The fund focuses on the collision of healthcare and technologyRead more...
MEC invests in cell therapy, gene therapy, regenerative medicine, synthetic biology, and AI
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.
John Prufeta is founder, CEO and General Partner of Medical Excellence Capital.
Over the past 30 years, Prufeta has served as an operator and consultant to academic medical centers internationally. He serves concurrently as Chairman of The Medical Excellence Foundation, a charitable organization dedicated to providing grants to support America’s most promising health care research at U.S. academic medical centers and research institutes.
In 2007, Prufeta co-founded the Medical Excellence Group, a global private health advisory firm with offices in New York, Moscow, London, and Shanghai, and has served as Chairman since its inception. The company operates as a virtual “Family Office for Health Care'' offering comprehensive, state of the science programs in preventative medicine, complex case management, telemedicine, and longevity. From 2000-2003, Prufeta served as president and CEO of Medix Resources, a publicly-held healthcare technology company. Previously, he served as Managing Partner of Agilence Health Advisors and OnPoint Partners, consulting companies advising academic medical centers, managed care organizations, and healthcare technology firms.
He is a founding Board member of Veterans Moving Forward, a 501(c)(3) charity that serves Veterans with physical and mental challenges. Additionally, Prufeta is a founding board member of CuraLeaf, a publicly held medical cannabis company that is now the largest integrated provider in the United States. One of his most treasured experiences was as a board member of America’s Huey 091, a project that fully restored a Vietnam-era helicopter and donated the aircraft to the Smithsonian Institute. The helicopter is now the largest artifact in the “America at War” exhibit.
Prufeta is a graduate of the Harvard Executive Program, OPM 28 at the Harvard University Graduate School of Business. He holds a B.S. degree in Management from St. John’s University.
VatorNews: Give me the general overview of Medical Excellence Capital, your philosophy, your methodology, where you fit into the ecosystem. What are you bringing to venture?
John Prufeta: Medical Excellence is a company that came together in a very interesting way. Our anchor investor actually had some major healthcare turnarounds in his family; he's from outside of the United States, so he came to the United States looking for the solutions, and my group of colleagues helped him find the right combination of doctors. One of his relatives was given an experimental drug because the normal pathway didn't work and they needed to find a new pathway. Fortunately, that experimental drug actually worked quite well and this individual was able to live for a number of years as a result of that. That informed his inquiry about a little over two years ago, just as COVID was starting, which is very ironic. In February 2020 we got together in New York to talk about his thoughts about building a new and differentiated venture capital company and he provided an anchor of a $100 million commitment to the fund. And so, that set us off on a journey to find the right people for the organization.
Medical Excellence Group is an organization that manages health care, mainly for foreigners, and mainly for individuals where their country's medical system couldn't find the answers. That's an organization that's just about 15 years old; it started in earnest right after the crash, actually. And so, what we have with the Medical Excellence Group is a network of hundreds of physicians, across 33 academic medical centers and research institutions, which is a very unique and primary source of finding projects, just meeting over the years the people I consider to be the most interesting and productive scientists. Those individuals are also the people that tend to create new companies, tend to license the most innovative technologies with their universities, and Medical Excellence already had a built in relationship with a number of those individuals created over the years. It's a warm relationship, because it's not transactional: it's patient oriented and, in many cases, caring for patients over a decade, working together to do that and that engenders a very different relationship, I think.
So, as we started Medical Excellence Capital, we said, “Okay, we're going to port this really great intellectual property and network and its relationships into a newly found venture capital company and we're going to bring in the absolute best people that we can find to work as the investment professionals along with me." Now, fortunately, I was able to very early on meet Eric Heil, who had been trained and started his career at Domain Associates, which is one of the venerable and original venture capital companies that started back in the early 1980s. The training there is incredible, and the ecosystem that they created is incredible. We were able to attract Eric, bring him in as one of the managing partners of the firm and then it just so happened that Domain was finishing its ninth fund and deciding not to proceed with a tenth fund, because three out of the five main partners were retiring. But that left two really good people: Kim Kamdar and Brian Halak, both of whom have wonderful backgrounds and reputations within the venture capital community. Eric introduced me to them; they had worked together, and they had been in the trenches together, and so the real question was, whether our philosophy, and the way that we wanted to run this company, worked well with what they wanted to do next in their lives. We were able to come to an agreement because we have great alignment in terms of the ethics and the drive and what we want to accomplish in the end; what we want to build is a number of companies that actually build real medicines that help real people, that's our goal and we hope that we're successful along the way, because, in many cases, the companies that we back are rare children's diseases and diseases that afflict millions and millions of people.
VN: From what you said, it sounds like you're investing in biotech and pharma?
JP: Medical Excellence invests in just a few areas; I mean, biotech is such a broad arena that we really made a decision to confine ourselves to cell therapy, gene therapy, regenerative medicine, synthetic biology, and AI, but only where AI meets drug discovery. So, the idea is, how does AI impact the discovery of new drugs or new formulations of old drugs? That's a very big area, something that we're pursuing ourselves.
VN: So this is deep science that you’re investing in.
JP: Yes, deep science dedicated to solving big problems in medicine. So, I'll give you some of the diseases that we've invested into because, in the end, it's not just the companies but it's what's the endpoint? What are you accomplishing? What are you going to bring into the marketplace? So, Alzheimer's and Parkinson's disease. Also, 22q Deletion Syndrome, which is a very rare children's disease, but it's a horrible one, and it afflicts a child for their entire life. Of course, ALS, which is one of the most deadly of all diseases, and we have a very advanced asset right now that we have a good feeling about, and it's in the clinic as we speak. The last is several different types of cancers, which we're quite interested in finding solutions to; we've made seven investments to date, by the way.
VN: This is an area that I feel like most investors wouldn't necessarily want to put money into because it takes a certain amount of expertise to fund those companies, which a lot of investors probably wouldn't have. Can you talk to me about the expertise of you and your team, and how you evaluate those companies to make sure that they are good investments.
JP: That’s the right point and, actually, that's why not a whole lot of investors move into those areas. But it's exactly where investors who have the capability to do it want to be in it, because it attacks the big problems in medicine, which is where money should be directed and invested.
Let me talk about the template that we created that makes us feel comfortable, because that's really your question: how can you feel comfortable in going into these areas as opposed to some others that don't feel comfortable in doing that? Well, one is you have to have investment professionals who have had successes and failures. I have to say that all four of us have had both in our histories; we understand management teams and we understand talent, which is very, very critical in this business. We know how to recruit talent as well and have really solid networks, and what we call the old Rolodex, in terms of being able to call on expertise. We have two formal structures that are extra corporate; in other words, they're part of our fabric, but they don't work full time for our company. One is very traditional, which is our Scientific Advisory Board, which has Gregg Semenza, the 2019 Nobel Prize winner; it has Stephen Tsang, who is the co-director for cell therapy and genetics at Columbia; Doug Wallace, who's known as the father of mitochondrial medicine in the United States out of the University of Pennsylvania; and then the Senior Associate Dean of Stanford Medical, Euan Ashley, who has the world's record for genetic sequencing; they're the fastest and probably the best in the world at what they do out and they’re incredibly talented people. So, that's our formal group and it's the traditional group.
What's very highly differentiated, though, is, as I mentioned, we have a network at Medical Excellence of about 1,250 physicians and scientists across 33 academic medical centers. And we polled that network and came up with 133 absolute top subject matter experts in the five investment themes that we have. We brought them over into Medical Excellence as our proprietary network experts and we call it the Medical Excellence Council. Just about any time that we start to get serious about looking at a company, we will take a look at the mechanisms of action, we'll take a look at the design of the drug and the company, and we will measure those filters against our subject matter expert panel, the Council, and we'll generally come up with about between three and 10 subject matter experts in the areas that we want to know in terms of that company. We'll pick three or four of them and we'll give them a few days notice, we'll send them the deck, we'll send them our analysis on it that we've done internally, and then our questions, and then we'll spend about an hour to an hour and a half on the phone together to determine whether or not this group believes that we should move forward with an investment or not, and then we'll do additional work. What we have is proprietary, we built our own network of people that know us, that care about our mission, care about what we're doing, and work with us on a regular basis. So, I contend that that group really cares about the output that they're providing to us and I also think that this group is more elite, in the best sense of the word; not elitism but elite people who have an interest in science, in moving science ahead, and also have an interest in helping Medical Excellence find those solutions. We called it 70 or 80 times in the first half of this year, so we call on that group a lot.
VN: You mentioned that you were formed right before COVID, which is excellent timing considering what's happened over the last couple of years. So, what are those trends that you've seen happening since early 2020 that you're betting on?
JP: We've gone through two trends already in just the two years. One was, we started off during what I would call a euphoric period in biotech investing. It's one where, in a lot of people's opinions, some things shouldn't have been funded that were funded. Now we are in a bit of, what I would call, a nadir, where things have slowed down substantially. Now, from our perspective, this is exactly when you should be investing, in a very discriminating way, of course. We have the same theory that Buffett has, that when things are bad, and you have money, which we do, we have dry powder, that's exactly when you should be investing. When the euphoria stops, the really great stuff starts to bubble to the top, and that's where we want to be. So, we've spent the last few months obviously very unhappy about the valuation situation for the industry, which impacts all of us, and the new legislation, which is impacting very, very negatively; the new legislation limiting pricing on the industry seems to be good on its face, because who doesn't like lower prices? But if the cost of those lower prices is the failure to fund critical new investments in new medicines, that's too high a price to pay; we should find another way. But, anyway, we find that this environment is excellent for investing, we've seen no shortage of really, really good stuff to look at, great management teams, great scientists, great science, very good partners and partnerships with the academic medical centers systems. So, from our perspective, despite the issues in the industry right now, we're all systems of investment.
VN: What is the size of your current fund? How many investments do you make a year? You said seven so, that’s three or four a year?
JP: Our first fund closed at $145 million. We will write checks between $5 and $15 million per, but I'll temper that by saying we also invest very, very early. Half of our current portfolio, and half of our ultimate portfolio, are actually just partnering with a physician before a company even exists and building a company with them together. We’ll probably do 12, 13, maybe even 14 investments in the end. We do some investments in later stages, let’s say A's and B's; those checks tend to be on the smaller of the $5 to 15 million, and then the earlier stage projects, we tend to fully fund them in the $10 to $15 million dollar range.
VN: That’s the reverse of what you think: later stages, you usually think bigger checks. So, that's interesting. Why do the earlier stage companies get the larger checks?
JP: When you're a co-founder and you have generally either a majority, or near majority, of ownership, it's important to lead; you can't just say, “okay, well, we've taken it this far,” and let somebody else take it the rest of the way. So, to be relevant and strong over the longer term, you have to be able to commit additional dollars. The other reason is the B companies that have come to us through investment syndicates, those are situations where our check is important, but what's more important is our network, our knowledge, and our relationships. We've done two Bs, we're going to do another one at some point; in those two situations, we were not the largest check but the syndicate asked us to participate on the board because they want our network, they want our ability to get the company into our network. And so, our check size was secondary, actually, in essence, to our ability to help the company.
I love starting companies. When I was a consultant, I helped start companies as part of either larger companies building smaller ones or just organically building companies, so I've done that many times over my career. I was very happy to learn when we brought in Brian and Kim that both of them, they've done close to 30 biotech startups, in many cases where they were the founding CEOs providing the capital. They ported over the technology in partnership with the scientists, and then they went out and hired a full time, long term CEO, but they were in the trenches, building the company organically. And so, in the end, the four of us came together, and we were very sympatico in terms of loving scientists, and wanting to start companies. We realized that we have investors, and we have to make sure that we return some money to those lovely people that wrote a check to us, so we do have a balance; it's called the barbell strategy and it is very early stage coupled with advanced assets, and you manage your portfolio so that there are exits within a reasonable amount of time that are good and are very positive to the bottom line of the organization. And then, in other situations, when we're in the startup or the company creation mode, we have very outsized ownership, anywhere between the 30% to 60% range. So, in those situations, we're hoping that, over time, they'll mature, they'll become larger, stronger and, in those situations, we'll have outsized returns because we have outsized ownership.
VN: What kind of traction do you look for? Are there numbers you're looking for? Do you want to have those companies have a certain amount of ARR for a certain number of customers? Or is it just too early for that?
JP: In drug development and company creation, you are literally years away from having an actual customer. We pray that we have a customer because if we do, that means that we've developed a successful drug that customers are going to use. That's the most wonderful thing in the world. We look at our job as stewards of a scientist's technology, in helping them take it to the next step. But, quite frankly, in our place in the company creation world, we are not going to be the prime movers at the point of time when the drug gets actually approved and into the world of pharmacies, So, our role is as drivers, as custodians of incredibly great technologies to get it through the federal gauntlet, the gauntlet of drug discovery and the gauntlet of drug approval; those are two very, very strong magnets and sometimes black holes. As a result, we feel our job is to build the right culture in the business, build the right management team for the business, to provide expertise in terms of the way that drugs move through phase one, phase two, phase three. If we can get a drug from where we started, in a company creation, through phase two, we're really, really happy. At that point, there are much larger organizations, with much larger balance sheets, to move the project through.
VN: So, being that early, I’d imagine that the founder or the entrepreneur, that's probably one of, if not the most, important thing that you're looking at. What do you look for in that founder to make you want to invest in them?
JP: Well, generally, the founders are not managers, that's the interesting part, which isn't true in tech, and isn't true in health services, where I also came from. Generally, in those situations, the inventor becomes the manager but in this world it's a little different. In this world, most of the time, the technology that we back comes out of a university, comes from an academic in an academic lab; that academic generally does not want to move into the industry, but they want to continue to be vital scientists over the long term, and create new medicines and new ideas and new things through the lab. They have tenure, that’s their track. Therefore, we find it very important to partner with them, understand what their aspiration is for a new company; we're in this together with them, they have significant shares in the company, we have significant shares in the company, we're going to provide our expertise, they're going to provide their expertise. But, the critical job one in these situations is to get the company off to a right start operationally, so we do provide back office, temporary CFO, COO, CEO services to the organization as part of our agreement. And by the way, we don't charge for those, that's part of our investments, getting the company up and running and running correctly is endemic to our investment.
We want to get it running, operating well, and then there are three critical steps: one is to get the company operating on a good solid footing; second is the nurturing and the planning for the technology itself. What do we need to do to get this through the regulatory gauntlet? And then, three, is to make sure initially, and then over time, this company has the right resources, human resources, in other words, the right talent and people, and the right amount of money to fuel the talent to bring the company forward.
VN: Where do you find the C-suite people? When you're filling an organization with a CEO and COO and CMO, where did these people come from?
JP: It's a mixture of industry people, in other words from big pharma, and also little pharma, and individuals from the biotech world itself. It's a combination of those and, by the way, we don't always do it by ourselves. We have very good networks, but in many cases, we'll use a top recruiter to help us sort through really good candidates because there's a lot of talent out there. There's a war for talent going on in our industry, there's a shortage of talent, and then here's the ironic thing: there's a lot of really good people, and if you have a good idea they're going to come work with you.
VN: How do you make sure that this is the right person for the right company?
JP: To take a drug and bring it all the way through to success, it has to be very effective, and it has to be very safe. Those are hard things to do today. A lot of the low hanging fruit is gone. I mean, this is tough stuff now and people that have successful track records in doing so, we look at those people. We’re also not afraid of promoting; in one of our situations, we had Andrea Spezzi, who was the Chief Scientific Officer for a very astute MD and a really good industry person. She was the co-founder and Chief Scientific officer, she wasn't the CEO, and we said, “this is a person, she can easily be a CEO. We'll work with her, we’ll work together.” And so we hired Andrea to run one of our company's creations called Rejuvitas. So, we look at the track records, that's the most important thing in our industry.
VN: You previously said it was a good time to invest, but what does that mean for the companies themselves, especially the ones who raised money in the last couple of years and have now seen valuations drop? Are they going to have to take a down round
JP: Personally, in our organization, we haven't seen any down rounds yet. We have seen companies taking seed extension instead of going into a Series A, because we want more proof points to earn the valuation that we think the company would be valued at an A. I won't say that we're above the clouds in terms of valuations but when you do a lot of early stage work, like we do, you can't worry about today's valuations, because we're a few years away from worrying about that company's particular valuation. There's not enough data in our industry, it's only been a few months of a down market, so I don't have enough data for you on an industry level; in our organization, we've been able to participate in positive rounds, we've had an up round. We're worked on some that are not as up as it would have been two years ago, but that's not the barometer; the barometer is, is the technology moving along? Is it working or not? Is it going through those steps in the gauntlet in a positive way? Because, ultimately, if you're doing that, and you're shepherding the technology and the team and the organization forward, the valuations are going to be there. In the end, if you can get a drug through, on a fairly modest but very, very high risk investment, one would do well in that situation. Our thinking is, we're not we're not above the clouds, we just think about the current situation as not very important to our current portfolio. Our companies aren't going to go public in the next year, it’s okay.
VN: So it doesn't change the way you invest at all?
JP: It has changed how we invest because the reality is that we thought that we would be investing into a certain cycle, for at least a while, when we started a little under two years ago, and in a certain situational awareness in terms of what we were looking at. That's changed dramatically. Now, there's been some downside, especially to organizations that started to run out of money; we're not there, we're not even half invested yet. So, for us, we look at this as a buying opportunity. The difference is that we're seeing really good situations that can't get funding right now for one reason or another and we, and others in our investment syndicate, are wondering, “Why? This was a really good one. It's not one of those that shouldn't have been funded, this should be funded.” So, we're actually seeing, in a positive sense, a lot of opportunity.
VN: You did talk about your differentiation earlier a bit, but how are you differentiated from LPs? Are you going after the same LPS that a lot of other firms are going after, and what do you say to them? Why are you a good partner for them to deploy their capital?
JP: We plowed our energy into family offices that have a belief system: generally, they are families that have done very, very well, in an industry other than ours, and have a passion for medicine, and have a passion for doing good. So, they want to do well by doing good and one of the areas where you can do that is to invest in health services, healthtech, or in biotech. So, in their case, they've decided, “we're really interested in investing into an investment company that creates new medicines.” We directed most of our attention to family offices that were mission oriented and also wanted to have a social impact. This is a very good industry, and the industry that you work in generally, which is healthtech, that's a great industry for impact. Both of those areas, if you want to make an impact on human beings, this is a good place to put some money. So, that's where we found our investors.
If we decide to do a Fund II, we'll have a bigger mixture of family offices, including some that were saying, “Well, you’re a Fund I, so maybe we'll watch you and come in at Fund II.” And then also institutional investors; we did have one institutional investor in Fund I and that's Alexandria Real Estate Equities. They partner with academic medical centers to build launch labs and take technologies out of academia and into the corporate and company building world. They saw what we do in terms of company creation, they really liked it, they invested in us, and they're also investing into our projects independently of their investment in us, which is really positive.
VN: Talk about a couple of investments that you've made, maybe one or two of them. What was it about those companies that made you want to invest in them when they pitched you?
JP: One of the great things about bringing in a new team is that there's some inventory; I mean, there are things that you're working on in old funds, and there's some concepts and ideas that you wanted to pursue, and then you bring them over to the new firm. So, we have a combination of that.
I'll mention a couple. One advanced one that we did is called Aspen, and it has a totally unique approach to solving Parkinson's disease, and other CNS diseases, but particularly Parkinson's. That is a project that is years old, from my partner, Kim Kamdar, who really helped co-found that company a number of years ago, and then she invested in it at Domain. When it was time for them to do a B round, and she was coming over to Medical Excellence, we looked at this one and we said, “we love the mission, we love the team, and the pedigree,” and the fact that she started it up means it's got great bones. So, as a result of that, we invested into Aspen.
On the company creation side, one is a company called ProJenX and this is a really special company in many senses. The company, which was referred to us by Columbia, already had an IND filed; in other words, they were already going into the clinic, a little more advanced asset for a company creation. The reason for that is the technology, over a number of years, was fostered by Project ALS, which is the leading patient advocacy group for ALS; they've raised somewhere around $140 million, and have plowed almost every penny into finding a solution for that in several academic medical centers. There's a compound called prosetin that was developed in the labs at Columbia, with money and fuel provided by the patient advocacy group, and it was ready and it needed a CEO and a venture capital company to help form it and build it, so they selected us from Colombia. Over the last 20 years, and the last 15 years in my other business, I've had patients and their families, and we live through this horrible, horrible progression, actually regression, of ALS. And so, we're wedded to this mentally and financially, and we really pray that there's a success to this one. But, that's a very interesting asset, because it's a company creation, but it was advanced. And you were asking about talent earlier: well, as part of our company creation efforts at MEC, we often step in to serve interim operating roles. In this case, my MEC partner, Eric Heil, served as the interim CEO for ProJenX and he was able to get the first-in-human study initiated, and then we were able to attract Stan Abel as the Chief Executive Officer. Stan has had, as CFO or CEO, four successful exits in his career, and he didn't need another one; we came to him and said, “Stan, we need a CEO, we were hoping that you'd be a board member and maybe contribute in some way in working with us.” We got him the deck, we introduced them to the people at Project ALS, and he came back and said, “I would love to be the CEO of this company,” which is wonderful. So that's a company creation. It's about a little over a year since we founded it.
The other one is personally near and dear to my heart because, for a number of years, I have worked with Dr. Stephen Tsang at Columbia. He is one of the world's premier retinitis pigmentosa clinicians and scientists. Steve is an incredibly gifted scientist who has incredible compassion for the children that, right now, he knows that there is absolutely no cure, and no effective treatment. You can't stop this. So, he got to work a number of years ago, came up with a few ideas in terms of attacking this disease, retinitis pigmentosa, and along the way, one or two of my Medical Excellence members provided philanthropy because they have children with RP and they want a cure. They want to get this thing licked, and they want to cure it. So, I've known Steve for over a decade, we've provided philanthropy to him for about seven years, and we turned that work into a new company called Rejutivas. It's, again, just about a year old. That's the company that I mentioned earlier, Andrea Spezzi came over to run as Chief Executive, and the idea is it's a really rare children's disease where, currently, if you get the disease, you will go blind. There's no treatment, there's no cure, and so that's a company creation. We fostered it over the last, let's say, seven years, philanthropically, we turned it into a company a year ago, and we're about a year away from the clinic. We believe that we have a couple of different ways of attacking this disease successfully.
VN: What are some of the lessons that you've learned since you took on this role as a venture capitalist?
JP: I've learned a lot, because I was not a venture capitalist before this. This is a new life for me.
One of the biggest things that I learned is that the prejudice against venture capital that exists out there is absolutely totally unfounded. I wasn't sure, quite frankly, but it's totally unfounded. And I say that in the spirit of, in every industry there are good people and bad people, but the people that get it right in our industry, they do well because they're doing good. That's a learning from me, because I wasn't sure, I didn't know; you always hear things about the venture capital industry. “They take 90% of your company and give you very little,” that’s nonsense. So, I've learned a lot about the investment community, these are people that care, they'd like to form syndicates because they like to work symbiotically and team with others to solve big problems in medicine.
The second thing that I learned, I had heard how tough the gauntlet is, in terms of getting a drug approved. I mean, you hear it anecdotally, you hear it when you work for an academic medical center as I did, but living it is very, very different. So, I've come to highly respect the diligence of our government in terms of making sure that drugs that get to consumers are effective and safe. I've also come to appreciate how difficult that is to monitor and how difficult it is to accomplish in terms of the science. It's really hard work, it's really hard stuff. So, I've had a new appreciation and respect for the regulatory world, and the scientific world that I came from. I just think the work that they're doing is incredibly important and beautiful.
VN: What's the part of the job that you love the most? As a venture capitalist in this part of your career, what really motivates you to do this?
JP: My motivation really comes down to the fact that when I was 11, my mother came down with multiple sclerosis, another disease that has no cure. At the time, this was 1971, it was also a disease that had very few treatments; I mean, there was almost nothing out there. I think that the moon and stars aligned over the years for me to be in healthcare, not that it was a conscious choice every day, but it's where I ended up and it's what I wanted to do. I love participating in industry that helps people like my mother.
Support VatorNews by Donating
Read more from our "Meet the VC" series
MarketX recently launched Radiate Ventures to invest in fintech, deep tech, and vertical SaaSRead more...
Overwater Ventures recently announced it's $20M debut fund to invest in human and planet healthRead more...