While the Silicon Valley venture capital firm has little expertise in biotech, its big bet paid off.
http://www.bloomberg.com/news/articles/2016-04-28/stemcentrx-sale-to-return-a-record-1-7-billion-for-vc-firm-founders-fund
Founders Fund has had some successes, but the acquisition of Stemcentrx Inc. tops them all. With the cancer drug maker's sale to AbbVie Inc., the venture firm will get as much as $1.7 billion, said people familiar with the matter.
In addition to the $5.8 billion price AbbVie is paying, Stemcentrx investors may get an additional $4 billion in cash if certain regulatory and clinical milestones are achieved. Stemcentrx's $400 million of cash and equivalents brings the total potential value of the deal to $10.2 billion, said the people who asked not to be named discussing details of the agreement.
Stemcentrx is Founders Fund's largest exit in its 11-year history. The deal surpasses what the firm made from Facebook Inc. and sales of DeepMind Technologies Ltd. to Google, Climate Corp. to Monsanto Co., Yammer to Microsoft Corp., and Oculus VR to Facebook.
The Stemcentrx deal is unusual for Founders Fund, both in its scale—the firm is expected to return the value of its entire fourth fund with some money left over—and its focus. While Founders Fund has made a handful of other biotech investments, including Emerald Health Therapeutics Inc., Counsyl Inc., and Immusoft Corp., the firm doesn't have much expertise in the field. Started by PayPal co-creator and early Facebook backer Peter Thiel, Founders Fund is a generalist technology investor with bets on everything from private space travel to big data.
Biotech investors often have a science background and academic degrees in oncology or other disciplines. Development timelines are longer than in software, and the industry is highly regulated, with success frequently linked to Food and Drug Administration trials—not well-orchestrated social media blasts or viral marketing campaigns.
However, Founders Fund partner Brian Singerman, a former Google engineer and startup veteran, based the investment on intuition after a meeting with Stemcentrx co-founder Brian Slingerland at a café in San Francisco. The two similarly named technologists hit it off. "He totally blew me away," the venture capitalist said.
After the meeting, Founders Fund hired three clinical oncologists and three research oncologists to help evaluate Stemcentrx's technology, which aims to treat cancer by killing cancer stem cells. After four such reviews—and many more meetings—Founders Fund made its first investment in the company in 2012. Over the next few years, Founders Fund's commitments grew to $300 million, making Stemcentrx the firm's single largest investment and making the firm Stemcentrx's largest institutional shareholder. Singerman said he wasn't concerned when Fidelity, which backed Stemcentrx last year, wrote down the value of its stake in the company.
Founders Fund has increased the size of its funds in recent years, enabling it to make larger, more concentrated bets like the one on Stemcentrx. The firm closed Founders Fund VI, totaling $1.3 billion, in March.
"In a capital intensive industry like biotech, a check of a few million does very little. An investment of $300 million, however, can significantly speed the development of potentially life-saving drugs," Singerman wrote in a blog post about the acquisition. "Much as the reusable rocket ship wasn’t built by accident, the cure for cancer won’t come about by chance. Feats of this magnitude require complex coordination and meaningful amounts of capital."