Guest: Neil Littman is the Founder of Bioverge, a highly curated impact investment platform exclusively dedicated to healthcare. Bioverge enables a motivated public to finance and support the health-related causes and companies most important to them. Previously, Neil was a member of the Executive Leadership Team and Director of Business Development at the California Institute for Regenerative Medicine (CIRM).
Date Recorded: 3/7/19 | Run-Time: 59:58
Summary: In episode 146 we welcome Neil Littman. Neil starts with his background and how he came up with the idea of Bioverge, a platform that offers an opportunity to invest in healthcare startups, with the mission of democratizing access to early stage healthcare companies. Neil follows that with a discussion of his time at CIRM, and some of the incredible stories and the science he experienced firsthand during his involvement. It was his time at CIRM where he learned that the institutional model of financing and investing could be applied to the retail sector as well. That paired with his desire to provide exposure to the alternative asset class created the perfect storm and the result was Bioverge.
Meb then asks Neil to get into the structure of the Bioverge platform. Neil explains that the decentralized network they built provides warm referrals to Bioverge and ultimately links capital to potential investment opportunities. In addition to that, Bioverge provides value added service beyond capital that is important for founders and portfolio companies that may seek support and expertise along the way. Beyond sourcing deal flow, another critical component for Bioverge is diligence on the investment opportunities by leveraging its network of subject matter experts with deep domain expertise. In evaluating opportunities, Neil explains the “nuts and bolts” of the model they use, looking at the risk and reward side of the equation.
The conversation then turns to some examples of companies and deals Neil has been involved with since starting Bioverge. Neil provides a walk-through of Notable Labs, which provides personalized drug combination testing for cancer patients, Crowd Med, a service that relies on crowd sourcing to help solve difficult medical cases, Ligandal, a company delivering a gene therapy platform, Occam’s Razor, a company that is attempting to understand and cure neurodegenerative diseases, Blue Mesa health, developing a new breed of digital therapeutics to nudge patients to change behavior, and Echo laboratories, developers of a hybrid microscope with a new twist on the traditional eye piece.
The conversation winds down with Neil providing some insight into what he sees in the future for the industry, and the long-term vision for Bioverge.
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Interested in sponsoring an episode? Email Justin at firstname.lastname@example.org
Links from the Episode:
- 0:50 – Welcome Neil Littman
- 2:34 – Neil’s origin story and the founding of Bioverge
- 7:32 – Neil’s Time at CIRM
- 11:23 – The structure of Bioverge as a platform
- 16:00 – How Bioverge sources companies to include on the platform
- 20:31 – Deal stages
- 24:12 – The power of a good network when investing
- 28:04 – A closer look at Bioverge’s portfolio companies
- 28:55 – Notable Labs
- 31:18 – CrowdMed
- 33:56 – Ligandal
- 36:31 – Commercialization of gene therapy and the difference of investing in healthcare
- 41:49 – Blue Mesa Health
- 46:15 – Echo Laboratories
- 47:59 – The future for Bioverge
- 50:39 – Changing the accredited investment model
- 53:03 – Best resources to understand healthcare investing
- 54:11 – Patient Capital, Private Opportunity: The Benefits and Challenges of Illiquid Alternatives (Blackstone)
- 54:40 – Bioverge Blog
- 54:46 – LifeSciVC – Bruce Blooth Blog
- 55:35 – Shoe Dog (Knight)
Transcript of Episode 146:
Welcome Message: Welcome to the “Meb Faber Show” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.
Disclaimer: Meb Faber is the Cofounder and Chief Investment Officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information visit cambriainvestments.com.
Meb: Welcome, podcast listeners. We have an awesome show for you. The reason I know it’s an awesome show is this our first ever second time guest. But the first time we recorded it I think I forgot to hit record. So we’re rerecording today with the founder of Bioverge, highly curated impact investing platform, exclusively dedicated to healthcare and biotech. He was previously a member of the leadership team and director of biz dev at the California Institute of Regenerative Medicine. Prior to CIRM, he was a healthcare investment banker at Deutsche Bank and others. Welcome the show, Neil Littman.
Neil: Thanks, Meb, thrilled to be here today.
Meb: Great to have you back. Sorry, you’re gonna have to listen to all my old jokes and spiels for a second time. How are things going on? You’ve been on the skis anytime this winter? I know you’re up in Nor Cal, where it’s been a pretty epic season this far.
Neil: Yeah, so it has been an epic season thus far. Unfortunately, I have a six-month-old little girl, so I have not been able to take advantage of the great season. So I’ve made exactly one-half day this season so far, but hopefully, I’ll get out there at least one more time.
Meb: Well, I just gave a talk to the CFA Society of Salt Lake, which the main reason is they said, “Meb, we’ll give you one or two lift tickets if you come and give a talk.” So I had some nice Utah powder not make you feel worse. But what age did you get out on skis, do you remember?
Neil: I do. Yeah, I started skiing when I was probably about six years old. I first learned to ski on a magic carpet back in the day. I skied until I was about probably 13 years old. And then I tried snowboarding and haven’t been on a pair of skis since.
Meb: Oh, wow. I tried that transition for a few years but it’s too much work for me at this point. But the reason I ask is my son is about to turn two, and I’m trying to convince my wife that two is a perfectly reasonable age to push them down the mountain with a helmet. So they don’t have far to fall. All right, so audience, I’ve known Neil for a long time, we have some cross-currents, although we didn’t know it at the time and didn’t connect till later in life. But we both spent some time at the University of Colorado as well as John Hopkins. I was a biotech person in a former life. Neil, why don’t you give us a little bit of your origin story, and where your path led you to found Bioverge today?
Neil: I’d been a pretty avid investor since high school. Meb, as you said, I went to the University of Colorado in Boulder, I studied molecular biology there. I worked in the lab for a couple of years that was looking at the analytic [SP] properties of Epstein-Barr virus. From Colorado, I moved back to Baltimore, where I’m from, where I got a master’s degree in biotechnology from Johns Hopkins. I then moved to New York, where I worked on Wall Street for about six years, I did healthcare investment banking. There, I’ve been an active derivatives trader for 15-plus years.
And then most recently, I ran business development at what I can only describe as a pretty unique and wonderful place called the California Institute for Regenerative Medicine. We call it CIRM for short because that’s a mouthful. And CIRM has $3 billion of assets under management. They’re taxpayer dollars from citizens of California to invest in and fund stem cell and regenerative medicine related research. So it was really at CIRM where I first came up with this whole idea for Bioverge.
And so, maybe I could just back up a little bit, I can tell you a little bit about Bioverge, or the genesis of the platform, the founding story. And I think you’ll see sort of a nice thread for my career, and really what I’ve studied since college. So our mission at Bioverge is to connect the world to startups transforming healthcare, right. So what we offer is everyone a chance to invest in healthcare startups that are tackling diseases that affect us all, and the chance for really great financial returns. We like to think of ourselves as an impact investing platform.
Then, contrary to popular opinion, socially responsible or impact investing is not mutually exclusive with generating outsized returns. I think it was Ben Franklin, who originally said, in like the late 18th century, right, “You can do well by doing good.” That’s kind of like our thesis, our motto at Bioverge. And so our idea is really to democratise access to early-stage healthcare companies. So you can literally own the future of your own health. We think we are at this fundamental inflection point and we think we’re already in the age of biology.
Scientists now have the ability to tinker with all the pieces and fundamental building blocks of our biology, right. Computer chips are what fueled the last revolution, the one in Silicon Valley. We firmly believe that the next great revolution will be in the tools to re-architect our biology, our chemistry, our brains, right, in a word, ourselves. And it’s not just us who see this, right, I’ll just give you one data point all right. For 16 years, Stanford had an electrical engineer as their president, John Hennessy, right. That was up until about 2016 when they had appointed a neuroscientist, Marc Tessier-Lavigne. We don’t think that’s coincidence, right.
And I think we’re seeing this play out actually in medicine, right. What was one science fiction is now science fact, right. What were once incurable diseases such as HIV have turned into largely chronic and manageable diseases. And in some cases, we’ve actually cured what was once thought incurable. And I’ll go and I can give an example of that in a minute, but we’re really want to talk about sort of the founding story of Bioverge. Because I started Bioverge to really solve my own problem.
I wanted to diversify my personal portfolio away from the public markets. I was seeking to generate alpha from an uncorrelated asset class, but at the same time, I wanted to invest in things that I cared about, or at a minimum, I felt could have some sort of positive impact on those around me. So from a financial perspective, it was important for me to gain exposure to these potential positive Black Swan events and build into my portfolio, the concept of positive optionality.
So for your listeners who maybe aren’t familiar with that term, positive optionality means there’s asymmetric risk versus reward with a positive skew toward the risk side of the equation. So in other words, you have the chance to make more than you lose on any given investment or any given trade. Another way to think about that is sort of a low-cost mistake with no maximum losses and the potential an unbounded upside path that’s basically a sort of a central feature of positive Black Swan.
So I was trying to think, well, how do I engineer my portfolio to take advantage of that, and that’s how I got into the sort of VC style investments that we do at Bioverge. And that’s part of a well-diversified portfolio. So as I mentioned, I’ve been investing since high school, where to diversify my portfolio, I ran Business Development at CIRM, and it was really at CIRM…and I was there for about five-plus years. It was really at CIRM, where I saw firsthand the huge impact in investing in some of these cutting edge healthcare technologies had, and how much it just really captivated and inspired literally, like everyone I talked to about the types of technologies we funded at CIRM.
Meb: Could you talk a little bit about your time at CIRM, maybe to the extent you can walk through a little bit about some of either the projects you’ve worked on or some of the way that it was structured?
Neil: CIRM was a fabulous place. And I think this really drives home the point of the types of technologies that we invested in at CIRM. So there’s a pretty rare disease called severe combined immunodeficiency. And a very small percentage of children are born with this disease, it’s a genetic disease. If any of your listeners are Seinfeld fans, they’ve seen then an episode with the boy in the Bubble, like Bubble boy disease, that is SCID. So children are born with this disease, they have one copy of a gene that doesn’t work properly, so their entire immune system doesn’t function.
And as you can imagine, they can’t live a normal life. They’re subjected to frequent infections, hospital visits, you know, they typically die at a relatively early age. There’s one little girl in particular who I became close with during my time at CIRM, her name is Evie, and she was actually cured of this disease from some of the work that we funded at CIRM. The technology was inside of UCLA at the time. The technology was subsequently spun out into a company, it’s a biotech company that went public, and now 30 kids have been cured of this disease, severe combined immunodeficiency.
And so to me, right, that’s just a really inspiring story. And that’s the kind of stuff that we funded at CIRM. And there are lots of examples of CIRM funding that type of cutting edge work, particularly in academia or in small biotech companies. And that work has a measurable impact and by the way, those companies are doing well, some of those companies have gone public, right. So their investors making money off of that. So it was really at CIRM where I first learned that the institutional model of financing and investing in this cutting edge healthcare could be applied to the retail sector.
And just so you don’t think that example of Evie as a one-off type thing, right, less than 5% of diseases caused by a single gene defect, what we call monogenic diseases, have any sort of available treatment today. So that’s a lot of the stuff that we did at CIRM. And so what really drove me to found Bioverge was, again, sort of looking at how do you build a well-diversified portfolio, how do you gain access to some of these like high growth, high impact investments where you can have the potential to generate a great return.
And so if you look at the American Association of Individual Investors data, the average retail investor’s portfolio consists of, I think, it’s about 32% individual stocks, 36% stock funds, 14% bonds, there’s about 18 or 20% held in cash. Now, if you compare that to portfolios of the most well regarded institutional investors and endowment funds…and Meb, I know, you’ve done a lot of research in this area, you will see a glaringly obvious difference. And Cambridge Associates did a nice analysis where they looked at the performance of 174, endowment funds. And what they found was a major driver of alpha or better performance was the institution’s allocation of private investments.
They discovered a clear what they call 15% frontier that was not only consistent but persistent across various time horizons. And so they looked at 5, 10, 15, or 20-year periods. And so what they found over 20-year period was the median return for institutions with greater than 15% allocation of private investments outperform the median group with less than 5% in private investments by a cumulative margin of 182 basis points, or about 180 basis points per year. So to me, that was part of a portfolio that I lacked personally, according to the American Association of Individual Investors, as a part of a portfolio that a lot of people lack.
And so that was the genesis for Bioverge, was to gain exposure to an alternative asset class. And to me taking what I learned at CIRM about how inspired people are from some of these cutting edge technologies, and you can actually make money off of this stuff, like that was sort of a perfect storm for me.
Meb: So talk to me a little bit…because I think investors will be fascinated to know the structure of how Bioverge has been built as a platform. Because it’s something that’s not typical across the industry, it’s probably something that couldn’t have existed, I don’t know, 5,10, 20 years ago, due to various regulations, and the way the world’s evolving. But seems to be the way the world is going. And full disclosure, like the number of our other guests, I’ve invested alongside these guys. So just FYI, but yeah, I wanna hear a little more about the Bioverge platform.
Neil: For us, in building a platform the challenge really became translating the institutional model from places like CIRM to the retail or individual sector. And we’ve been able to do this through some recent legislation, mainly the JOBS Act that was passed in 2012, utilising title two and title three, under the JOBS Act. We are currently only working with accredited investors, but the process and the challenges that we had to solve along the way are, number one, how do you consistently source high-quality deal flow? Like access is one of the major barriers for most investors when it comes to investing in private companies.
Less than 3% of the estimate, 10 million accredited investors in the U.S. have ever invested in a private company, right. And it’s largely because they lack access. Number two, even if you are able to gain access, well, how do you properly diligence the investment? And in case it’s not entirely obvious why diligence is important, there’s some great analysis from the Kauffman Foundation that shows investors in this case, they’re looking at Angel investors who spend an average of over 20 hours in diligence, have a realised median exit value of 5.9x. Compared to investors who spent less than 20 hours in diligence, have a median realise exit multiple of 1.1x, right.
So as we thought about building Bioverge, obviously, the diligence component became really critical. So it was sourcing component because that’s what really separates high-quality VCs from others, the ability to source deal flow, and then, of course, diligence. And then the other thing, which I think is very unique to Bioverge under some of the new legislation is, well, how do you build a diversified portfolio with limited capital? Historically, even if you had the connections to invest in this stuff, you had to write a pretty sizable check to participate in these rounds by 25k, 50k, $100,000, depending on the nature of the round.
And so part of our mission at Bioverge is to lower than investment minimum, so people can dip their toe in the water and build a diversified portfolio at levels within their own comfort. So our solution at Bioverge is, what we’ve done is we’ve built a decentralised network, what we call the Bioverge Network, which helps us source and diligence these investment opportunities. So I could just start with sourcing deals, right, because in the VC world that’s of paramount importance and it’s really what gives us our edge in many aspects.
So we have relationships with premier healthcare and life sciences, incubators, and accelerators throughout the country. We have strong relationships with pharma and biotech companies, with disease foundations, the academic institutions like Stanford, and Hopkins, and others. That’s all well and good but none of that is necessarily proprietary to Bioverge. But what is proprietary to us that no one else has is our decentralised network of investors, subject matter experts, founders, who provide us warm referrals and intros to companies who are helping them solve their problems.
So that’s how we look at the leading edge of the leading edge, we sort of refer to that as our internal momentum machine. To us, that’s very unique. We’ve spent the past several years really focused on building this network. And then the other thing that I think is really critical is we have value add support beyond the check size, right. And so that’s really critical for founders. So they don’t just come to us, it’s not just a transaction, we don’t make an investment and say goodbye, you know, good luck, we’ll see you later. So adding value, I think, really helps. And of course, founders love that, and so they refer other founders to us.
And I forget who said it, it was Buffett or Munger. But it takes a lifetime to build a reputation, right, and basically a split second to lose it. So you know, we’re very focused on nurturing and taking care of our portfolio companies, once we make an investment.
The one other comment I’ll make is, you know, in terms of criteria, we wanna make sure that the investments that we’re making have some sort of third-party validation from another professional or institutional investor, or a strategic partner, right. And so we’ve gained access and have invested in companies back by some of Silicon Valley’s top VCs, such as Andreessen Horowitz, Sandy A Founders Fund, Greylock, COSLA, First Round Capital, Y Combinator, and many others. Meb, you tell me if it’s of interest, you know, I can talk a little bit more about our diligence process.
Meb: I do wanna hear about it because, you know, healthcare is unique, versus a lot of other sectors. For early-stage investing and even for public investing, so many investors don’t have to be a subject matter expert. You can simply look at how the company’s got product market fit, and yadda, yadda. And it’s a little simpler path. But so much of healthcare, particularly with drug development, but also devices and a lot of other areas are the average investor looks at, and it’s like, “I have no idea if this drug or process or idea is gonna work.”
So I think your comments about having value-added network is not just probably a benefit but essential in this world. But yeah, I wanna hear a little bit about the process of, one, how usually companies reaching out to you, is it you reaching out to companies or academic institutions. And then kind of what verticals you’re looking at, and then any metrics or any sort of main way points that you guys consider.
Neil: Yeah, so the real power of the Bioverge network is, number one, obviously, sourcing deal for them, right, so that’s critical. The other critical component in the process is helping us diligence these investment opportunities, because as you said, science is very unique, it’s complex, it’s not that straightforward, it’s hard to understand, right. And so we leverage a network of subject matter experts who when properly used and, you know, we have a believability waiting that we apply to their inputs are infinitely more powerful than the opinion of anyone individual making an investment decision on their own right.
So essentially what we built and what we continue to refine, and this is sort of a mouthful, but I think of it as an algorithmic based believability weighted decision making model. And the whole goal of that, at least, we hope, the goal and the output of that is that it’s smarter than the sum of its parts. So this is all based on the premise that the power of a group is much greater than the power of any individual.
So collectively, really, all we’re trying to do is increase our probability of being right. And so we’re doing that by leveraging subject matter experts who have deep domain expertise in these different verticals. I’ll talk a little bit about my investments. So you have a good idea of the verticals we’re talking about. But before I do, so I think it’s important just to talk a little bit about the nuts and bolts of this sort of model that we use. And you know, without giving away anything proprietary, there’s some basic stuff that we look for, right.
So we look at both the risk and reward side of the equation. Now, on the risk side of the equation, we look at things…sort of typical things, market risk, product risk, team risk, financing risk. The key for us is when we leverage subject matter experts is understanding the scientific risk, the regulatory risk, the biology risk, right. What is that killer experiment that they need to do to achieve proof of concept that will lead to that next meaningful value inflection point, that’s the tricky part when it comes to investing in science-based companies.
And so that’s really where the Bioverge network, I think, really shines and where we get a ton of leverage. We also look at sort of the other basic stuff market size, how the company intends to gain market share versus, their competition, how do they intend to keep and grow that market share. The subject matter experts who are entrenched in that field often have really valuable input when it comes to that kind of stuff.
And then, of course, from the reward side of the equation, we look at a few basics as well right. Revenue potential, customer acquisition costs, margins, earnings, you know, exit potential, the attractiveness of the investment in terms of what is the pre-money, how much are we investing. Particularly in the biotech world, right, what is future dilution potential, you know, a lot of these companies go on and raise huge rounds until early investors can get diluted. So even if the company is successful, you may not own enough to make a meaningful return.
We like to look at not necessarily single asset biotech companies, in fact, we’ve shied away from that type of binary risk, we look for more platform placed. And I can go through a few examples of our companies that sort of fall in line with that thesis. So one of my favorite VCs, Josh Wolf has saying, you know, he likes to equate investing in early-stage healthcare as essentially obeying the first law of thermodynamics, right. Energy is neither created nor destroyed, it simply transfers form, right.
The same can be said, of risk and value, right. So the more risk you kill inherently, the more value create, right. So we’re looking for ways companies can kill risk. And I think that’s where, you know, we really heavily rely on our network to help us understand what are those key experiments where this company can really kill a lot of risk.
Meb: And don’t you guys do some form of…and I could be wrong about this. But I seem to remember that when you have a deal, come to the platform. And by the way, there’s two parts to this questions. One, maybe talk a little bit about what stage these deals are. So market cap, how much you raise, is it seed? Is it series A, yadda, yadda. And then b, once they come to the platform isn’t there like a short on deck period where you open up the deal to your network in case they have some input. Talk to me a little bit about the logistics of how the stage a process to onboarding the companies for investing.
Neil: So you are remembering correctly, Meb. So our sweet spot is anything kinda… and I hate this term, but sort of pre-seed, seed, there’s series A, maybe Series B, but really probably only Series B, if we’ve already invested in the company previously, we wanna follow on our initial investment. The onboarding process that you’re referring to is something that we kind of stumbled upon that actually works really well. We call it the Bioverge showcase. And it’s a way for us to engage with the company to go through our diligence process to introduce them to our network and its way for investors and subject matter experts to take a look at the company, provide their input, provide their opinion before a deal ever goes live. I think of it as basically testing the waters.
And so we found that to be a really powerful tool for both founders. Because, of course, founders don’t wanna launch our deal on our platform if it’s not gonna be successful. So they get to test the water, see if there’s interest. And then we start in that time where we have input from the subject matter experts, SMEs are short, right. And so they help us in the diligence process so opine on the technology. And so you know, our funnel…we cast our funnel very broad, right.
So we have companies that come to us and apply online, we have a website that companies can go to, we have a lot of warm referrals. We’re proactive, if we have an investment thesis companies tackling you know, gene therapy, for example, we’ll actually go out and source companies on our own. So companies come to us in many different ways. The companies that come to us sort of on their own, we have a very high bar. So you know, we invest in and accept less than 5% of companies into even that sort of first stage, the Bioverge showcase, for example.
Once companies are in the Bioverge showcase, then there’s some percentage of companies that fall outright, and never actually make it to a former investment. But by the time they’ve actually got into the Bioverge showcase, we’ve done quite a bit of background diligence. And so that is a company that we would like to invest in. But of course, we wanna get feedback from the community as well.
Meb: So yeah, I imagine that’s pretty rare. But it’s a good filter to have because one of my biggest challenges… So I’ve done maybe 60 to 70 angel investments at this point. And longtime listeners on the podcast, we’ve had a lot of angel VC investors on, we talk a lot about this, so no need to continue on. But I’ve kind of done it as tuition, as an experience, and the goal of, “Hey if I replicated the S&P, I think we’ve mentioned there’s a lot of tax benefits to QBS sort of rules that make investing in private companies. In addition to the lockup, which I think is positive for most investors, because they can never sell it, but made it really advantageous over public equity.
So I’ve been a huge proponent, there’s been a couple of fun waypoints where we’ve talked about everything from late-stage investing in lift, which is something that’s gonna go public, which will be fun to see. And at least on paper had… one of my very first investments actually just past, I guess, what you would call unicorn status. So that’s kind of fun granted, again, it’s on paper so that means there’s still very real chance it goes to zero. But it’s LA-based company, which is… I chalk it up 100% to beginner’s luck.
But after that long spiel, I think it’s important… One of the biggest challenges is I sign up for every single possible deal flow, just so I can see what everyone’s up to. And having done this for over five years now, I have seen a lot of good behaviour. But I’ve also seen a lot of bad behaviour, not just from kind of the companies, but particularly the syndicate leads where the disclosure of information may or may not be accurate, they may selectively leave things out. The potential conflict of hey, they’re raising and getting carry on these deals.
So to me having…this hasn’t been developed yet, there’s reasons that it’s challenging sort of research boutique or something focused on private companies, so you can get kind of independent information. I think it’s a great business idea. So listeners, if anyone figures that out, point me in the right direction, I love to pay or subscribe to that.
But the concept of you having this extra filter network, I think, is hugely important. One, because it’s healthcare, and it requires domain experience. But two, you could have someone to email and you’d be like, “Dude, you cannot invest in that CEO he’s a total dip, shit, you know,” da, da. Or you know, having that information, I think, probably takes the success hit rate and filters out the detritus at the bottom of the sea. Maybe doesn’t necessarily filter, positive selection, but negative.
So I love your concept and wish that it was applied to other platforms. So anyway, kudos, that was a really long-winded but I just say, I like the structure and it’s unique to you guys. As far as my knowledge, I don’t know, really anyone else that’s doing it, maybe you do. But I haven’t seen it in any other format.
Neil: I think you’re exactly right. I mean, really, it’s hard to necessarily pick the winners per se. But if we can filter out a lot of the losers, what we’re trying to do is just increase our probability of success, right. And that’s the whole point of the Bioverge network, and leveraging subject matter expert input and all those things is just to try to increase our probability of success. One of the things, Meb, which you had mentioned, which is sort of another battle that we fight. And I think a lot of folks fight against this when talking about VC style investment, but it’s the psychological battle against loss aversion.
Losses loom two to two and a half times larger than gains. And Daniel Kahneman and Amos Tversky did a lot of this work. And if anyone’s read, “Thinking, Fast and Slow,” they talk a lot about this kind of stuff. But it ties back to this whole notion of the expected value as well, right. So if you lose 90% of your trades, but the 10% that you win you make up for the 90% that you lose, right, you’ll have a net positive expected value, right.
So as we think about the Bioverge portfolio, and the types of investments we’re making, of course, we only wanna take on investments that we think have a positive expected value. This notion is something that’s well understood, right, top money managers, even gamblers, right. They all understand that the best way to think about operating in the face of uncertainty, which when you’re investing in startups, you’re investing in a highly uncertain outcome, right, is a relentless focus on process, right.
And so that’s what we have at Bioverge, that’s the network. That’s all this stuff is this sort of relentless focus on process, because I think process is really critical. So that’s a lot of what we’ve done. And then, of course, the other thing is that, Meb, you talk a lot about this, right. There’s all kinds of different investment philosophies out there, right. So it shouldn’t come as a surprise that there’s lots of different investment philosophies when it comes to the private markets. We fundamentally do not subscribe to this idea of spray and pray where you’re essentially blindly throwing a bunch of darts at a dartboard with the hopes of hitting one bullseye.
Instead, we try to exert influence on the outcome and the probability that one of our companies can achieve success. And so that’s another area where the Bioverge network, I think, really comes into play. There’s this whole asymmetry of information that exists in the private markets that doesn’t really exist in the public markets. So really capturing edge and private market investing, you have to take advantage of that asymmetry of information. And me as an individual investor, I can’t do that. But me with a whole new network behind me, that’s how we do that.
Meb: I think it’s smart. So talk to me a little bit about, okay, you guys have been doing this for a handful of years, I’d love to walk through some examples of companies or deals you guys have done. I assume you probably can’t talk a lot about the current deals that are open. But investors, you can easily go to bioverge.com and see the ones that they’re currently raising. So how many deals you guys done? And then let’s start to talk about a few of the companies so we can get an idea of what hits your radar.
Neil: Yeah, Meb, this is my favourite stuff to talk about. So happy to dive into the portfolio. So we’ve closed 11 deals, we’ve invested in 7 companies. So a couple of our companies have gone on to raise subsequent follow on rounds. And I think at this point our companies have raised a total of $36 million a follow on financing. So things are sort of trending in the right direction. The very first investment that we made at Bioverge a couple years ago, was in a company by the name of Notable Labs.
Notable is one of those examples, goals in life or something beautiful, was born out of tragedy and suffering. It’s really the best way that I can describe the founding story. So Notable had started a couple years ago when the founder’s father was diagnosed with a brain tumour. At the time, he was a currency trader at Peter Thiel Hedge Fund, so it had no sort of biology or scientific trading. He took a leave of absence to try and help figure out treatment options for his dad since there’s really no viable treatment options for his dad specific type of tumour, it’s called glioblastoma.
So they genetically sequenced the tumour that didn’t lead to any treatment options. They worked with an academic lab, I believe was at UCSF to actually grow his dad’s tumour cells in mouse models. And then they tried different combinations of approved generic drugs to see if anything worked, and how the tumour cells responded. Long story short, they found a few promising leads and different combinations, but unfortunately, his father passed away. But that was the best genesis but Notable, and the technology platform has since grown to be able to test individual patient tissue samples against hundreds or in some cases, thousands of different combinations of drugs, to see what drug or what combinations of drugs works for that specific patient.
And so the results have been really nothing short of amazing. There are countless examples of kids on this case, pediatric leukemia patients that have had no other treatment options that have responded to drugs identified in Notable’s platform. So for us, you know, at Bioverge, not only is this an amazing and inspiring story, right, and obviously, the founder is extremely passionate, you know, he was sort of forced into doing this. But this is a prime example of one of the main themes of our investment thesis, which is this idea of the convergence of biology with technology.
So at Notable, half the team are stem cell biologists and cancer biologists, and the other half the team, our hardware and software engineers. So they have sort of this high throughput robotic testing platform. And so it’s those combination of disciplines that I think leads to the power of the platform. And like that’s exactly the type of company that we love investing in.
I’ll tell you about one of our other investments, CrowdMed. So CrowdMed is essentially crowdsourcing medical expertise to help diagnose hard to treat cases. So believe it or not, in this country, one in three families have suffered from a medical issue that remains undiagnosed after, I think, consulting with two or more physicians. In the traditional medical system, patients with complex symptoms really tend to bounce around from specialist to specialist, the general practitioner. And the diagnosis often remains elusive, and of course, that’s very time intensive for the patient, it’s very costly.
And so what CrowdMed does is they allow patients to anonymously submit their symptoms and medical histories. CrowdMed then assembles a team that they draw upon from over I think they’re up to about 15,000, what they call medical detectives who then investigate the case. Since inception, CrowdMed has treated over 1,500 medical cases that had been resolved. They have over a 60% success rate in having the correct diagnosis or finding a cure.
And then that’s actually pretty remarkable considering the complexity of cases that are submitted to CrowdMed. That’s really interesting and that’s sort of a fee for service model direct to consumer, they’re working with some insurers as well.
Meb: Yeah, I would say, eventually, like the business model’s interesting in a lot of health care, because while it may be consumer driven I imagine at some point, the insurance companies would probably love to pay for that service. Because these people end up being a huge drain that if they could get treated successfully, would be a much, much lower cost.
Neil: That’s exactly right. And so I know CrowdMed is doing a bunch of different pilot studies with different insurers, and so we’ll see how they play out. But yeah, exactly, I mean, if you can get to a correct diagnosis faster, obviously, you’re saving the healthcare system, right, and payers a tremendous amount of money.
Meb: Are these both cases where you guys…were these the follow on investments or were these the just recently funded? What’s the…?
Neil: So Notable was our very first investment we made years ago, so we invested in Notable seed round, then we invested in their day round, they recently closed a round of financing. So we’ve invested in Notable with three rounds CrowdMed we’ve invested in their seed round, they haven’t raised additional capital since then.
Meb: It’s always great to see companies raise capital, but as an investor and as a lot of companies, you say the best thing you could ever happen is they never raise capital again, and they just make tons of money and grow. But both sides it’s good to see they’re still in existence. Because the biggest compliment we always give we say is usually towards investors but also to companies is to just survive is probably the hardest thing to do.
Neil: Another portfolio company that we’re really excited about it’s called Ligandal. So Ligandal is developing a non-viral gene therapy platform. Remember at the start of the podcast I talked about the treatment that we funded at CIRM for SCID, where it cured every of the disease. But that was a viral gene therapy approach. What Ligandal is doing is trying to approach delivering genes or gene editing technologies such as CRISPR with nanoparticles. So there is no off-target effects with gene therapy. It’s a much easier manufacturing process, viral vectors are notoriously difficult to manufacture, very expensive.
So Ligandal is really combining machine learning with robotics, and this nanotech platform that they’ve come up with. So one of our views of what’s coming next. So gene therapy, you know, it’s been around since the ’90s, it’s seen a resurgence lately. And there are now several proved gene therapies, right. But, you know, we’re looking to the leading edge of what’s already leading edge. Gene therapy is already like cutting edge but then what’s next?
And we think Ligandal was sort of doing what’s next. And so what they’re able to do is deliver some of these gene editing technologies like CRISPR to very specific cellular targets by using these ligands. So as I mentioned, you can avoid off-target effects, which are problematic with viruses. And so for us, this is, again, sort of a great example of that convergence of biology with technology. So that company that we invested in their seed round of years ago.
Meb: You know, that’s an interesting example. Because even in just the first three, you’ve described, very different business models, probably very different time horizons. I mean, I imagine Ligandal much longer time horizon as far as the whole process, I don’t know that. But relative to potentially the crowdsource diagnosis. I actually worked in a gene therapy lab in college focusing on virus wrote my college thesis on it. So by the way, if you ever go to Virginia, you can find my college thesis buried somewhere in the library. All the undergrad engineers write them.
Neil: I might go look that up one day.
Meb: I was always terrible at the lab, I would spill viruses everywhere make a huge mess. No, it’s actually funny, because you can look up…I once looked up, the hedge fund manager Lee Ainsley’s college thesis, and he’s a little older than we are. So he’s written on like the old school computer paper that had perforated holes on the sides. Anyway, needless to say, I think I’m the only person that’s ever read it probably besides Lee and his advisor. But I also will say he was not an A-plus student, but not gonna tell you what he got on it.
Anyway, I’m just getting kidding. Lee, if you’re listening. I’m sorry. Anyway, but attention because they’ve totally different time horizons, I imagine Ligandal has probably a longer… I mean, we were talking about gene therapy 20 years ago, and it’s probably, I assume, a longer path to commercialisation, or am I own my wrong in that?
Neil: Yeah, so Meb, this is a really important point, I’m glad you brought it up. Because I think there’s a misconception out there when investing in healthcare because it’s very different than investing in tech, right. So a lot of healthcare companies to have an exit or some sort of liquidity event don’t need to have a commercialised or marketed product. So while you’re correct, that if Ligandal were to develop their own drug or therapeutic, and have it commercialised, and then generate free cash flow from that commercialised product, yes, that is a long timeline.
But as we know, all too well, in healthcare and in sort of biotech land, there’s oftentimes a liquidity event well before a product ever, which is the commercial market through M&A, through an IPO. Today, I mean, the biotech window and the IPO market, it’s been really hot, there are even preclinical stage biotech companies getting public with pretty high valuations. So from an investor standpoint, you don’t need to wait for a company to have a commercialised product, which I think is very, very different than investing in tech.
And so actually, if you look at the return profiles of healthcare verse tech, actually, there’s a shorter time to exit for many healthcare companies than there are for equivalent tech companies. So maybe if I could just comment on another one or two of our portfolio companies because I think you’ll continue seeing sort of different models here.
A company that we invested in last year is called Occamz Razor and they’re targeting neurodegenerative diseases starting with Parkinson’s. So they have introduced what they call the human Parkinsome, which is basically a knowledge map to fully understand and, you know, hopefully, one day cure Parkinson’s disease. What is that? So the Parkinsome is essentially a multi-dimensional knowledge graph that attempts to capture the relationships between all the information that we currently have available, on Parkinson’s disease. As far as I’m aware, this is the first ever complete map of the disease. And you know, obviously, this is a work in progress.
But the idea and the concept is that it will allow us to better understand how the disease works to identify biomarkers to develop novel therapeutic targets, right, and to better evaluate the effectiveness of different treatments. So what they’re really trying to do is link and capture all the information from doctor visits to genetic profiles of individual patients to, you know, molecular mechanisms of action, and the underlying biology capturing clinical trial results and basically assembling that.
And so I guess the sort of the way that I think about it is like, if you had a digital scientist who knows all the research, has all the data from all the patients, and all the clinical trials, right, well, like digital scientists, so to speak, will be able to come up with novel approaches based on that library of knowledge. So that’s essentially what they’re trying to do. This is really exciting to us, obviously, Parkinson’s is a huge burden on the economy. There’s over 10 million people worldwide who suffer from Parkinson’s. The U.S. economy spends $25 billion a year, you know, all in treatment costs, trying to take care of the patients suffering from Parkinson’s.
But it’s a very difficult problem, right. And it’s not one that we believe is gonna be solved by any single approach. And so you know, what Occam’s razor is done is built this sort of… again, this is the platform play that we like, at Bioverge but they built this proprietary platform that integrates some AI and machine learning. And they have this natural language processing technology that they use to sort of pull in a lot of the scientific literature that to understand that.
And then, you know, the idea is that the AI, once they train, it will be able to suggest systematic strategies to come up with novel ways to treat Parkinson’s. Like, for us, that’s a really cool, really novel, different approach to treating the disease.
Meb: I love that. And it reminds me of an old curiosity I had is having been through the… I love the 23andMe and Ancestry and a lot of the genome sequencing, particularly now that they got a lot cheaper. This even reminds me back to…man, back in the early 2000s, the Icelandic company Decode which I don’t know if they still…
Neil: I remember them, I used to bank decode genetics back in the day.
Meb: There you go. And so the cool story but based on a pretty homogenous population. They even have an app there now that lets you know, if you’re related…a dating app lets you know if you’re related to the person you’re going on a date with. But I’ve been to Iceland a few times love the country, anyway. But I always said… you know, I said, I wonder why 23andMe which is now a billion dollar plus company that has built this massive genetic database. I said, it’d be cool idea if you are a company to say, you know, what, we’ll send out these genetic kits for free, but try to build the world’s largest genetic database. And then be able to use that as basis for future research or heavily subsidised.
Because I think 23andMe is still 100 or 200 bucks. Anyway, totally unrelated. So listeners, feel free to steal that idea. Let me know if you start that company I’ll fund it. All right, so wow okay. So we’ve had a lot of really different portfolio ideas. We got time for maybe one or two more.
Neil: Yeah, perfect. Let’s talk about Blue Mesa Health. So Blue Mesa Health is pioneering this new breed of what we call a digital therapeutic, right. And their goal for Mesa is to help individuals live a chronic disease free life. You know, one of the things that drives me crazy in this country, right, the U.S. spends, I think we’re up to $3.4 trillion annually on health care, right. A full 86% of those costs go to treating chronic, largely preventable diseases.
And so Blue Mesa is targeting their platform at the heart of that. Just for your listeners that might not be familiar with this concept of a digital therapeutic, right. It’s a class of digital tools that help people make positive and sustainable behaviour changes, right. And they can be as effective and sometimes more effective than taking medication, or many cases can be used in conjunction with taking medication. So what Blue Mesa is doing is they’re initially targeting type two diabetes, the pre-diabetic market over a billion dollar market in the U.S.
So they’ve developed this digital therapeutic platform, what they call Transform. And they’ve shown based on their data that they’ve amassed that it helps individuals reduce their risk of diabetes by over 60%. So they’re using a curriculum that’s approved by the CDC, the Centers for Disease Control. And so they combine that curriculum with software, they have hardware devices, they have some social peer groups, they have professional health coaching. It’s basically as a 16 week, I guess, what you would call high touch lifestyle intervention.
So the idea is that the program reinforces healthy and good habits, the importance of healthy eating, physical activity, things like that. While at the same time, sort of building the emotional and mental resilience, right, to maintain that long term behavioural change, right. Because that’s the single hardest thing to do right, is actually change behaviour. And so that’s what the app is trying to do, right. It’s trying to nudge people in the right direction to change behaviour, and then integrate that behavioural change for the long term.
And so for us, again, like this is a novel sort of cutting edge approach, different business model, right, this is not a platform therapy play. But it’s really interesting, it’s targeting a huge problem in this country. And again, we’re trying to go about it in sort of a novel and different way.
Meb: I absolutely love this idea. And I think it’s becoming quickly apparent that there’s a lot of these sailor style nudges that work. And so implementing these sort of systematic concepts that help people behave better. And we obviously think a ton about it with investing. And there’s so many examples that if you can just implement these little tweaks through software, phone, or whatever it may be, I mean, I think you’ve also seen it become a very viable business model with, I think, calm.com being a good example for people that use that for meditation, or white noise, or stories, or whatever it may be.
But a lot of these apps and concepts can generate very real businesses, but also help people. And it’s such a no brainer, because so many people want to comply and want to behave in their own best interest, but without the guidepost or signpost rather, it’s harder. I think this is gonna be a winner, my totally uneducated input, but I think this is a really cool idea.
Neil: Well, I certainly appreciate your vote of confidence but we agree. I mean, I think in many ways, we’re our own worst enemy. We have to know that we shouldn’t eat that cheeseburger for lunch, yet we have a hard time saying no and resisting. Circling back to the economy, right, it’s sort of system, one, verse system, two, behaviour. I think humans in general often aren’t aware of sort of the underlying forces that drive our own behaviour, right there at the subconscious level.
Until you make those subconscious sort of forces known at a conscious level, you can’t really change them, right. And so I think that’s a lot of what these nudging tools are trying to do is break their subconscious conscious so you can have a lot of positive and lasting impact on your behaviour.
Meb: Speaking of cheeseburgers, I think if I could invest in one private company, I think, is… Have you had an Impossible burger yet?
Neil: I have. I love them. You know, I was skeptical at first because I’ve had so many bad vegan burgers over the years, but that one, I must say, I’m impressed with.
Meb: Really good. I don’t even mind paying $20, which is how much it costs here in LA for it, which is so embarrassing, but it’s delicious. That’s a little later stage. Okay, Neil, we have time for one more, do you wanna talk about one more because I got some closing questions we need to get to as well?
Neil: Yeah, I can just briefly mention one more. So the other company that’s in our portfolio is Echo Laboratories. And so these guys are sort of revolutionising the way that the world view science as a microscope. But they develop this hybrid microscope, it’s pretty easy to use, they have over 8X increase in research or productivity of our typical microscope. So it’s a hybrid, because today, typically microscopes come in one of two configurations, inverted or horizontal, depending if you’re looking at a slide or like a Petri dish.
Echo has combined them into one that flips between the two configurations. And it’s about half the price of having to buy both of them individually. So that’s cool, right, but that doesn’t really fit our thesis. What they’ve done is replaced the eyepiece with an iPad tablet. So you have a beautiful viewing experience. And I came across these guys because I was at a healthcare conference, I was walking by their booth, and they had their microscope and iPad and had, you know, on display a really cool image of some like mitochondria. And I was like, “Wow, that is unlike any microscope I’ve ever seen.”
So, you know, got to talking to the founder, and got to know their story. And so these guys are out on the market selling product and coming up with new iterations, and new product launches all the time and expanding internationally. So again, this was sort of a seed stage investment for us, they also raised a series A that we participated in. So this one is sort of a growth capital story. And these guys are really focused on growing sales and expanding the business. So this one doesn’t really have a scientific risk that a lot of our other ones do. This one has more execution risk. But again, sort of a really cool story, enabling science, enabling researchers to be more productive.
Meb: Neil, I love it. Let’s talk about a few other things for…we gotta wind down let you go. As you look out the horizon, which is easy to do in the healthcare space, 5, 10 years, what’s the eventual vision for Bioverge? Is this something where you guys are targeting, “Hey, we’re gonna try to do…” I don’t know I’m making this up. But you can correct me five deals a year, we’re gonna continue cranking on this, do you see a certain vision for the company? And then also, if you can make any predictions on where you think the healthcare landscape is moving anything in particular, that you may believe that it’s not commonly held beliefs as of here in 2019?
Neil: So I wanna be careful not to overstate things, but I really do think we’re seeing a fundamental shift and a new model of wealth creation in this company. We’ve already seen a shift in the way people invest and allocate assets. Just look at the whole new generation of robo advisors, for example, Betterment, Wealthfront, right. So they’ve already transform how people invest in the public markets, right.
Equity crowdfunding platforms are transforming the investor landscape into private markets, right. So a short time ago, crowdfunding was really limited to charitable fundraising platforms, GoFundMe Kickstarter, Indiegogo. What we’ve seen, particularly since the passage of the JOBS Act, is equity crowdfunding platforms come into play. And so what we’re also seeing is companies are staying private longer, right. And so the consequence of companies staying in private longer is that public market investors are really missing out on some of the most dramatic phases of growth that prevents ordinary investors from getting in on a large amount of wealth creation up front before the company ever goes public.
So sort of the long term vision for Bioverge is really sort of unshackling, as Ben Franklin would say, the middling class. I just happen to be reading Ben Franklin’s biography, by the way, it’s great. And if any of your listeners are interested. But really, what we wanna do is where we are today is where we’ve done the tried and true path of catering the platform to only accredited investors. Well, that’s great, but 90% of the U.S. public are not accredited investors. And so what we wanna do is to democratise the investing landscape. So every investor has equal access to the types of investment opportunities that I’ve talked about today.
And so what that means for us is we need to come up with new product offerings to not just allow our accredited investors to invest. Of course, we’re gonna continue pushing that, and that’s a great business model for us today, and will remain so. But I think the really, truly make an impact and to achieve our long term vision for Bioverge which is literally to have every single American investing in the future of their own health care, we need to broaden access and democratise access so anyone can invest. So that’s our longer-term vision.
Meb: The way the government set it up…and I could go on for all weird incentive structures they set up. But the accredited investor rule, while it on the very surface seems reasonable, it totally makes no sense. And I would much rather see an accredited investor test, or, “Hey, you know what, just like going to get your license, you gotta go through these 10 online modules, and you gotta take a test, you pass it, you can invest, you know.” Because that, to me, makes a lot more sense than just arbitrarily saying, “Hey, you got a million bucks, you can go do whatever you want. Otherwise, you can’t because all that does is penalise people who haven’t built up enough capital yet to be able to invest in potentially life-changing outcomes.”
I mean, a simple example…I don’t need to tell you this. But if you put in $5,000, and an investment goes unicorn, that’s now worth half a million. For people that can be a very life-changing event. Obviously, you don’t say that that happens with every investment. But for a lot of people to deny them that opportunity seems really foolish. And again, a lot of the discourse that’s going on right now with the media, talking about buybacks everything else. Man, you wanna be incentivising the populace and the entire generation of investors, particularly young ones, you want more investors, not less.
Meb: I think that’s exactly right. And I think in many ways, what we’re seeing now is what happened in the stock and bond market back in the day, right. The stock and bond market was the exclusive domain of the wealthiest Americans. And that all changed and that led to a fundamental shift in the way people allocate their assets. I think we’re seeing that now we’re just at the very front edge of that. But we’re seeing that now in the private markets were through the JOBS Act…and it’s not perfect yet, right, there needs to be some fixes. That we’re now opening up access to these types of private investments that previously were the exclusive domain of the wealthiest Americans. And so that that is fundamentally changing, we’ve got a long way to go, but I really do think that that’s gonna really change how people invest and what they invest in.
Meb: Yeah, but fingers crossed I mean, we’ve seen progress certainly with… I think, hopefully, it’s one of the best times ever to be an investor for a lot of reasons, access as well as cost. And I think that will continue to improve. So hopefully, I know we have some government listeners and people involved with legislation. So you guys, let’s get to work on it. That’s my second pet peeve next to not teaching personal finance and investing in high school.
All right, so, Neil, let’s say someone’s listening and they say, “Okay, I’m an investor, I invest in private deals where I want to, but I also wanna kind of get up to speed on healthcare investing, in particular,” what would you suggest as some resources? So obviously, your website would be one, but are there any other books, websites? I remember, I used to be an aerospace guy and when I was at University of Colorado for summer semester, I took one biology class that forever changed my trajectory.
But I remember standing in the library reading “Recombinant DNA” by Watson, one of the… I remember standing there for like two, or three, or four hours in the aisle and reading it. But for those of the listeners that want to get up to speed, what are the resources, podcast, books, conferences, anything you can think of to help people get educated?
Neil: I can break this down to a couple of different buckets. So some are healthcare specific, some aren’t. I think there are a few good resources for just thinking about investing in alternative assets, VC style investments. For example, Goldman Sachs did a great report fairly recently called “The Future of Finance.” Blackstone has a great white paper out called “Patient Capital, Private Opportunity,” which is about the benefits of you know, having some exposure to alternative assets. Again, that’s not healthcare specific.
But there are great books out there that I love that really I think highlight the transformation that we’re seeing in healthcare, and they weave a great narrative as well. One is “The Emperor of All Maladies” and the other is called “The Gene” by Siddhartha Mukherjee. Those are both really interesting. In terms of blogs, so Bioverge we have a blog you can access that through our website. I think someone like Bruce Booth at Atlas Venture, he does a really great blog, the one in healthcare investing specifically.
And then I think, you know, some of the other things that I found super helpful as I thought about building Bioverge and you know, how we approach the market are really some behavioural finance type book. So like “The Undoing Project” by Michael Lewis, I had mentioned “Thinking Fast and Slow” by Daniel Kahneman. He obviously won the Nobel Prize for behavioural economics. A recent one that I really enjoyed was “More Than You Know” by Michael Mauboussin. I thought that was really interesting and weave together a lot of the themes.
And then another great one was “Thinking in Bets” by Annie Duke, and that talks about sort of process and how important process is. And so I learned a lot from just a relentless focus on process as I went through that book. And then, you know, of course, there are inspiring entrepreneurship books, you know, probably my favourite is “Shoe Dog” by Phil Knight, the founding story of Nike, which is just amazing. You know, Peter Thiel, “Zero to One” which is an interesting read.
So there’s quite a bit out there, you know, we happen to spend quite a bit of our time combing through scientific literature and publications, that’s probably not such a great read for most of your audience. But there’s a lot of great stuff in nature and things like that come out. And there are a lot of review articles as well that we find particularly helpful.
Meb: Yeah, man, I love it. Gotta convince you to do a consistent podcast on the healthcare space. Maybe we’ll just have you on once a month, you can summarise it for us because it’s a deep, fascinating world. I remember back in the day, and these are older books, but two of my favourites were “From Alchemy to IPO” by Cynthia Robbins Roth I think was her name.
Neil: That’s a great one.
Meb: And “The Billion-Dollar Molecule” was one I think that was about the founding of Vertex if I can remember.
Neil: It is. Those are actually two great books. I’m glad you mentioned those.
Meb: Yeah, but you can tell I’m a little dated because this is back when I was a tech guy many moons ago. All right, Neil. most memorable investment, I can’t even…first time we recorded I’ve already forgot. What’s been your most memorable?
Neil: So this is one that I would talk to that kind of category that is pain plus reflection equals learning, right. So this wasn’t necessarily an investment but this was a speculative derivatives trade. And so I sold some SPX put options they were naked positions. And unfortunately, the timing happened to be right in line with the flash crash that happened back in 2012. So I came very, very close to blowing up my little fun and permanently putting myself out of business. So what did I learn from that you’re right.
What I really learned from that is that you have to have a reliable, and repeatable process in place, principles, or this focus on process. And that provides for the statistical probability of success. This whole idea of positive optionality trades only, right. That trade that I did was a negative optionality trade, I had far more risk on the downside than I had on the upside. That was just a bad idea and it was a really bad idea to have a few of those. And of course, the timing just sucked, but you have no control over that.
So if you think about the way that I structured Bioverge, it is the complete opposite of that trade. We only do positive optionality trades, right. We have much more upside risk, we know exactly how much you’re gonna lose, because of what you invest in each deal. And so I really took that to heart, and I think it was a really important lesson for me, and you know, fortunately, I survived to trade another day. But it was also part of the genesis of me just realising, “Wow, I need to diversify away from the public markets a little bit.” Because, you know, even though you think you’re well diversified in the public markets, when things go down 40%, there’s really no safe haven. And so for me, alternative assets, it’s a great way to have a truly more diverse portfolio.
Meb: And you can’t sell them, which is one of the biggest benefits, I think, but it’s funny you mentioned that about derivatives. It’s too painful to continue talking about this. But my worst trade was biotech related. It’s funny how so many times everyone you talk to it always somehow involves options or something like that. Mine was on Biogen back in the day, but no need to go back down that rabbit hole. Listeners, you can find plenty of discussion on that in the archives. Neil, I think we mentioned it, what’s the best place to keep up with you guys and everything you’re doing?
Neil: Yeah, so you can go to bioverge.com, sign up. We have a mailing list, we send on a monthly newsletter, we have blogs, you can follow us on Twitter @BiovergeHQ. So we’d love to hear from you. You can go up, you don’t need to be accredited to sign up for our newsletter. If you are accredited you go in self-certify your accredited, get access to our deal flow. And, you know, be happy to chat with anyone who’s interested in learning more.
Meb: Good, and maybe we’ll have to drag you into the Sierras at some point this spring because I think a lot of these mountains are gonna be open till about May or June, and make you go skiing. And then we can hold a work meetup at the Shami or somewhere for the listeners to come say hello. How’s that idea? So you can get at least more than one-half day this year.
Neil: Meb, count me in, I would love that.
Meb: Good. We’ll plan it. Neil, thanks so much for joining us today.
Neil: Awesome. Thanks so much, Meb.
Meb: Listeners, we got a lot of show notes and links for this episode. We will post those to mebfaber.com/podcast where you can also find the other 150 odd episodes in the archives. Listen to the show, subscribe to it on iTunes, Overcast, Radio Public, Stitcher, Breaker, anywhere good podcasts are found. Thanks for listening friends and good investing.