Former Obvious Ventures GP Nan Li is referring to it as the “paradigm shift”—a new phase of the biotechnology industry where machine learning is intersecting with the wet lab.
“I just wouldn't shut up about how excited I was about digital life sciences,” Li says. “All of my investments in the last few years were in this category.”
It’s why he and two former Lux Capital GPs, Adam Goulburn and Zavain Dar, left their respective firms last March and began putting together a new fund. The new firm, which they are calling Dimension, officially closed its first $350 million fund in late December.
Their thesis is to invest in the technologies enabling labs to conduct data mining for large-scale insights—to take an industrial approach to how experiments are conducted and designed.
The future is “where diseases can be predicted sooner and cheaper, and treatments can be widely accessed by the entire population," Goulburn says. “Technology [will be] the enabler for that over the coming decades.”
Last year was a rather unusual time to raise a fund. Even though discounted share prices could very well translate into one of the best opportunities for outsized VC returns in a decade, rising interest rates and a deflated market, in particular, are putting a lot of pressure on the venture capital sector and IPOs, and scaring away some potential investors.
“As you can imagine—the default answer for most LPs and allocators last year was no,” Dar says of the team’s early days fundraising. Limited partners were flustered over what Dar refers to as the “buzzword bingo terms:” interest rates, inflation, or Russia. Most LPs were spending more time with pre-existing managers or rebalancing their own portfolios than with talking to managers of a brand-new fund. In some cases, LPs were “divesting from alternatives and venture altogether,” he says.
Even so, Dar says there wasn’t a lack of long-term capital, and their fund was oversubscribed. Dar declined to specify any individual limited partners but said they were the usual suspects: Endowments, pensions, foundations, family offices, advisory firms, and entrepreneurs, and he did point out that there was overlap between Lux and Obvious LPs and their own, though he wouldn’t go into further detail.
All three of the investors come from more generalist funds, but they have all worked together in the last decade, whether it be working at the same firms or sometimes even sharing deals in the biotech sector where they now plan to make a name for themselves.
Dar and Li, who had worked together a decade ago at a firm called Innovation Endeavors, both later invested in the Series A of Recursion Pharmaceuticals, a company that uses machine learning to power drug discovery, when it was a small lab with about 10 people in 2016, Goulburn points out. The company went public in early 2021 in a $436 million IPO that valued the company at more than $5 billion on its first trading day, though, in today's market, shares of Recursion are currently trading at a nearly 74% discount to their IPO price. Goulburn, who has a Ph.D. in stem cell biology and worked with Dar at Lux, was one of the first investors in drug discovery unicorn Eikon Therapeutics.
All three of the GPs have given up their board seats for the investments they made at their previous firms (except for Recursion, where Li and Dar remain independent directors). The Dimension team has already made four investments from the new fund over the last year, including Kaleidoscope Bio, which helps scientists track their experiments, and Lamin, a life sciences data infrastructure company.
How distinct is their strategy really? There’s a slew of funds with specialized teams focused on life sciences tech and biotechnology, and many of those funds are stacked with Ph.D.-types and scientists who understand the product development path and know a thing or two about structuring a clinical trial for success. There are major investors in the game like NEA or Khosla Ventures, as well as more specialized shops like OrbiMed Advisors or SymBiosis Capital Management.
Dar insists that “the capital markets hadn't yet caught up to what entrepreneurs were doing and developing...There are a lot of economies of scale and cross-pollination of learning when the software company powering life science can work in the same portfolio alongside a next-gen life science company."
A reminder to weigh in on the private markets…Term Sheet is partnering with Semaphore again for its 15th annual confidence survey of private equity, venture capital, hedge fund, and other professionals. Did 2022 turn out to be a poor year for both investment returns and the managers/service providers of PE, VC, and hedge funds? Are investors complicit in the downfall of Sam Bankman-Fried and FTX? How could a split Congress influence the private markets? Weigh in, if you like, and share your level of confidence in yourself, the economy, and your business; it’s anonymous and should take you 3-4 minutes. You can take the survey here. Have a look at last year’s results here and here.
See you tomorrow,
Jessica Mathews
Twitter: @jessicakmathews
Email: jessica.mathews@fortune.com
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