Since it began raising its second venture fund several years ago, New York-based Lux Capital has only invested in one startup in the San Diego region—Carlsbad’s Luxtera, which specializes in developing technologies to eliminate the bottlenecks in fiber optic networks for computers. (Luxtera got $26.7 million in a later-stage venture round at the end of last year from Advanced Equities Financial, August Capital, New Enterprise Associates, and Sevin Rosen Funds.) In comparison, Lux Capital counts four portfolio companies in the Boston area: Magen Biosciences, Genocea Biosciences, Cerulean Pharma, and Lux Research.
Perhaps compensating for such imbalance is the fact that Larry Bock, a respected biotech entrepreneur and venture investor (and Xconomist), represents Lux Capital in San Diego as a special limited partner. As a serial entrepreneur who has specialized mostly in the life sciences, Bock has founded 17 companies, including San Diego’s Illumina (NASDAQ: ILMN), Sequana Therapeutics, River Medical, Idun Pharmaceuticals, and Neurocrine Biosciences (NASDAQ: NBIX).
Bock also has become increasingly active as a philanthropist, and was both a principal organizer and sponsor of the San Diego Science Festival, a celebration of science held throughout March. The festival’s events included a session on nanotechnology, which pulled Lux co-founder Josh Wolfe out of his New York orbit. After giving Bock a few weeks to recuperate from the science festival, I recently caught up with both of them by phone to get their thoughts on investment strategy in the current climate.
When I asked Bock if there would be another science festival next year, he said, “I was a little ambivalent whether I would do another one until the next-to-last day. But then, on the last day of the Science Festival, 100,000 people showed up at Balboa Park and the traffic was backed up for about 8 miles. The police had to close down [access to] the park at 2 pm.”
Bock also noted that having spent 15 months organizing the festival, “I’ve gotten to know every science community in San Diego. Being involved was one of the best sources of venture deals I’ve ever experienced.”
Bock said he met Wolfe more than six years ago, after he developed an interest in nanotechnology. “When I was traveling around to universities and scientific conferences, learning about nanotechnology, the only other VC I’d see was Josh,” Bock said. But Wolfe said Lux’s investment focus extends well beyond nanotechnology. He explained that Lux closed its second venture fund at $100 million in January. About a third of Lux Ventures II has been invested so far in 12 companies that are developing innovations mostly in the life sciences and physical science, especially in energy, communications, and semiconductors.
“We have a contrarian view on energy,” said Wolfe, who contends nuclear energy is badly needed and under-utilized. “One area where we’ve focused involves one of the biggest problems we have to solve, which is the treatment or remediation of nuclear waste.”
Wolfe says the wave of venture interest in cleantech and renewable energy investments gives him “pause.” He views investing in algae-based energy startups as a step in the wrong direction because energy technology development has “always gone to denser and denser fuels.” To Wolfe, developing algae biofuels requires “going back to an agrarian economy… I think the jury is out whether the market will reward a biotech product that is basically a commodity.”
But Bock, who is a seed investor in San Diego biofuels developer Sapphire Energy, said he’s more optimistic. “I’m excited about it because they’ve very quickly gone from pure concept to actually doing it. They were flying commercial airliners on algae-based jet fuels in January.”
Finally, I asked Bock and Wolfe about the recent decline of venture capital investing, a nationwide trend that was acute in San Diego during the first three months of 2009.
“I think it’s safe to say that many VC firms are populated by senior partners who will say, ‘We created some great companies and made money for our limited partners, and now it’s time to retire,’ ” Wolfe said. He nevertheless says this is a great opportunity for venture investing, with markets low and a lot of expert talent now available that previously might have been too expensive to hire.
Bock agreed, saying, “I was most successful in biotechnology during the last nuclear winter in the early 1990s. I’ve seen this cycle in biotechnology several times during my career. I don’t think venture capital is dead and I don’t think the model is broken…In terms of early-stage investing in technologies coming out of universities, it’s like being a kid in a candy store.”