New Bio Fund Partner Describes A16Z Investment Strategy

Xconomy San Diego — 

When Marc Andreessen and Ben Horowitz founded their namesake venture firm in 2009, they laid out a clear-but-narrow vision for investing in a new wave of Web-based innovation.

Andreessen, in particular, espoused a net-centric view that was absolute. “No clean tech, no rocket ships, no electric cars. No China or India,” he told Fortune magazine at the time. Biotech likewise was out of the question. In the six years since then, Andreessen Horowitz has grown into a $4 billion VC, and established itself as a leading tech investor. Andreessen’s observation that “software is eating the world” has become an industry axiom, as Web-based services have invaded and taken over financial services, education, and a host of other sectors.

Now the venture firm also known as A16Z has formed a new $200 million fund to make software investments at the intersection of tech and life sciences, where software companies are developing new ways analyze and process data for biotech and healthcare companies. Money for the firm’s new bio-fund was all new, raised from existing limited partners and not by carving out funding from A16Z’s flagship venture or opportunities funds.

One of the firm’s first investments is TwoXar, a Palo Alto, CA-based tech startup using proprietary algorithms to analyze biological data in both public and proprietary databases with the goal of identifying previously unknown effects of drug candidates in early stage discovery. The idea is to point the way to compounds that could be developed as new drugs for metabolic and neurological disorders.

TwoXar “fits our investment thesis in that they use machine learning and cloud biology,” said Vijay Pande, who joined Andreessen Horowitz as a general partner dedicated to the bio fund.

Vijay Pande

Vijay Pande

Pande has defined “cloud biology” as much like cloud computing. In addition to providing computational services, though, Pande has said that Web-based programs also can be used to carry out automated experiments more precisely and consistently than lab technicians (enabling biotech companies to optimize the reproducibility of their scientific results).  At Stanford, where Pande was previously a scientist, his lab specialized in using computational and theoretical methods to tackle challenging problems in chemical biology, biophysics, and biomedicine.

According to Pande, Andreessen Horowitz sees opportunities in biomedicine to both change the world of healthcare and reap great financial returns. “We want to invest in software companies that are in the biotech space, which differentiates us from firms that are investing in biotech,” Pande told me.

He emphasized that the enormous advantages that Moore’s Law has brought to computing through an exponential decrease in costs also has been playing out in online data storage and in Web-based computing as a service. As the costs of computing and storage get closer to being essentially “free,” big data and machine learning likewise become increasingly affordable, Pande said. And as the cost of mobile computing falls, the cost of collecting biomedical data from inexpensive sensors also becomes more or less free.

“Things that used to be phenomenal, or groundbreaking, or impossible, become cheap or even free,” Pande said. “That’s a huge, dramatic change. But biotech doesn’t work that way.”

If anything, Pande says, the biotech industry’s ever-escalating cost of drug development is an example of “Eroom’s Law”—the exact opposite of Moore’s Law.

In terms of investment focus, Pande said he’s chiefly interested in three areas:

—Digital therapeutics, which uses Web-based services to encourage behavioral changes to treat people for depression, PTSD, smoking cessation, diabetes, insomnia, and other behavior-mediated conditions.

—Computational medicine, which uses image recognition and machine learning to analyze X-rays (radiology), assess skin lesions (dermatology), or examine your eyes (ophthalmology). Just as computer vision has had a huge impact in non-medical areas, Pande said computational medicine could flag the most-important images for radiologists and other doctors to review.

—Cloud biology, which involves both computational services and Web-based programs for conducting (reproducible) experiments in remote labs.

In a Q&A announcing the new bio fund, Pande added, “If you look at how the state-of-the-art in biology has always been done, it reminds me of something almost pre-Industrial Revolution. It’s rows and rows of people working with their hands at benches, and in an apprenticeship-like way under a master biologist (often a professor).”

Pande joined Andreessen Horowitz about a year ago as the firm’s first “professor in residence,” and helped guide some bio-related investments even before the firm raised the new bio fund. While the $200 million bio fund is a fraction of the firm’s last general fund, which checked in at $1.5 billion, Pande says the firm expects to grow bigger in time, “so establishing a separate fund is also about our thinking years down the road.”