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282. The Future of Public Health, VC Differentiation within Life Sciences, and Preventing the Next Pandemic (Glenn Rockman)

283. The Future of Cloud, Business Model Transitions from Subscription to Consumption, and The Shift from Technology-first to End-User Value (Dharmesh Thakker)


Glenn Rockman of Adjuvant Capital joins Nick to discuss Investing in Public Health, Fund Differentiation within Life Sciences, Investing in COVID 19 Focused Companies. In this episode, we cover:

  • Glenn’s background and path to VC.
  • The thesis at Adjuvant.
  • When taking on strategic LPs, especially those that are very high profile, and have their own mandates and their own agendas, do they inform you where you deploy capital, or is Adjuvant completely independent and financially motivated?
  • Is there a standard stage within the clinical or development process that you enter in? Standard check size? Are you multi-stage?
  • You’re investing in products designed for people who live on just a few dollars per day … There’s a lot of VCs that won’t invest in the underbanked category, for instance, because of low-income dynamics and socio-economic effects, even though there are some big, winners and category creators there. When you’re pitching this different lens and different frame to LPs in the life sciences space that are used to deploying into a certain model … that’s designed for a different maybe category of patients. How did that resonate? And how were you able to compete against peers in the life sciences space for LPs?
  • Regarding geopolitical risks to deployment and ideological or philosophical risks amongst the public that have been maligned by governments or biotech companies… How do you address risks of that nature, especially when you’re going into different countries with heterogeneous agendas across and belief sets across both?
  • Did your firm take an active position investing in vaccines or treatments or COVID-19? And how do you look at that in the short and medium-term?
  • What do you think happens in the future with public health spending? And do you see a lot more dollars being allocated for prevention and other activities to address public health issues?
  • There’s this common belief that I hear you disagree with that becoming a good VC requires an apprenticeship. Why do you think it doesn’t?
  • Are there any best practices from traditional VC that you embrace and then others that you just ignore?
  • What do you know you need to get better at?

Guest Links:

Transcribed with AI:

0:00
Glenn Rockman joins us today from New York. He’s the Founder and Managing Partner at Adjuvant capital, a global multi stage venture fund investing in life sciences. Prior to Adjuvant, he was a Director at Right Fund, Univercells, EuBiologics, and a number of other life sciences companies. Glenn, welcome to the show.

0:17
Thanks for having me, Nick.

0:18
Yeah, walk us through your your background and your path to venture.

0:22
Well, you know, I never had any ambitions of being a VC. So it’s kind of funny that I’m on your podcast today. And hopefully, I’m not a terribly boring guest as a result, or you can catch me in that direction if, if it’s a sleeper, but I, my first job out of college was very traditional investment banking role at JPMorgan with the wrinkle that I always was interested in focusing on organizations that had some kind of mission. And now we have very simply called those mission driven organizations. So the team that I opted to work on at JPMorgan exclusively served the the financing needs of nonprofit organizations, predominantly big universities, art museums, research institutes, and charitable foundations. And at the latter part of my time at JPMorgan, I was there, just over 11 years, the Gates Foundation became one of our best clients. And in 2010, they actually hired my team to supplement this experiment that they had just started piloting, I think the year before, where the foundation was going to earmark a modest envelope of their grant making capital to explore using venture capital style tools to advance their their charitable objectives under the theory that, you know, maybe you could have more influence over certain types of projects, or maybe maybe, you know, equity capital was actually a better medium for achieving your, your social goals than a traditional grant. And that expanded, you know, not just equity, but also included things like below market loans, or market guarantees and a bunch of other financial instruments. But at the time, that was just a pilot, I think they had $400 million to work with initially that they could invest under this, this mantra, and kind of two and a half FTEs. And as often as done in the nonprofit sector, if you can’t get more FTEs to manage something, maybe you can get outside support from advisors or consultants. So that was kind of what our team was brought in to do was supplement the the finance team that was being stood up internally to run this venture style operation. And the the work became so intense that they actually intentionally set on said, you know, we know you’re based in New York, but we want you to feel like a member of the team. So please come live and work in Seattle for at least six months. So we can help get this thing up and running. And one of the first things they asked us to work on was solving what they called the perennial r&d financing gap for very promising drugs, vaccines and diagnostics for neglected diseases. And that’s a situation where they had been grant funding for the better part of the prior decade, a bunch of really innovative new treatments and vaccines and tests for things like tuberculosis or river blindness or cholera, you know, things that traditional life science, VCs probably don’t spend a lot of time thinking about. And a whole bunch of those assets have gotten from the really risky early stage discovery stage of clinical development. And we’re getting to the point where with just 5 million 10 million $20 million, you could theoretically finish your pivotal study and get regulatory approval for that technology. And the Gates Foundation leadership was just very confused why they had this pile of, you know, in their mind low risk assets that was attracting practically zero interest from industry or the traditional VC shops. And the thesis was only maybe this is just people aren’t aren’t willing to throw money at this because it’s never been demonstrated that you can actually earn you know, a competitive financial return from backing 30 cent malaria diagnostic that is only used by people who live on just a few dollars a day you know that there is a big mental burden to bridge the gap that needs to be bridged. If you’re thinking about that 30 cent malaria test versus things you can charge half a million dollars per patient per year for here in the US and which is a popular target for for life science VCs here. So they decided, well, let’s just test this ourselves and demonstrate that it can be done. And that was the moment where kind of my my career trajectory pivoted from just being a generalist, you know, financing service provider to mission driven organizations to you know, something that would start to look and smell like their venture capitalists, because Gates decided we’re gonna team up with your team at JPMorgan and we’re going to establish a venture style portfolio to see if you can indeed you know, have your cake and eat it too when it comes to earning a financial return and generating the type of grant like impact we historically have gotten from r&d for these neglected disease indications and so here we are 10-11 years later, and it seems like their original thesis was spot on, and that this is actually a really great, you know, way to differentiate yourself in life science investing. And so that’s what led me just seeing time and time again, our investment strategies play out more or less like we had originally intended. And that’s, that’s where me and my colleagues said, we want to be big and bold and scale up this model in the vein of a very traditional Life Sciences venture fund. And that’s why in 2018, we founded Adjuvant Capital and raise a fund with a bunch of dry powder to go out and test if we can do this at scale.

5:37
So you first connected it sounds like with with Bill Gates, when you were at JPMorgan, I know that you had some humble beginnings, right, raising livestock in the Midwest, ended up you know, as an investment banker, selling interest rate derivatives and taxes and bonds. And then, you know, you end up working here at Adjuvant with the Gates Foundation, Novartis, Ray Dalio’s family foundation, I mean, it’s kind of an astounding path. You know, and, and how it came together. Talk a bit about, you know, the launch of Adjuvant and what your thesis is at the firm.

6:07
Yeah, it is astounding. You’re absolutely right. because like you said, you know, the currency I have in my normal investment banking work. When you’re dealing mostly with nonprofit organizations, the best tool they have for maximizing their financial resources to go after their mission is, you know, tax exempt debt where you can, instead of paying from your endowment for a new dormitory or Research Institute, you can borrow at a 30% discount to what a traditional corporate bonds are. So that was my bread and butter for for so long. And how I was trained. And it’s why Gates hired us is because we were used to working with mission driven organizations like them, but I had basically only the thin veneer of the credibility necessary to actually manage a venture capital portfolio. And it’s only an organization I think, like the Gates Foundation, or Ray Dalio’s family foundation, and some of these other pretty bold mission oriented institutions that would have been willing to take a risk and say, yeah, we know that you guys don’t necessarily come from the traditional VC background, or you haven’t been doing buy-side investing for the past 20 years. But you did the fundamental analysis to prove out that there are reliable commercial markets here that can deliver competitive risk adjusted returns, you know, if you make the right decisions, and so we’re gonna be somewhat bold in place fairly large bet on a non traditional team. But that’s fine, because this is a really non traditional way of doing life science investing. And so maybe that’s actually the right fit. But you know, I never had any illusions for a minute that I could walk into, you know, Alaska Permanent Fund, or CalPERS, or Ontario Teachers and convince any of those fund asset allocators to give us even $1, at least not in 2012. You know, maybe we would have had a shot at it in 2018, or 19. But I still think it’s it’s a bit of a head scratcher for some traditional asset asset allocators to look at our background and our investment strategy and decide they want to put capital into it. So for that, I’m eternally grateful that Gates and others were bold enough to test this out in the early days.

8:13
Got it, and then sort of broad strokes on the thesis at Adjuvant.

8:17
Yeah, it’s pretty simple, really, in that we just look for the most promising D risks, Life Science technologies, wherever they’re hiding around the world, and try to custom tailor financing solutions to get them over the finish line, achieve regulatory approval and commercialize them in a way that simultaneously delivers that targeted risk adjusted return, but also, with legally binding commitments ensures that that technology isn’t exclusively limited to wealthy purchasers in North America and Europe, but is, you know, rapidly widely available at an affordable price around the world, particularly focusing on the populations that that need it most. And that sounds hard at the outset. And in many respects, it is, you know, layers more difficult than in a traditional life science investing. But it’s also easier in the sense that we don’t have a lot of competition and we have a ton of enormous competitive advantages around relationships with non dilutive funders, government agencies, large scale purchasers and the like that have allowed us to refine a model where the majority of the success or failure of our investment in any given case hinges for the most part on the clinical success of the asset. So if we get really good at picking the technologies that are least likely to fail, because, you know, the old adage and biopharma is it’s really high risk and most things actually fail, especially the earliest stage technologies, but if you can narrow your aperture to minimize the failures in your portfolio, then the the upside required to counterbalance the risk of failure suddenly becomes much more manageable, and you don’t have to have every single thing you invest in be a $500 billion total adjustable market opportunity, you can look at much smaller niche market opportunities with with less upside because there’s there’s less risk in the clinical development program, and typically a lot less paid in equity capital required to get a particular asset over the finish line, because we have the benefit of these incredible tailwinds. You know, in many cases, where Gates or the NAH or BARDA or Welcome Trust are, you know, pouring grant money into the same platform technology or the same asset behind us, which reduces the burden on our paid in equity. So that’s kind of the big picture, investment thesis or strategy. And I know, it’s kind of hard to wrap your head around. So I can talk about specific examples of how that works in practice, or whatever else is interesting to you

10:53
Will you do orphan drugs, for instance?

10:56
We would only do an orphan drug, to the extent the orphan indication is also relevant to low and middle income countries. And to the extent that the traditional Life Sciences industry is an already piling into that the mantra we hear from Seattle, which is, you know, my codeword for the Gates Foundation is always you guys are special and have this special mission. If the, if the traditional Life Sciences VCs are already chasing that, and pouring risk capital into r&d, there’s no need necessarily for you to join that unless you can, you know, on the margins add value. And one of the ways we do is even if traditional investors are already excited about something, if we get involved and can attach, you know, what we call our global access commitments to a promising technology that otherwise would not be bound by those covenants that can have the effect of accelerating that drug or diagnostics availability in poor countries, because as you can imagine, you know, the incentive on traditional biopharma and their their investors is to, you know, maximize your profits in the highest margin regions where you can sell the product. And yeah, if someday you get around to distributing that product, in places where you can charge less, and you can, you know, incrementally expand your total revenues, and a smaller share, that is profit, that’s fine, but you just get around to it when you do, it’s not something that happens within, you know, six to 18 months of getting FDA approval as well, if we get involved, we can, you know, insist on that never on a money losing basis, everything we do we want to be profitable, it just doesn’t have to be the same level of sometimes ridiculous, gross margins that you can earn on charging, you know, the health system in the US for for new new drugs and vaccines,

12:43
You know, when taking on strategic LPs, especially those that are very high profile, and have their own mandates and their own agendas, you know, do they inform you where you deploy capital? Or is Adjuvant completely independent and financially motivated? You know, how does that work?

12:59
We are totally independent, totally traditionally structured, our, you know, LPA looks like any other VC funds, core governing documents. And we’re fully incentivized to maximize, you know, the financial returns and all the traditional metrics that LPs want to see. And I think our LPs fall into two buckets, you have the mission driven very hands on organizations, who are just super passionate about what we’re doing. And they they want to know, every quarter, you know, how much progress have we made getting X, Y, or Z new drug through the clinical development so that they can guess when it’s actually gonna be available to address, you know, these horrible diseases and in poor countries, and then we have in a more traditional LPs who they want their quarterly financials, they want to get the, you know, the annual audit and know how we’re performing relative to what a normal VC fund at this stage in its lifecycle would be doing. But they’re they’re largely hands off. And as long as we’re running the shop, according to the rules, and efficiently and doing what we said we would do, they’re happy to just check in once or twice a year when there’s meaningful financial updates.

14:04
Got it? And is there a standard stage within the clinical or development process that you enter in? Is there a standard check size or valuation range? Are you multistage?

14:16
That’s a great question. You know, our bread and butter historically, as you could guess, from my earlier remarks, is on the later stage, you know, D wrist part of the clinical development spectrum, and that that has proven a very safe way to move forward. And we know we started this enterprise when there was a nice bolus of things that had been historically grant funded that were already at those late stages. You know, I think we’ve gotten a lot of the low hanging fruit there and there’s still plenty more fruit to be harvested. So we’re going to continue focusing on those later stage de risked areas but increasingly, we’re finding really exciting science and very interesting risk return dynamics in earlier stage clinical development. So we have made a handful Have bets in those corners of the market. And, you know, we have the support from our LPs to build that kind of three quarters late stage one quarter early stage type of portfolio. So yeah, we are truly multistage, but biased toward the the less risky end of the spectrum, at least from a clinical perspective, we write, you know, 10 to $20 million checks in most parts. And we’re glad to lead deals and and or go solo or very happy also to join big syndicates, where we can add value on the global public health side of the equation and get the company’s management teams focused not just on North America and Europe, but also looking a little farther afield. I like to think that we’re value investors and that we rarely kind of get sucked up into these huge eye popping biotech deals that you know, maybe are going after the more traditional multi 100 billion dollar total addressable markets. And as results, you know, we’ve done a lot of series A and Series B financings in the teens or low 20s on a pre money basis and get off to a great healthy ownership position that allows us to continue supporting the company through series D and beyond or whatever it takes to get regulatory approval and achieve that commercialization objective that we always like to see where whatever widget we backed is actually getting into the field and saving and improving lives.

16:20
It’s something unique, I think about your approach, not not just the fact that you’re in, you know, the biotech and Life Sciences space, which is unique, but also you’re investing in products designed for people who live on just few dollars per day, you know, our firm doesn’t invest in pure life sciences will do you know, software related to it. But a decent, I guess, parallel in the space is there’s a lot of VCs that won’t invest in the underbanked category, for instance, because low income dynamics and socio economic effects, you know, it makes it a challenging space, despite the fact that there’s some big, you know, winners and category creators there. I’m curious, when you’re pitching this different lens and different frame to LPs in the life sciences space that are used to deploying into a certain model that’s more accepted in the space and you’re coming and saying, look, you know, we’re we’re investing into a different basket of products that’s designed for a different maybe category of patients. How did that resonate? And how were you able to compete against peers in the life sciences space for LPs?

17:21
Yeah, I mean, as you might imagine, the the pitch when you’re saying, Oh, I’m going to compete with the life science in VC returns you’ve been enjoying from these traditional shops for the past decade, but I’m going to do it by marketing these risky new drugs and vaccines to people who live by just a few dollars a day. Obviously, that’s that’s met with enormous skepticism. Initially, it just the disconnect between 30-cent products, and VC returns from life science risk is, it’s hard to wrap your head around in sense. And I joke that, you know, a fun way that has had some success and kind of quickly cutting through that is the partially insult you know, your audience and just ask them a few questions about global health. My favorite is, and I think I did this maybe 100 times over 2019 and 2020 in LP meetings, where if you, if you immediately met that skepticism, I would ask this institutional asset manager across the table from me, do you know, what the acronym PEPFAR stands for? And you know, you know what it does? And I don’t think in a single at least with the traditional LP not and mission driven LP, I don’t think that a single pitch anyone knew what PEPFAR is or what it does. And so then that opens the door. Well, actually, it’s this multi billion dollar government program started by George W. Bush in the early 2000s. That spends, I think, last year, they spent $7 billion, exclusively procuring HIV diagnostics and treatments that they then deliver in low and middle income countries around the world, predominantly in Sub Saharan Africa. And it was created with a both a humanitarian and a public health agenda where, you know, at the time, 15 plus million people in Africa were living with HIV. And it was essentially a death sentence at the time, because they’re the antiretroviral treatments, which you know, Americans had access to and were highly effective and turned it from a death sentence into a chronic disease. It just wasn’t available there. And this organization because of the generosity of the American people, which has both, again, humanitarian and global health, and you know, national security implications change that overnight. And yes, the public health impact of that was great, but there was also, you know, in in our selfish analysis back 10 years ago, there’s also, you know, huge commercial market opportunity there as well. If you know what PEPFAR wants to procure something that is has a longer shelf life or is more robust against the high temperatures in Sub Saharan Africa or is cheaper. more sensitive, whatever the parameters may be, if you can support the development of a technology that meets those needs, you’re almost guaranteed to immediately be able to sell as much as you can make. To a single customer, you don’t have to build a global Salesforce, you don’t have to do an aggressive marketing campaign. Yeah, you know, overnight, you can just participate in the public tenders for these technologies. And if your products good enough, and if you get regulatory approval, there’s your customer. So you explain that and you explain your selling not 10,000 treatments per year, but 100 million, or 500 million, whatever the large number is, the gross margins you have to earn on every widget you sell suddenly, can be very small. And if you just do the NPV math on those profits relative to whatever incremental capital we need to put in to get them over the finish line, you can produce some really interesting investment cases that you know, you don’t need a PhD to really wrap your head around. So explaining that kind of journey and our relationships with those organizations and our understanding of their needs. In most cases, if someone like you, and hopefully your listeners is patient enough to tolerate that, you know, very tortured example, the light bulb turns on. And they’re like, yeah, this makes sense. And the nice thing from where we sit PEPFAR is an example I use a lot because most of the LPS we talked to were Americans. But this exists in Europe, there’s tons of multilaterals, like Avi in the Global Fund, and sovereign development agencies that all follow the same model. And they’re all spending billions of dollars, you know, out of the mix of humanitarian and national security and public health objectives to accomplish the same thing that PEPFAR is doing. But they’re doing it in different areas, you know, Tuberculosis, Malaria, rare and neglected diseases, maternal and child health, there’s a whole universe out there of really interesting commercial market opportunities that I don’t think the traditional Life Sciences industry necessarily is aware of, which is great for us in the short term. And if in the long term, there’s more competition, we’re fine with that, too.

22:00
It’s great to see somebody with this focus that’s aimed in the direction that you guys are, it’s certainly necessary, you know, a criticism of life sciences, in general, you know, you’ve got technology risks, you’ve got some science risks, you’ve got clinical and regulatory risk. On top of that, you know, two others that I’ve noticed with regards to biotech, certainly, if you’re deploying in regions like Africa, there are political regimes installed that may have their own agendas. And those agendas may not be aligned with public health. So you’ve got to address that in some way. Right. And then you You’ve also got an ideological or a philosophical risk with people. And I’ve noticed even in this country, like a very developed country, there are groups of people in my network and friends that have a mistrust of the COVID vaccine, for example, they will not get it, because they don’t know if they’re being manipulated somehow by the companies or the government. Yeah. How do you address risks of that nature, especially when you’re going into you know, different countries with heterogeneous agendas across and and belief sets across both?

23:06
The good question, and it’s funny, you know, you hear our investment model, and you do immediately, I think, draw a mental line between the the money we’re putting at risk, and these, you know, other factors like, do you have emerging market geopolitical risk? Do you have anxiety globally, about taking something that a Western VC developed and distributing it throughout Africa, you know, amongst these other populations, but ironically, you know, in our experience, it’s almost a non issue, the first the geopolitical risk, and we’re, we’re very comfortable investing pretty much anywhere and everywhere around the world, you know, within reason, as long as there is a relatively stable location to actually do the very important clinical and regulatory work that we need to to get our treatments and vaccines approved. And oftentimes, that does require running field efficacy style studies in places like Tanzania, Kenya, Ghana, or India, Southeast Asia, you know, pretty much anywhere neglected diseases and disproportionately burden local populations. We’re happy, you know, running trials there and have a trusted network of partners and friends that we know can do the job to the same standards as you would in a US clinical site. But the irony is that it doesn’t matter where these assets are invented and developed and manufactured. You know, our work today is concentrated in the US because so much great biopharma in med tech, you know, r&d is happening here, and then the burden of actually delivering it into these you know, difficult geopolitical environments you know, falls on our partners you know, the the PEPFAR ours and the other big procurement agencies in the world and the public health systems within you know, Nigeria and South Africa and India and Brazil. it you know, we invent that widget and get the the green light from the regulators, but then we kind of pass that risk on to our partners and they’re all Deeply incentivized to make sure the technology reaches the targeted end user. But you know, ironically, it doesn’t really factor into the success or failure of our investments in most cases. And then when it comes to just anxiety or hesitancy or awareness about a product developed by Americans or Europeans, for poor countries, it’s almost never you know, that we encounter material headwinds there, there’s always pockets of resistance or concern. And usually, again, that falls to our profits like, or our partners like, you know, nonprofits such as Gates, and Welcome and others who are part of their mission is to do advocacy and education campaigns to pave the way for these things to be easy to administer. Without that, that skepticism. So it’s a great, you know, selfish business model where we can put our heads down and focus on the clinical work, and then all these other partners are out there doing that second part of the job for us and doing it very well, in most cases.

25:56
Got it. I want to talk a bit about the situation a large Of course, still dealing dealing with the pandemic, although vaccines are rolling out. I’m curious, did your firm take an active position investing in vaccines or treatments or COVID-19? And how do you look at that sort of, in the short and medium term?

26:15
Yeah, that’s a very natural question to ask of a public health focused, you know, VC firm. And ironically, our position very early on in the pandemic was that we were not going to become, you know, a COVID VC overnight, just because of the overlap between pandemic preparedness is a big part of our you know, historical mandate, and the fact that suddenly SARS COVI2 was, you know, gripping the planet, what we did instead was decide to opportunistically support COVID interventions were companies that we knew or that were already in our portfolio had shovel ready technologies that were relevant to that. So as a result, you know, we’ve backed two or three COVID vaccine candidates, we have a really great diagnostic technology out in the field and we’ve we’ve dabbled in, in therapeutics, but the the reason for you know, that very active decision to not become over concentrated in you know, Coronavirus interventions is because our mandate is so broad to begin with, there’s just so many neglected infectious diseases and other public health challenges that, you know, we need to focus on that it just makes no sense to crowd into COVID, especially when sovereign governments and Big Pharma and the traditional Life Sciences industry was very happy to pile in and put a lot of capital to work for Coronavirus vaccine and treatment and diagnostic r&d. So in a certain sense, you know, we just wanted to add value in the corner so that we could and then just let the broader public and commercial sectors, you know, do their thing,

27:48
When public health spending has been stagnant for a decade, which, of course affected the response to the pandemic, certainly in the States, we hadn’t experienced an airborne virus like that, as they have in Asia previously. But you know, what, what do you think happens in the future with public health spending? And do you see a lot more dollars being allocated for prevention and other activities to you know, address public health issues?

28:16
There’s no question that we need Absolutely. Billions are probably trillions of dollars of more, you know, upfront public health spending today. And the irony of that, and this is nothing special. It’s true in so many corners of politics and public affairs, you know, spending that money today would pay enormous dividends, because in the future, you could avoid the incredible economic and societal damage that, you know, an uncontrolled pandemic will cause now, like a an ounce of prevention is worth a pound of cure, right. And so the NPV on that spending today is incredible. But the problem, you know, with human nature is it’s, you know, ephemeral in the sense that you don’t know when the next you know, actual global public health catastrophe is gonna strike. And, you know, chances are, if it’s political, you won’t be in office, you know, when it happens, and no one’s gonna say, when you’re retired on the beach, 20 years after you’re in office, and another pandemic strikes, and not many people are going to be calling and harassing you about that. It’s all on the shoulders of the then leadership to deal with those things. So that that makes us very pragmatic, and that I don’t have any illusions that this is going to overnight quintuple public health spending, and sadly, things like Zika, you know, which was, you know, I think, a very real concern for a period of time in the US, you know, any woman of childbearing age or a couple I was, you know, I would have been extremely nervous about ever being exposed to Zika. If I wanted to have kids given the like horrible potential negative outcomes from that infection, but then the disease kind of faded away, and so did memories about that and as such public health spending on surveillance and preparedness for another disease. outbreak, you know, is kind of not on anyone’s mind. And you can say that over and over, you know, Ebola, SARS1 MERS, the flu. It’s just true in so many cases, I am somewhat optimistic, though that COVID-19 is going to be a lot harder to forget, I mean, the past 13 months have been pretty terrible for everyone less so hopefully, for people like you and I. But you know, so many other people have just suffered enormously, and a lot of that has fallen on government’s shoulders, and whether it’s the health and welfare of their citizens or their own budgets. So I do think this will prompt a lot of self reflection amongst public health agencies and governments writ large, and hopefully will lead to an uptick in essential, you know, r&d against pandemic threats and building the infrastructure, which is a hot topic these days, right. But there is an infrastructure that you need around disease, surveillance, pathogen sequencing, and the actual, you know, rails and roads of epidemiology and public health. So long way of saying, there’s a lot of reason for cynicism, but also, I think, a lot of reason for optimism that, you know, we will be at least slightly better prepared, thanks to this being seared in people’s memories. And I think the more likely benefit will receive from this as it might raise the profile of, you know, fundamental r&d in things like pandemic preparedness, which might have been, you know, prior to 2020, a bit of a backwater, where if you’re a researcher, or a startup, you know, trying to figure out what you want to apply your brilliant biotech knowledge, too. You know, there’s this percentage of a new generation of researchers and entrepreneurs, hopefully, who will actually think No, this is actually quite interesting, and something that is not a backwater. It’s something that you know, has a great future. And that’s great for us because it just expands the universe of investable opportunities for a fund like ours that’s focused on those those interventions.

31:50
You know, Glenn, it seems like folks I have on the show, there’s, there’s almost more non traditional paths to VC than there are traditional. But of course, there’s there’s many folks I’ve had on that were kind of apprenticed up and trained in this in this craft, there’s this common belief that I hear you disagree with that becoming a good VC requires apprenticeship. Why do you think it doesn’t?

32:10
Apprenticeship is awesome, and I think in an incredible way to learn a trade, and I think, you know, I’ve benefited enormously from that by cutting my teeth in like in vanilla finance, financial product, structuring and marketing at JPMorgan, through my peers, and through their incredible training infrastructure. But there’s also a huge benefit to approaching a problem with complete naivete, and ignorance of you know, what the current norms and market standards are. And yeah, that’s kind of how I came to this particular problem. You know, I first started working with the Gates Foundation’s nascent Strategic Investment Fund, I didn’t know the difference between a drug and a vaccine, I didn’t know what a series A was, versus, you know, crossover around like those, those words are not in my vocabulary. But what I did know was that based on the information, you know, I had available to me in Seattle, that it would likely cost $10 million to get X, Y, or Z malaria treatment candidate over the finish line in terms of getting regulatory approval, and that based on historical biopharma r&d success rates, you know, that would have an 85% chance of winning and a 15% chance of not meeting its clinical endpoints. And with the basic tools, you can analyze the traveler military and low income market opportunity, who’s going to buy this product if it gets regulatory approval? And how much can you charge, and you just put all those pieces together, and you get to a very simple conclusion that, yes, you know, a reasonable human with, you know, knowledge of what the traditional VC industry should or does focus on now would probably come to the same conclusion as we did, which is you could build a portfolio of these types of assets and, you know, generate, hopefully sustainable or competitive financial return for your investors. And so I think encouraging, you know, more of that first principles analysis of basic problems, rather than just looking at, you know, what’s the hot sector, what is everyone piling into, you know, today is something we need more of, and I probably have a bit of a chip on my shoulder because that was 10 years ago, and I think I already maybe give off a youthful vibe, and I was probably even more childish looking and acting back then. So settling that story was really difficult outside of the Gates Foundation, and JPMorgan, you know, the places where they already knew me and trusted, you know, this analysis and it took quite a long time to actually build the organic credibility to more confidently you know, tell that story to audiences who maybe don’t care about the the public health impact of these things, and they just want to earn a differentiated competitive financial return.

34:50
Well, congrats to you on the progress as you know, one outsider to another it’s great to see somebody break in and in make make a real impact as as it seems you’re doing cure. It’s just you know, are there any best practices from traditional VC that you embrace and then others that you just ignore?

35:05
I think NVCA and all the industry building that’s happened, you know, ever since a VC more or less invented however many decades ago as a kind of an asset class, that infrastructure and knowledge and you know, market ecosystem is, you know, amazing. And it’s been such a boon to society. I think as much as the greedy capitalists are pilloried, I think that the innovation and incentive alignment that comes from that model has been great. So we fully embrace and benefit from all the best practices in the traditional VC industry. And I am very grateful, you know, for those who came before us to put all that infrastructure in place and make this you know, a fairly once you have your investment strategy and everything else, setting up a VC fund and marketing it to a well developed ecosystem of LPs is actually a fairly straightforward exercise. And it’s only getting easier as you know, technology and interest in this asset class move in our direction. The areas we not issue, but I think are different from a traditional VC, or that I think most VCs rely more or less exclusively on equity and Ord governance as the other tools they use to realize their liquidity events and influence a management team as well, we have a whole we use that for the majority of our investments, but we have a slightly broader toolbox in that we will use any financial instrument necessary and custom tailor it to a particular asset to give it over the finish line. And you know, what I mean by that is that we’re not just doing Series B and D investments, and exclusively using preferred equity as the instrument of choice, you know, we will do convertible debt, we’ll do joint ventures, we’ll do royalty deals will do project finance. Now we’ve invested quote, unquote, in nonprofit organizations, which you simply can’t do with equity and nonprofit can’t actually take and, you know, liquidate preferred equity in the traditional sense. So we have this broader toolbox that beyond financial instruments also includes pulling in grant capital and agreeing upfront on what you will do with a new drug or vaccine that gets FDA approval in terms of pushing it out into low and middle income countries as soon as possible after that we have other levers than just being an activist investor are very hands on at the board that also help us steer and support, you know, our companies beyond your network of just bringing in cool co investors and raising the prominence of your company. You know, I like to say that, you know, it’s a you could say it’s a cheat, but it isn’t that good. Explain why. But you know, if if it costs a big pharma company, $100 million of their own resources, their r&d budget to get, you know, drug x from phase three to regulatory approval, oftentimes, we can do that for you know, 20 or 30 cents on the dollar in terms of paid in equity capital, because we can, because, you know, everything we do is so focused on public health. And that’s part of you know, the nonprofit and public sector agenda to support r&d for those technologies. We can oftentimes crowd in, you know, non dilutive funding sources or you know, concessionary financing that isn’t looking for the same types of returns, as we are to, you know, reduce the burden on the paid and equity that you need from traditional investors to get over the finish line, which is a really powerful tool, if you’re looking at competing with traditional VCs on MOIC and IRR and the like, which is, in my view, a huge win win for win win win, actually, it’s a win for us, it’s a win for the entrepreneurs and startups that we’re backing. And it’s also a win for the public and nonprofit sectors, because they, they want to see more commercial investment capital crowded in here. And it takes a huge management burden off of them to have, you know, a bloodthirsty VC looking over the shoulder of a project that they have backed ensuring that everything possible is happening to get that technology over the finish line. So the VC can realize the financial return and donor government can realize the public health benefit of that product being available in their country, which is a win win, you know, if you’re if you’re a nonprofit, or you know, the NIH or something, and your grant funding is a bridge to nowhere, because the recipient of that capital doesn’t necessarily have a sustainable business plan for how they’re going to manufacture it at scale and stay afloat. Yeah, that really is a failure in a certain sense, because if you invent something, but it’s just sitting on the shelves, because no one’s figured out how to sustainably ship it out to the people who need it most than what have you actually accomplished by developing that technology, which is where I think VC can really add value on the margins in terms of figuring out how to do this in a commercially sustainable way.

39:40
Glenn just wrapping up here, what do you know you need to get better at

39:44
I mean, we’ve been such a scrappy, build it by the bootstraps organization for a long time now and also very modest in terms of you know, not wanting to over promise and under deliver about what this model can do. But you know, when I look back can say jeez, you know, it’s been a decade now I think we can stop being so sheepish about this and we should actually be, you know, evangelizing a little more and you know, building a world class asset management firm, rather than kind of continuing to toil in a smaller, more modest shop. So I think building, you know, a more traditional, you know, Wall Street or Silicon Valley or Cambridge style, you know, large VC, you know, asset management company is going to be a big mental shift that not just me, but the rest of our team need to get our heads around in order to actually realize the full potential of what this this model can do. And it’s funny, I mean, I’ve really enjoyed actually being three or four person team for ages, but you know, that is quintupled or quadrupled over the past, you know, two years, and it’s going to continue growing quickly, you know, in order to both recruit and train the talent that you need to grow this model, because as it probably won’t surprise you, you know, there isn’t a huge cadre of either cancer doctors or immunology PhDs or historical VCs that are coming out of medical school or other VC shops that know anything about neglected diseases. So so much of what we do has to be kind of converting people over to the dark side and training them, you know, in house to think about the world the way we do, and we just really need to redouble on those efforts, which is, you know, it’s a high class problem to have, and I’m really excited about needing to get better at that.

41:31
And then finally, here Glenn, what’s the best way for listeners to connect with you and follow Adjuvant?

41:35
Our firm’s Twitter handle is @Adjcap @GRockman on Twitter, the best way that if you want to reach you know, the firm or have an investment idea is our group mailbox, which is info@adjuvantcapital. And you know, our whole investment team sees most of those messages and you know, we’re flooded with them. But we do periodically get some some great ideas and meet interesting people through that medium. And I encourage anyone with ideas to reach out.

42:03
Well, Glenn, this is a real pleasure. It’s, it’s always great to have somebody on the on the show that’s doing something really unique. But I think the added benefit to what you’re doing is tremendous public health, good in areas that aren’t aren’t getting much attention. So you know, best wishes with the fund and look forward to connecting again.

42:20
Thanks so much, Nick. It was really fun.

42:21
All right. Take care.

Transcribed by https://otter.ai