Venrock’s Bryan Roberts: Shakeout Is Coming to VCs, Not Just Companies

2/5/09Follow @xconomy

As venture-backed tech and life sciences companies around the country are hunkering down to figure out how to survive the downturn, the same can be said for the venture backers themselves. That was one of the interesting observations I heard during a recent interview in San Francisco with Bryan Roberts, a partner who specializes in healthcare investing for one of the oldest and most successful venture firms in the country, Venrock Associates.

Venrock, the venture capital fund started by the Rockefeller family in 1969, has a history of getting in on the ground floor of some of the biggest life sciences companies ever formed. It was an early backer of San Diego-based Idec Pharmaceuticals, Cambridge, MA-based Millennium Pharmaceuticals, and San Diego-based Illumina. Some of its more recent early-stage bets have been on Fate Therapeutics (which has ties to all three Xconomy network cities), Watertown, MA-based Athenahealth and Cambridge, MA-based Ironwood Pharmaceuticals, as well as Seattle-based Trubion Pharmaceuticals.

The downturn is making Venrock “pickier,” but it hasn’t caused the firm to change any fundamental strategies, Roberts says. Venrock has a $600 million fund that it looks to spread its capital from the Rockefellers, endowments and foundations across emerging companies in information technology and healthcare. The split is about 60/40 between the two sectors, with some new investments popping up in energy, Roberts says. Venrock is still following its blueprint of the past five years, which is to invest in a mix of very early stage seed opportunities with as little as $250,000, all the way up through investments in public companies of $25 million. The firm still favors disruptive technologies over what it considers “incremental, lockstep stuff,” Roberts says. But one key difference is that Venrock is now applying a little more scrutiny to colleagues in the venture world than it once did, Roberts says.

“We’re putting a lot of care into syndicate formation. You’d like that the investors you invest with today will still be here in four or five years when the company needs them,” Roberts says. “It’s unclear what the shakeout will be. The same shakeout there will be on the company side, we may see on the investor side as well.”

The investors who will make it through the downturn—no shock here—are ones that can point to better than average returns, he says. “The mean return on healthcare in the last decade is neck and neck with Treasuries, which is an ugly notion,” Roberts says. “There will be much more of a premium on performance.”

As for new company ideas, he said he’s still seeing interesting seed-stage investing opportunities, as well as later-stage. One difference is that Venrock is now asking more questions and pushing harder on entrepreneurs’ assumptions than it once did. But he’s clearly still in business, and hasn’t completely lost a sense of humor. When my interview time was up, he was sitting back to listen to a pitch from the “the next great medical device company.” Since the pitch hadn’t even started yet, he was just kidding around. But it might be worth checking back in a few months to see if he actually invested or not.

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