Kleiner Perkins Caufield & Byers is one of the kingpins of venture capital, best known as the firm that got in on the ground floor at Google, Amazon, Genentech and plenty of other industry-defining companies.
The firm has gotten its share of glory, but it attracted some unwanted attention last year when a sexual harassment charge was leveled by Ellen Pao, a former junior partner. Last week, the rumor mill got fired up again for a different reason at the JP Morgan Healthcare Conference, as one of KPCB’s well-known life science partners, Risa Stack, left for a new job at GE. At a moment when the life sciences venture capital industry is in free-fall, people at the conference wondered whether Stack’s departure was another sign of a top VC firm backing away from the time, expense, and risk that goes with the territory in biotech.
Brook Byers, the big-name partner at KPCB and a venture investor since 1972, heard the scuttle. So did Stack. Both sought to explain the reasons for the move in their own words. Stack told me that she made the move to GE partly because of her longstanding relationship with Sue Siegel, the CEO of the healthymagination division, her familiarity as an advisor to the fledgling GE effort, and out of her desire to get operating experience at a big company. Stack says she’ll have a hand in developing GE’s healthymagination strategy, with a specific focus on molecular diagnostics, healthcare reimbursement policy, and use of healthcare data. GE CEO Jeff Immelt has committed $6 billion to the healthymagination effort, which has a goal of improving healthcare access and reducing cost.
Some of the new work at GE, Stack says, may include health startup investing with her friends at Kleiner Perkins.
“It’s a great opportunity for me to continue some of the work I started at Kleiner, and help GE,” Stack says.
Byers spoke at length about Stack’s departure, the future he sees for KPCB’s healthcare investments, and one of his favorite new startup ideas. Although he wasn’t listed as one of the managing members of KPCB’s 15th fund announced in May, he is still active at the firm, and serves on the board of directors of 10 companies. This exclusive interview was done in person on Jan. 8 in San Francisco, and has been edited for length and clarity.
Xconomy: How much of the new Kleiner Perkins Caufield & Byers 15 fund will be allocated toward healthcare?
Brook Byers: We raised KPCB 15 last spring. It’s a $525 million fund. We don’t do a formal allocation by percentages into sectors, but it will be invested in healthcare/life sciences and digital consumer and digital enterprise and cleantech/green. We have organized partner practice groups in each of those. The notion is that about 20 percent will go into healthcare/life sciences. Which is about the same percentage we had in prior funds. We’re all very comfortable with that. We expect to do therapeutics, diagnostics, medical devices and healthcare IT, within healthcare/life sciences.
X: Who are the partners now responsible for this portion of the KPCB15 investment?
BB: We have Beth Seidenberg, who’s been with us for seven years. Prior to joining us, she was chief medical officer and head of worldwide development at Amgen. Before that, she worked at Bristol-Myers Squibb and Merck. She’s a legend. She has over 20 FDA approvals.
Dana Mead, who had a 20-year career in medical devices, and was president of Guidant’s vascular surgery division before he joined us seven years ago. As Beth is, Dana is a legend in devices. They are two of the most experienced venture capitalists with operating experience and a network.
Larry Leisure is an operating partner with us. He has a 20-plus year career in reimbursement and payment. He worked at Kaiser, Accenture, and Towers Perrin. And there’s myself, with a 40-year career in venture capital. I’ve started four companies from scratch over that period, and been involved in dozens of companies. That’s our core team.
Throughout the firm, we have a history of bringing in young associates, and keeping them with us for a couple of years, and then having them go out into an operating company to get experience. Risa [Stack] stayed a very long time with us, she was a huge contributor. We talked to her over the years about operating experience. She did incubate Nodality from scratch, and worked very closely with me on incubating CardioDx and Veracyte as well.
This opportunity came along for her. We’re very close to Sue Siegel. We worked with her for years when she was with MDV, and I knew her when she was at Affymetrix. She’s a neighbor and a good friend. It’s a wonderful opportunity for Risa to become the general manager of a division of an important company like GE, where all the way up to the CEO, Jeff Immelt has committed $6 billion to improving healthcare. We will have a close friend and ally at GE to collaborate with us, and GE will do a lot more in this whole field of precision medicine. Risa will be catalytic for that. It’s a perfect hire from their point of view. From our point of view, it’s the perfect ally and friend and colleague to have at GE.
I also want to mention Isaac Ciechanover joined us three years ago from Celgene, and in a similar way, he is incubating a company called Atara [with Amgen]. He’s the founding CEO, with total support from us as the lead investor. I don’t think GE needs any investment.
X: Any plans to fill Risa’s slot in healthcare at KPCB?
BB: We’re going to hire somebody. We’re beginning a search. It will be for a senior associate, and we hope to complete that by March.
X: So you are going to hire somebody, and it will be a senior associate specializing in healthcare, to fill Risa’s slot. So do you remain committed to healthcare?
BB: Yes. And it will be someone with experience in industry.
X: What are the most exciting opportunities in healthcare, that you can work on with this new fund?
BB: (pause) I’m trying to think of something to say that isn’t obvious, and everybody else isn’t already talking about.
We’d like to find the next Epizyme. We’re very proud of that company. It’s one we invested in from the very beginning. At the time, it wasn’t so obvious. But I think we caught on with epigenetics. We’d like to find the next one of those. What I mean by that is a therapeutics company that is a new paradigm, that could become a platform, that could develop multiple products, partner some, and keep some. They’ve kept most or all of the U.S. rights while partnering out assets, and building up $100 million in cash. It’s a beautiful story. I’d like to find another one of those. I’m not smart enough to know what that new area will be—but I’ve got an idea.
We prowl around the research universities, doing lab crawls—Beth (Seidenberg) and myself. We also have a network of consultants. I should mention that, besides the full-time people, we have a whole extended family of management and employees of the companies we’ve been involved in with life sciences. It’s over 120 now. That’s a lot of our network that we use for diligence, sourcing, recruiting and all of that.
X: Do you mean 120 people, or 120 companies?
BB: It’s people from 120 healthcare companies over time. That’s the way to think about how we operate—we utilize that network a lot. We also are very close to a lot of large companies—device, pharmaceutical, and diagnostics. They call us with ideas or pointers to new startups. Then they help us with diligence. We don’t have to have full-time people. In fact, sometimes full time people don’t know what’s going on out there, because we’re sitting in Menlo Park. Our partners in China tell us about things here, and vice versa. In fact, I was meeting with our China team today (January 8).
In therapeutics, there’s still a lot of unmet need. If you look at the statistics, about 50 percent of the drugs prescribed are not efficacious. Let’s go to the root here of what we think. There must be an opportunity for better drugs that are more targeted. There must be an opportunity for companies developing new drugs that use clever patient stratification. There must be a big opportunity in more diagnostics to do stratification and targeting.
So we discussed therapeutics and diagnostics. Then there’s healthcare IT. We look at patient engagement, cost, compliance. We are, and will be very active, in healthcare IT investing. There was some list a couple months ago about most active firms there, and we were in the top six. We have 5-6 healthcare IT investments already, plus we’re one of the key players in Rock Health [a health IT startup incubator].
We have unique capabilities too. We have a very capable digital consumer and digital enterprise partner set. Those are big sets of eight partners each. We are connected with them on our whole digital health, healthcare IT initiatives, in terms of sourcing and diligence and thinking big. An example is big data. Big data in hospitals, big data for the payers, big data coming off of next-generation DNA sequencers. On our healthcare team, Larry Leisure knows the payers, Beth and I are on the therapeutics side, then we have a young partner [Ray Bradford] who was a startup product manager at Amazon Web Services, so he understands big data. We have Mike Abbott, a partner in digital who was VP of engineering at Twitter. He hired 300 engineers in a year and a half there. John Doerr, the legend. Ted Schlein, on databases and security software. That will be a big part of what’s in the cloud. We have a lot going on there, but we’re not ready to talk about it yet.
In devices, there’s still a lot to be done. A good example is the most recent startup I helped put together, and I love this story. It’s a young postdoc out of Stanford in Paul Yock’s BioDesign program. It’s fabulous. Paul Yock is one of my heroes. They do needs-finding first, and then work backwards, that’s what I love about it.
This is involved in dry eye. About 25 million Americans have dry eye, and about 5 million have it really acutely. It’s very painful. Pharmaceuticals don’t work. Restasis doesn’t really work, or only for a few people, and not persistently. So this is a neurostim insert. You can use neurostim on a nerve and produce aqueous tears. It’s already been tested in humans and it’s looking good, but we’ll see. That’s an example of devices.
Ophthalmology is still a good area. That’s a big interest of mine, and I’m thinking of another startup in ophthalmology.
X: What do the other partners at KPCB think about the opportunities in healthcare? Are they still as bullish on healthcare as you are?
BB: They signed off on it, so they’re fine. I think they are hopeful that 2013 will be a good year. We don’t decide these things. The companies do, and the markets do. But we are told by four of our companies that they are going to file for an IPO in 2013. So what makes another partner happy in another sector is when things like that are going on. With those four companies, one of the things I’ve been doing here (at the JP Morgan Healthcare Conference) is sitting in meetings with bankers. And it’s all been good. There could be a couple M&As as well.
So I think the feeling, the vibe, is good. On big devices, there were a number of CEO changes a couple years ago, and when that happens, they go into strategic review. They are finishing that. So they are starting to get out looking around. We’ve got plenty of portfolio companies that are at that stage, with early human data or early commercialization. The past couple of years have been kind of quiet from an IPO and M&A point of view. But there are a lot of big companies that have huge amounts of cash and market cap that are product hungry. I think 2013 is going to be good, and 2014 will be even better.
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