$750M Fund Looks to Software Sector to Drive Future of Biotech

Xconomy National — 

Andreessen Horowitz (a16z), a Silicon Valley venture capital firm best known for backing high-flying software startups such as Facebook, Lyft, and Skype, is doubling down on its foray into biotech-related bets.

A16z on Tuesday revealed it has raised $750 million for its third Bio Fund. The fund is bigger than its first two combined and will be used to further invest in startups it hopes will one day become industry stalwarts.

The firm says shifts in the industry landscape have created an opportunity for such firms to emerge, with entrepreneurs at the intersection of tech, biotech, and healthcare poised to create the next set of large, important healthcare companies. The idea is to take advantage of advancements in software to change drug discovery, diagnostics, and other core biotech activities.

“Just the way engineering processes lead to compounding exponentials, the opportunities coming are increasing exponentially too,” the firm wrote in a blog post announcing the fund.

A16z isn’t alone in its heightened interest in backing companies in the life sciences sector. From 2009 to 2018 the number of active US VC life science investors grew steadily, with the exception of a dip in 2016, from 404 to 604, according to a report by the National Venture Capital Association.

And while most annual VC activity in the US still occurs in the software sector, the life sciences sector set a new bar in 2018 with more than $23 billion invested across more than 1,230 companies, a record high for both metrics, the NVCA found.

The life sciences sector accounted for 18 percent of total capital invested and 15 percent of all companies receiving venture funding in 2018, compared to 36 percent and 42 percent, respectively, when it comes to software, according to the NVCA’s report. That year three major sectors, in addition to software, reported year-over-year increases in capital invested: pharma and biotech, healthcare services and systems, and healthcare devices and supplies, the NVCA found.

Capital invested in venture-backed life sciences companies hit a record $23.25 billion in 2018, nearly half of which went to biotech startups, according to NVCA data.

Julie Yoo, who joined a16z in October as general partner from Kyruus, which makes analytics software for hospitals and health systems, told Xconomy a key aspect of the underlying thesis of the fund is related to the maturation of the market when it comes to companies designed to take advantage of technological advances. The growing pool of talent with tech and healthcare know-how is another factor in building such companies, with an increase in academic pathways such as MD/MPH and MD/MBA programs evidence of the importance of multidisciplinary skillsets, she added.

A16z’s debut Bio Fund emerged in 2015 with $200 million, led by Vijay Pande, who joined a16z as a general partner from Stanford University, where he was a scientist.

The second, for which the firm raised $450 million, was announced about two years later. A few months before the second fund was revealed, a16z added a new general partner, Jorge Conde, to invest the bio funds with Pande.

Yoo and a16z’s newest general partner, Vineeta Agarwala, who joined the firm last month from the GV life sciences team, will be investing out of the fund with Conde and Pande.

Conde told us the focus of this latest fund is very similar to that of the firm’s previous bio funds, with most investments at the seed or Series A stages. Investments at the Series B or Series C stage will be made opportunistically.

In total, a16z has $10 billion in assets across its funds.