The DNA of life-science investing: purpose, genomics and (someday) robotics

Juan Enriquez sees a world once driven by the ABCs of the alphabet that’s now crafted by A, T, C and G of the base pair.

“What we’re beginning to do is read and write in A,T, C and G and that, too, will play across the economy as a primary driver of economic growth. The areas of the Midwest will grow into it.,” said Enriquez, managing partner at Excel Venture Management, a former Harvard Business School professor and author of As The Future Catches You, which outlines his thoughts on the bio-based world.

Excel is one of a handful of new health-focused funds that have cropped up in recent months. It’s made five investments so far, including this week putting $4 million into the $12 million Series A round of Dormir, an Indiana-based sleep-therapy services and equipment provider.

Excel is a Boston-based fund that is spending time cultivating the flyover states. Enriquez met with Cleveland Clinic officials this week, and Excel has been making stops in Ann Arbor-Grand Rapids areas in Michigan as well as Minneapolis and Chicago.

Q. Why bother with the Midwest?
A.  You’ve got some very interesting things happening. Some things are happening similar to the Research Triangle in North Carolina. In Indianapolis it’s happening because Eli Lilly has a tradition of medical innovation, Minnesota has a reputation of innovation because of Medtronic, 3M and Mayo Clinic. If Indianapolis could have 10 of companies like Dormir come up and succeed it would have a huge impact on the region.

Q. What’s your next investment in the region?
A. We’re looking at a couple companies, but we haven’t decided whether we’re going to do one or two of these. We have been looking at another company out there in the Chicago area. There’s certainly some stuff in Minneapolis and Cleveland that we think is really important.

Q. Companies are taking on more capital simply to survive. But it’s also become harder for new companies to get funding. Is there a danger in this?
A. There’s a couple things to look at very carefully. It’s very easy to go out and tell a company, “Why don’t you spend a couple more years and why don’t you do another thousand-patient study” and try to de-risk any technology. What people aren’t thinking about carefully is increasing the hurdle rate to bring a product to market.

A $40 million investment turns into an $80 million investment. What that means is that a whole series of people won’t invest because the market won’t pay for it.

Q. What aren’t you investing in?
A. Life is too short to run around and invest in stuff that’s not important. Our strategy is to try to stay away from single-molecule drugs. There are a whole series of platforms that pretty clearly say this reduces cost and that improves outcomes. And they’re not dependant on Phase I or Phase II trials, whether they apply to chemicals or energy. For example, Dormir: treating diabetes and obesity through understanding sleep patterns is making a big difference in quality of life.

Q. What field do you really like?
A. I go by Amara’s law: Every technology is overestimated in the short term and underestimated in the long term.

I think there was a huge overestimation in genomics in 2000 and 2001. People are now underestimating it and what’s happening. It’s already starting to change little companies like GE, Monsanto and Microsoft. You’re seeing the future growth of companies predicated on their ability to do life sciences. People are making jogging suits using bacteria instead of petrochemicals.

Q.  Using Amara’s law, what’s being overestimated today?
A. Robotics. You and I thought that we’d have Rosie the Robot cleaning right now. All we’ve got is the Roomba.

But the processing power of that stuff and the accuracy of those machines is doubling and doubling and doubling. You’ll have something with the intelligence of an earthworm and then have something with the intelligence of bird. And that’s  a big deal. Understanding the brain and neurocognitive stuff is going to lead to very big companies.

Life science is now. Robotics is next.