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Sunderland was director of Program Related Investments for the Bill & Melinda Gates Foundation
Venture capital used to be a cottage industry, with very few investing in tomorrow's products and services. Oh how times have changed. While there are more startups than ever, there's also more money chasing them. In this series, we look at the new (or relatively new) VCs in the early stages: seed and Series A.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Julie Sunderland is co-founder and Managing Director of Biomatics Capital Partners.
Prior to co-founding Biomatics Capital Partners in 2016, Sunderland was director of Program Related Investments for the Bill & Melinda Gates Foundation. She led the foundation’s $1.5 billion strategic investment pool, which focused on global health, global development and education. She funded 50 investments, including 30 in health care, and built a team of 10 investment professionals.
Sunderland also chaired Bill & Melinda Gates Foundation’s investment committee, which reviews all program-related investments. Prior to that role, she advised foundations, development finance institutions and governments on venture capital, SME financing and technical assistance programs.
She holds a B.A. from Harvard University, an MBA from Wharton Business School and an M.A. from Johns Hopkins School of Advanced International Studies.
VatorNews: What is your investment philosophy or methodology?
Julie Sunderland: Philosophically, my partner, Boris Nikolic, and I spent a long time working within what we affectionately call the "Gates universe." Our philosophy is influenced both by our previous experience: Boris was a member of the faculty at Harvard, and I have a finance background and worked in emerging market private equity, so obviously that's important.
What we really got excited about over the last seven years is just the boldness of the vision of working with someone like Bill Gates. We were really thinking about breakthrough science and technology and the ability to solve problems in the world when you're able to, very early on, partner with some of the most innovate thinkers and academics doing incredible, transformative work, and helping them translate that into commercial opportunities. Philosophically, we're very much focused on the great minds, the great innovators, especially within the academic communities in which we've interacted.
We're pretty excited right now for science. I think that's the other factor driving our push for this fund. We feel like, over time, you get waves of innovation taking places in science, and we think there's one happening right now that's really going to transform health. That will be driven by both low cost gene sequencing and the data that's being generated about the genome, as well as digital data, and the data that's out there in the healthcare system and that's not necessarily being used effectively. The combination of those two things, with the breakthroughs that are happening around genomics, we just think it's a really exciting time in science and technology and we want to invest in those breakthrough ideas as we go forward.
VN: What do you like to invest in? What are your categories of interest?
JS: Our core investment thesis right now is that data will change healthcare. It's changed every other industry, and I think that healthcare is next, because there's so much complexity associated with patient behavior, doctor and clinic workflow, regulatory and reimbursement pathways. We have a very complicated health system. You've got huge penetration in electronic health records that, from the perspective of delivery systems, isn't necessarily being used well, but will be used well to drive patient outcomes.
On one level, the innovation and the extraordinary technology involved with U.S. healthcare has actually driven some great innovations and great outcomes for patients, but it's also costly and something we can't afford going forward. We think that data will help drive that, and then it's both HR and the clinical data being generated, but very much the genomics data, and how that's going to change discovery and development processes and make it more efficient. It's going to create new types of therapeutics and diagnostics, as we've seen with our investment in GRAIL.
So, you've got two types of emerging data, genomics and digital data, and the convergence of those two is going to be really interesting over the next couple of decades. We think there's going to be both new, better, more effective, more affordable therapeutics and diagnostics, as well as new delivery models that are focused on data.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
JS: A company that we're super excited about, which we just announced last week, is eGenesis. If you go back to that breakthrough science idea, we think that gene editing is one of those tools that comes along once every few decades and changes everything. It's not part of the fund, but we led the Series B for Editas, which is one of the foremost gene editing companies, so that's one of our big bets.
We really like eGenesis because it's taking gene editing and applying it to xenotransplantations. It's a big idea to solve a major problem. If you look at the transplantation space, very few patients, relative to the need, get access to transplants because the only source is donations and there's no other way to grow those sources, except for new technologies. Synthetic organs are probably a long way off, but xenotransplantation is something that the community has been very interested in for a long time and gene editing solves a couple of the big problems with that. The first is concern over safety around porcine endogenous retroviruses, or PERV. Second is doing immune modifications to organs, such that they're compatible with the human system and don't get acute rejection. That's an example of completely breakthrough science, enabled by gene editing, solving a technical problem associated with a major unmet need. So, that fits very squarely with our investment thesis.
Another company is Aledade, which is more on the digital side. They're taking EHR claims data to understand major drivers of cost at the primary physician level, and using that data to develop clinical workflow for those physicians. They're partnering with them to lower costs. It's essentially a tech-enabled, accountable care organization that we're very excited about.
VN: What do you look for in companies that you put money in? What are the most important qualities?
JS: Team is everything. People are everything. That's trite and cliched, but it's always true that you're looking for people that are passionate, that have a deep understanding, that are bold.
For us, given where we come from, and given the complexity of the biotech sector and the healthcare sector, we are looking for pretty deep technical understanding, especially in the tech-enabled health delivery systems. We want a team that combines both the tech capabilities with the healthcare capabilities. Often, you get really brilliant tech people that look at healthcare and very appropriately say, "Hey, we've done it in various other sectors, let's really disrupt healthcare." We like that perspective, but you also have to marry it with a pretty deep understanding of the healthcare system and its complexity.
That leads me to my third piece, which is that we want to understand how you get paid. That's a really important factor in the healthcare sector because reimbursement, whether it's CMS Medicare, whether it's regulatory approval, especially on the tech-enabled health delivery, it's payers and how payers look at this market and how they're going to evolve. It's about being very, very conscious about who pays for it. It's not like consumer sectors, where you're getting paid directly by consumers. It's a very complex reimbursement and regulatory pathway that we want our management teams to understand and be very cogent about.
So, I want boldness, I want vision, I want a deep technical understand, but I also really want practical understanding of how you generate revenue.
VN: What kind of traction do you look for in your startups? And can you be specific? Are you looking for a number of customers or order volume?
JS: We’re pretty early, so we've got to bet early, and we've got to bet on teams that have visions. So, I'm not going to put out a revenue number that I'm expecting to see.
Frankly, on the biotech side, these are long pathways towards development of products that can eventually get to revenue, so we don't have any hard and fast rules. What we want is the combination of pretty innovative, pretty bold, with a very practical, pragmatic view on that ultimate proof point. If you tell me that you're going to dominate self insured employers, I'm going to be pretty skeptical because everybody is trying to get them. It's a great market to try to pilot things on, but, again, how are you going to get paid?
In terms of how long it takes healthcare companies to get to revenue, it varies very much depending on what you're investing in. With therapeutics, a new drug can take a decade, but the returns are pretty extraordinary. With diagnostics, it's a shorter development cycle but also a harder reimbursement payment pathway. For delivery companies, we're looking for pretty quick feedback from the market in terms of getting paid. So, we've got a mix within our portfolio, and the expectation of revenue traction is very much tied to what the business is.
VN: How long does it take before you meet a startup and make an investment and how do you conduct your due diligence?
JS: We’re very much focused on the academic centers and the generation of ideas, especially on the genomics side. We definitely get people coming to us, and we're also pretty actively out looking for the really great innovators out in those academic centers. It tends to be networking, it tends to be new ideas emerging among some of the labs and investors and academics that are working on these different areas.
In terms of time, it varies between three to six months, I would say, or maybe shorter than that. It definitely varies depending on how early the company is, how much work needs to be done in terms of company formation, the degree of diligence required. If we’re going to do an investment, we're going to talk to opinion leaders. If it's a healthcare delivery model then it's very much focused on revenue models and interviews with potential customers, or key people in the value chain.
It's hard to give a fast number, since it depends on the stage of the company, the complexity of the business model, on the technical revenue, on the diligence required to do that.
VN: These days a seed round is yesterday's Series A, meaning today a company raises a $3M seed and no one blinks. But 10 years ago, $3M was a Series A. So what are the attributes of a seed round vs a Series A round?
JS: I’m bipolar when it comes to this. On one hand, I think there are companies that deserve to be funded pretty aggressively, and we've done that; we've put in significant amounts of capital into very large Series A rounds. That's because it was a really bold idea and it needed the funding. I'm also deeply skeptical around some of the valuations and some of the large rounds. I don't think it's good for the companies or for the ecosystem, because, at the end of the day, you've got to have alignment between the value you create and your valuation. I'm less concerned about the Series A rounds, as much as I am about the really big Series B rounds, where you're compounding your valuation problem as you get out further and further. Eventually, somebody's going to need to pay for it, either at IPO or at the next round. This isn't rocket science, it's math. I don't fault them for it; somebody's going to give you a lot of money at a low valuation, butI just think, at some point, it's going to prove problematic.
So, I'm both really skeptical and really careful. If I look at some of the valuations, and I look at, again, that question around who's going to pay, and what's the long term revenue model here that, ultimately, leads to profitability in the healthcare space, that justifies a valuation, in a lot of cases I have a hard time seeing that. In that case I'm not going to invest.
On the other hand, I think there are some breakthrough companies out there. GRAIL was an example of that. We invested in the Series A; it's a company that spun out of Illumina and is focused on using next generation gene sequencing to generate huge amounts of data around cancer mutations, which will allow them to develop a cancer diagnostic. That could completely change the cancer system. They have a great team, it's the right team, it was the right technology, a bold idea, and it absolutely deserved both the huge Series A, and then the subsequent big financing around the Series B. We were pleased to be part of that. That kind of Series A and valuation is justified when you've got that kind of team and idea. It's not not justified as often as it's being done, in my view.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
JS: I'm a VC because I like to solve problems and I like to work with great entrepreneurs. It's a privilege to be able to do that. If you look at my career, it's gone through multiple different iterations, all of which are reflected in the fact that I like to solve problems in the world.
My background is undergrad at Harvard, I have an MBA from Wharton, and I also have a Masters in international affairs from Johns Hopkins. My early career was in emerging market private equity; I spent a lot of time wandering around Africa, and other parts of the world, investing primarily in cellular companies and financial services.
A formative experience for me was being in Nigeria in the late 90s before the penetration of cellphones, and everybody was agonized about how much it was going to cost to build out the six line infrastructure. There were hundreds of thousands of landlines for a population of 100 million plus. So the question was, how do you bring communications to that population? That was something people were agonizing over and writing papers about. Then, a couple of years later, with significant investment in cell companies, but mostly driven by that leapfrog innovative technology, the penetration of cellphones in Nigeria is extraordinary. In terms of the transformation to their lives, it's extraordinary. That concept of using technology and using innovation to make people's lives better played out before my eyes. That's something that I've been trying to do throughout my life, supporting those types of innovations and those types of companies making those breakthrough advances.
I was living and working in Ghana and I was doing work in the agriculture sector. I needed to come back to the U.S. and, at that time, the Gates Foundation was thinking about how it could invest more, and partner more, with the private sector. Mr. Gates had just moved over from focusing a lot on Microsoft, and had shifted his focus to the Foundation. He, not surprisingly, asked the question of how we could do more with the private sector, and whether we could invest. So, I started the strategic investment arm of the Gates Foundation. We started with a $400 million pilot, investing across the Foundation's strategic areas which were primarily health, but also we did some investments in digital payments and education technology. We built that up to a $1.5 billion allocation, and a team of 10 investment professionals. It was a great experience, and we invested in some great companies. We did about 50 investments, 30 of those in the healthcare space, and worked very closely with my partner Boris, who was Bill's chief science and technology adviser. He did a lot of investments in the biotech space, so that's how we ended up, as we were thinking about moving on from that experience, feeling that what was going on in biotech and the digital health space was really exciting and that we should form a fund around that.
VN: What do you like best about being a VC? What makes you excited?
JS: I love the people. I'm a people person. I love these extraordinary entrepreneurs. I was just at a board meeting with Farzad Mostashari, who's the head of Aledade. He's bold, a visionary, a hard worker. They’re navigating the complexity of the healthcare system, the regulatory part. They're building a team, dealing with financing. I just think the world of these CEOs and the whole team, and they're extraordinary people, working incredibly hard, solving problems every day. If I can do a little bit to help them it's a privilege.
VN: What is the size of your current fund?
JS: We announced the closing of our $200 million fund last week.
VN: What is the investment range?
JS: We invest in the range of $5 million to $10 million, and up to $20 million over the life of the company.
VN: Is there a typical percent that you want of a round? For instance, do you need to get 20% or 30% of a round?
JS: I don't have a hard number. 20 percent is typical, but we'll vary depending on the investment structure. I like syndicates. I think, especially with these early stage companies, you need to bring the right people together around the table to support these companies. I'm much more likely to be interested in a syndicate than to have a hard number that I have to have on the ownership side.
VN: What percentage of your fund is set aside for follow-on capital?
JS: It depends company by company, but we're actively reserving for follow-ons as is needed. Again, I don't a hard and fast rule, but we want to support our companies through multiple rounds so we'll reserve appropriately.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
JS: We'd like to do Series A. If we see something fantastic we will look early; eGenesis was pretty early, and we're calling that a Series A. We'll also look later. My bias is not hard and fast rules about when we invest, and how much we invest, and what ownership, but are we finding great people that are working on great ideas and structuring the investments appropriately to support them?
VN: In a typical year how many startups do you invest in?
JS: We'll be putting money into 15 to 20 companies out of this fund.
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