Investing in 2010: think lean and longterm

Venrock's Ascher says startups should keep a slow burn rate and find deep-pocketed syndicates.

With at least three mega exits in the last four years, Brian Ascher is a rising star at Venrock. He led the firm’s investments in Adify, bought by Cox last year for $300 million; DatAllegro, which Microsoft grabbed last year for an undisclosed but undoubtedly large sum; and Unicru, picked up for $150 million by Kronos in ’06.

I spoke with Brian last week about his strategy for navigating the current market conditions and the best practices for investing in healthcare IT, a sector Venrock has been focusing on more in recent months.


MB: You’ve a good run of exits in the last few years. What are your secrets to success? 

BA: I think it really is all about the entrepreneur, particularly the CEO. You really want a CEO who is, of course, smart, of course hard-charging and committed, but also really good at selling, because at the end of the day, you’re selling customers, you’re selling investors, you’re selling acquirers or public investors. That’s paramount.

Typically the best CEOs are the ones who are a little bit maverick. They’re not the well-mannered, perfectly polite, obedient types. They’re the ones who are incorrigible. As a venture guy, you gotta be willing to go along on their program. Guide them, shape them, assist them, but sometimes you gotta be comfortable with a little bit of wiliness.

MB: Talk about the big changes in venture capital. The industry is shrinking, the exit window has narrowed—how are these macro trends changing the way you think about strategy for your companies?

BA: A big thing that’s impacted is capital efficiency. You gotta plan for these companies to keep very lean burn rates and also, where possible, plan your syndicate so that the insiders can carry these companies for a longer period of time and potentially support them internally through tough patches, because the market doesn’t give too many freebies anymore. So that’s sort of a business-model issue.

On the IPO side, I think there are opportunities for really great companies to go public in almost any environment, but you really do need to invest time as a venture-backed company educating buy-side, who may not be relevant to you for years to come. Get them familiar with the story and comfortable, because doing it in the time frame of a condensed rubber-chicken road show meeting just doesn’t work anymore. They were burned in the past and so they’re not nearly as forgiving or excited, and yet they want growth stories, they want new ideas and if you spend time educating them, I think there’s plenty of receptivity out there.

MB: Venrock is getting more involved in healthcare. How is this industry changing and where are the big opportunities?

BA: There are two ends of the spectrum in healthcare IT, and you want to be decidedly at one end or the other. There are those that are right in the money flow, because at the end of the day if you are aligning financial incentives with those who make the decisions—so you help doctors get paid faster—that’s a real good thing to do. Or you’re at the other end of the spectrum and you definitely impact clinical outcomes and improve patient safety, patient care, that’s a good place to be.

There are a lot of solutions that unfortunately kind of live in the middle, or they benefit one party, but they’re not the decision maker—that’s where it can kind of get squirly and you run up against tight budgets, but by and large, there are a lot of entities spending a lot of money in healthcare. There are a ton of hospitals out there—5000 acute care facilities in the U.S.—and they have money to spend. There are pharma companies that have enormous budgets, and there are insurance companies that have money to spend on IT, so those are pockets of spending you can tap into.

MB: Ventana is one of our companies…

BA: Yeah, this is a really exciting company. It’s too repeat Venrock entrepreneurs, one who had been a cofounder of Athena Health, and the other at RelayHealth, a doctor-patient messaging platform, and they’ve come together to solve one of the most pernicious problems in U.S. healthcare, which is that the patient has no idea what things cost, and very little information on quality of care or providers. You can think of this almost as Expedia for healthcare, where you have price transparency and quality rankings on individual procedures and providers. Increasingly, we all need to be concerned about what things cost and what our choices are because either you’re paying for it out of pocket, because you have a high deductable or you have a flexible spending plan where you have a fixed amount of money to pay for it as you see fit, or we all pay for it in the form of lower wages, because our employers are having to spend that much more on our healthcare benefits. Plus, the outcome side of things—what did you get and who’d you get it from is critically important

So, Ventana is going to make all that transparent and visible. That’s extremely interesting to employers in particular.

MB: The government is getting more involved in healthcare and a lot of policy decisions will affect how the economics play out. Do you find yourself reading headlines everyday? Are you looking for plays that are independent of government, or are you making any big bets on anticipated legislation?

BA: We’re looking more for ones that don’t have that knock-out punch risk that, ou know, Congress votes one way and you’re out of a business model. You want to find something that regardless of how government decies, healthcare providers an patients—everyone wants this to work.

An example from our portfolio would be a company called AwarePoint that does real-time asset tracking within a hospital. You put these tags on all you’re equipment and it tells you where it is. There’s tremendous ROI to the hospitals of being able to reduce their inventory levels, find stuff more quickly, spend less money on rentals, have better preventative maintenance, better ability to recall a piece of equipment in the case of an infection found, etc., and all this is completely independent of what stimulus dollars are out there because it just works, it has bottom-line ROI.

MB: Do you have any opinion on government healthcare policy?

BA: I do think that we have to get price transparency in the equation and start paying for things that have proven clinical outcomes—so evidence-based methods—and create financial incentives for the consumers to make better long-term choices for themselves with regards to wellness, and not just fixing the problems after the fact, so around weight loss and smoking, these sorts of things. It has to be kind of a wholistic approach, not just taking the problems from the emergency room forward.

Stay tuned for Part 2 of this interview, to be published in the next few days…