Oct 02, 2017
NEA will invest more than $1.25B in healthcare companies in the next three years.
Here's what you should know.
As a global, diversified VC firm with more than $20B in committed capital, we believe that size confers some distinct advantages. But after almost a decade as part of NEA’s healthcare practice, I’ve learned that our scale isn’t always well understood. The breadth of our activity can obfuscate the depth of our expertise. From the perspective of an entrepreneur or investor who is laser-focused on specific sub-sectors or populations, it’s not always immediately clear what a firm like NEA brings to the table.
Simply put, it’s true partnership—support that spans a company’s entire life cycle, and then some (many of our founders are on their second or third company with NEA). We have deep pockets, we are utterly stage-agnostic, and we can add value for our companies at each step along the way. We exist to support our entrepreneurs and companies; not the other way around.
When I joined NEA, I knew firsthand how unusual that mindset was among investors. I was CEO of venture-backed biopharma MedImmune prior to its acquisition by AstraZeneca for $16B, and I’d started my career in investment banking. Less obvious then was how much of an advantage our team structure across multiple sectors and disciplines would prove to be. Many of today’s most important medical breakthroughs are happening at the intersection of science and technology, from the stunning advances in genomics to a new generation of medical devices and diagnostics. The healthcare ecosystem is solving bigger problems and drawing on more diverse expertise than ever before, with new opportunities and new entrants.
The capital NEA brings into that ecosystem is substantial, and so is our ability to fuel and support a growing enterprise. Following are some points I emphasize to new or prospective entrepreneurs about our business and the way we work.
Patience is a virtue
NEA was founded to be a 100-year venture capital firm, and we are forty years along on our journey, so we are very long-term oriented. Because of our scale and our unique structure, we have the capital and patience to optimize for our portfolio companies rather than for our individual partnerships or partners. We don’t run out of money or time, which enables us to focus on company-specific factors rather than partnership or fund dynamics. We are patient, supportive, and staunchly company-first. We are named for the “new enterprises” we back, rather than for our founders, a tree, or a mythological hero, and that signifies where our portfolio companies and entrepreneurs rank in our hierarchy – at the top.
Although NEA has long had a reputation for ‘patient capital,’ the depth or duration of that patience is less well-known. Among our best outcomes are companies held in our portfolio well beyond the ‘average’ time—sometimes for a decade or more.
We show up early, work hard, and stay late
Because we are a large fund, people who don’t know us well sometimes assume we only do big deals or late stage. That’s not true. In fact, almost half our investments begin at seed or A rounds. Our process is designed for speed and flexibility at the earliest stages, from our seed program (up to $1M, managed by a small sub-team), to experiments (up to $3M, requiring sponsorship by any two GPs), to series A and beyond. We have numerous partners focused on early-stage investing, including frequent company formation. Our practice benefits from a group of venture partners and entrepreneurs-in-residence comprising some of the industry’s leading executives and top talent, as well as our prolific biopharma and medical device/tech incubators and accelerators.
As proud as we are of the innovation that takes root inside of NEA, we are keenly aware that ours is not the only garden to be cultivated. We want to advance science and medicine as part of a thriving community, and many of our peers have also built outstanding early-stage practices. We love to collaborate with them, preferably as a partner who joins early and can follow their lead in subsequent rounds, or step up at the right time to help the companies build out, scale and succeed.
Few firms can incubate a company and participate in every subsequent round of financing—we can, and we often do. I’m often asked how we can make very early-stage and often very small investments, yet ultimately put enough capital to work in an early-stage company to generate a return that’s meaningful to a $3.3 billion fund—we do it by starting small and building our position in our most promising companies as a major investor in each subsequent round.
In fact, the majority of our late-stage deals in healthcare are follow-on investments—we double down on companies already in our portfolio to help them accelerate growth and establish market leadership. Because of our scale and unique structure, we can be aligned with management to achieve the best long-term results, rather than using short term milestones to pass the baton to others.
A powerful partner for public companies
Our value and company building mission does not end at IPO; we can be a powerful partner for companies both before and after they enter the public markets in ways most investors cannot. We are almost always among the very largest investors in our portfolio company IPOs. Even years after an IPO, we can be a catalyzing lead for follow-on offerings and are often among the largest public shareholders in our companies even as they achieve market caps well into the billions.
We currently hold over $2.5B across more than 50 public companies—many we backed long before IPO, but we also make new investments in publicly traded companies that were not previously part of NEAs private portfolio. We partner with companies at every stage, and we are perfectly comfortable making new investments in publicly traded companies. Unlike many other venture funds, we can initiate and build positions through open market purchases as well as pipes, underwritten offerings or structured investments. We have a team which focuses full time on our public portfolio, building positions in companies where we believe there are significant opportunities for value creation.
A wide lens for deeper insight
NEA is among the largest venture investors across biopharma, med tech, and healthcare services; we are also among the most active technology investors. This breadth of activity gives us a unique view of the landscape, and our depth of expertise in each of these areas enables us to identify emerging trends and assess markets in ways others cannot.
Because of our scale and longevity, we have an extraordinary network and experience base which we actively use for the benefit of our companies. We have seen every type of alliance, development strategy, regulatory hurdle, competitive dynamic, and we know where the best available executives are to be recruited.
Good partners for both entrepreneurs and co-investors
NEA’s organization thrives from its collaborative team structure, and our team approaches co-investing and company building in much the same way. We believe that the best boards bring together multiple sophisticated investor groups, preferably with varied perspectives yet aligned goals.
We seek meaningful ownership in the companies we back—enough to demonstrate commitment and have a strong voice, but at levels that retain shared decision making and foster collaboration. Our ownership target over time (i.e. over the course of a company’s lifecycle) is typically between 20 and 40 percent, with the highest ownership positions in companies we incubated or seeded.
Regardless of how large or small our stake, we work to be great board partners both for our management teams and our co-investors/fellow board members. Over time, we know we will work with every successful co-investor, fund, and entrepreneur again and again across our portfolio, so we strive to build strong relationships based on mutual respect. Our objective is to be a value-added capital partner in all stages of the company building and value creation process, working alongside our entrepreneurs and co-investors to achieve greater success as a group than any of us could on our own.