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research universities, pharmaceutical and biotechnology companies, and experienced executives to recruit into portfolio companies, Goldsmith says. “I think it’s a terrific environment for building companies,” he says.
The environment is particularly good in the growing biotechnology cluster around UCSF’s campus at Mission Bay, where Third Rock’s San Francisco office is located. Goldsmith sees Mission Bay as the closest thing in the Bay area to the Cambridge, MA, life sciences community. These densely packed clusters strongly support Third Rock’s hands-on approach to investing, which thrives on proximity. The venture firm is deluged with startup pitches, Goldsmith explains, but it often tweaks the founders’ business plans, or assembles its own teams of executives to found companies based on its own “ideation,” he says. Third Rock partners frequently serve as interim CEOs or in other executive positions at startups it backs. “It requires a deep investment as individuals in each of our companies,” Goldsmith says.
This labor-intensive model limits the number of startups its executives can support. And because the San Francisco office is smaller, with about five professionals to Boston’s complement of about 34, the number of companies it can fund may also be smaller: “Each of us can only be sliced in a finite number of ways,” Goldsmith says.
With the addition of Nurix and Element, the San Francisco office has 10 companies in its portfolio. The existing eight, financed from earlier Third Rock funds, include Igenica, which is developing antibody-drug conjugates to treat cancer, and South San Francisco, CA-based MyoKardia, which works on genetically targeted drugs to treat cardiovascular disease. Another South San Francisco company, Global Blood Therapeutics, is exploring the root causes of chronic blood diseases. And Los Altos, CA-based Topica Pharmaceuticals, is a clinical-stage company testing a remedy for fungal infections of the human nail and nail bed.
How do Goldsmith and his colleagues in the San Francisco office pick and choose among the many innovative ideas clamoring for VC dollars? Goldsmith, who was first introduced to Third Rock when he was CEO of one of the firm’s portfolio companies, Cambridge, MA-based Constellation Pharmaceuticals (a drug discovery company based on the emerging field of epigenetics), and who joined the VC firm’s San Francisco office in mid-2012, says that they look for “product engine companies.” These are organizations with product candidates as well as a scientific discovery platform that can continue to refresh the product pipeline. The VC firm evaluates prospective portfolio companies through its “core competency teams” that have expertise in areas including oncology, rare genetic disorders, and diseases of the central nervous system.
Goldsmith says Third Rock will often study a biomedical field for one to three years, meeting leaders and evaluating business plans, before making a commitment to invest in a company. The VC firm has been building a core competency team in host-biome interactions, but has not yet funded a company in that area, he says.
Once it finds promising ventures, Third Rock makes relatively large investments in each company, in contrast to VC firms that spread smaller amounts of money and staff time over larger numbers of portfolio companies, Goldsmith says. Third Rock’s intense involvement with its startups also may dictate the geographic range of the early-stage companies it’s likely to back. When Goldsmith has an executive role in a company, his ideal range can’t reach much beyond the boundaries of San Francisco and South San Francisco.
“I would literally spend all my time driving,” Goldsmith says.
Although Third Rock sometimes invests in companies focused on specific products of compelling interest—like the nail fungus drug being developed by Topica—the VC firm’s sweet spot is a platform company with the potential for a self-renewing pipeline, such as Agios, Bluebird, and Global Blood of South San Francisco.