Something Ventured: Make Money and Change the World for the Better

One documentary worth watching to get some context on the history of entrepreneurship and venture capital is “Something Ventured.” It’s a series of interviews with venture capitalists talking about their investments and their risk mitigation strategies in the 1950’s through 1970’s. It’s clear that they paid a lot of attention to “minimum viable products” and pivoting based on new information and asked for business plans. The question is how to have enough of a plan to proceed that includes what experiments you will run to refine your understanding of the product and the market.

Something Ventured

Something Ventured from Odinala on Vimeo.

Get Rid of the Risk as Fast as Possible

There is a great section starting about 42 minutes in that recounts the founding of Genentech. Robert A Swanson is tasked by Kleiner-Perkins (back when it was just two partners:  Eugene Kleiner and Tom Perkins) to find an investment to make for tools for drug discovery.. Here are some key comments:

  • Tom Perkins:   They wanted to raise $3M build a factory hire the people see if would work.  But underlying it all was the tremendous risk factor of would it be possible. It was pure research. Everybody knows that venture capital should never openly fund pure research.  My idea in everything has been to put the risk up front and get rid of the risk as fast as you possibly can.
  • Herb Boyer: Bob and I were very naive about how we were going to do it.
  • Tom Perkins: We changed the business plan. I persuaded them to do it a different way, to subcontract the experiment to two different institutions.
  • Narrator: By subcontracting, Tom Perkins eliminated the need to buy equipment, build a lab and hire staff. The estimated $3M startup costs were reduced to $250,000.  Kleiner Perkins put up the money and Genentech was in business.
  • Tom Perkins: It was Bob Swanson and a checkbook, sitting in our office. That was Genentech. Boyer and Swanson set out to create human insulin. But to test their concept they began with a less complex hormone. City of Hope medical center in Los Angeles would try and engineer a gene for that hormone. Then UC San Francisco would splice that gene into bacteria to produce that  hormone in significant amounts. After a very long time, City of Hope succeeded in making the gene. Bob Swanson transported it in his pocket to UCSF and Herb Boyer inserted it into the bacterial host. and it worked. So we had our breakthrough.
  • Herb Boyer: it wasn’t my goal to start an industry but to make sure the science was translated into an endeavor that would be useful to people.
  • Tom Perkins: Of all the things that I have done I think I am most proud of Genentech. It has saved hundreds of thousands of people.  Isn’t it great if you can make money and change the world for the better at the same time.

Notes from Genentech’s Timeline page show that the protein Perkins referred to was somatostatin

  • 1976 Robert Swanson and Dr. Herbert Boyer founded Genentech on April 7.
  • 1977 Genentech produced the first human protein (somatostatin) in a microorganism (E. coli bacteria).
  • 1978 Human insulin cloned by Genentech scientists.
  • 1979 Human growth hormone cloned by Genentech scientists.
  • 1980 Genentech went public and raised $35 million.
  • 1982 First recombinant DNA drug marketed: human insulin (licensed to Eli Lilly and Company).

They key take-away for me is in identifying the most significant risks and addressing them first at the lowest cost.

Five of Kleiner’s Laws

The bio page for Eugene Kleiner on the KPBC site lists a number of Kleiner’s Laws, here are my top five:

  • Make sure the dog wants to eat the dog food. No matter how ground-breaking a new technology, how large a potential market, make certain customers actually want it.
  • Build one business at a time. Most business plans are overly ambitious. Concentrate on being successful in one endeavor first.
  • It’s easier to get a piece of an existing market than to create a new one.
  • Invest in people, not just products. Eugene always respected founding entrepreneurs. He wanted to build companies with them not just with their ideas.

In the case of Genentech the demand for insulin was clear based on the current use of purified animal-sourced insulin used by diabetics. Even though they saw a set of drugs that could be developed using the recombinant DNA techniques they focused on insulin as their first product. And Kleiner and Perkins clearly bet on the combination of Swanson and Boyer to establish the company.

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