at exciting investments in their earliest stages, Gullans says. And, naturally, the new ideas aren’t commanding the high valuations they might have a few years back.
It might sound naïvely optimistic to investors who have been burned before by pursuing the next big thing, but Gullans says the early-stage, big-idea, platform approach is finding an audience with the people who matter most—the limited partners at pension funds and endowments who provide VCs with their capital.
“Our approach of looking for breakthrough technology and finding a route to the market for it is encouraging to the LPs,” Gullans says. “It’s really been very refreshing. We’re finding very exciting opportunities to invest in.”