ImpactAlpha, Apr. 6 – COVID-19 is our World War II. The science and tech mobilization that helped win the war also left behind antibiotics, microwaves, nukes and computers.
Now, a new generation of impact-oriented investors, technologists, scientists and entrepreneurs are looking for breakthroughs in vaccines and therapeutics, telehealth, climate, information and education to face down a global threat on a similar scale.
Fifty Years’ Seth Bannon senses the pregnancy of the COVID moment. Bannon and his partner Ela Madej have green-lit potential solutions at more than a dozen companies in the “deep tech” VC firm’s portfolio since first hearing a dire warning about the pandemic’s exponential threat from vaccine reacher Neil King at a private Silicon Valley dinner in February.
“Just about every entrepreneur I talk to, is saying, ‘Is there a way that I can help?’ and is taking action,” says Bannon in a Q&A with ImpactAlpha. “I don’t think there’s ever been a time where the world has focused on one problem like this in my lifetime.”
Other tech investors and mission-driven entrepreneurs also are rising to the moment. Over 1,000 startups applied to crowdfunding platform Wefunder’s “fight the virus accelerator,” which offers $50,000 in uncapped “SAFE” investments to new companies working on COVID. The “founder friendly” investment puts cash quickly into the hands of founders, while pushing off cumbersome negotiations around price, rights and other terms to the ventures’ next round of financing.
Companies in the portfolios of Village Capital, Techstars Impact, SJF Ventures and other impact funds were quick to mobilize and pivot to COVID solutions. Schmidt Futures, a philanthropic effort of former Google chairman Eric Schmidt and his wife, Wendy, is convening philanthropists to cut quick checks of up to $1 million to launch, validate or scale COVID projects that need immediate funding. In January, Singapore-based Vickers Venture Partners led an $11 million round for U.K.-based Emergex, which is working on a COVID-19 vaccine.
At 50 Years’, which last year raised a $50 million second fund, Bannon and Madej have extended “uncapped notes” of at least $25,000 to seven of the portfolio companies that took them up on the challenge.
HelixNano, for example, is developing a multi-antigen vaccine that could not only vaccinate against this version of COVID, but against potential mutations of the coronavirus. Another portfolio company, BillionToOne, is repurposing its prenatal genetic testing to create a COVID-19 test capable of performing a million tests per day. Industrial chemicals company Solugen, which uses enzymes to produce hydrogen peroxide, is stirring up vats of hand sanitizer and shipping it off – for free – to health care facilities.
If this generation responds like the “Greatest Generation” responded to WWII, says Bannon, “We might not only beat back COVID-19, but we might build a technological foundation that benefits generations of people to come.”
ImpactAlpha: What made you take the pandemic seriously and begin to mobilize the portfolio?
Seth Bannon: In late February Steve Jurvetson, a well-known investor in the (Silicon) valley, organized a dinner with Vinod Khosla, another iconic investor, and Steve’s partner Maryanna [Saenko] at Future Ventures, and he was kind enough to invite Ela and me. The two guests of honor were David Baker, who runs the Institute for Protein Design at University of Washington. And one of other people at the Institute for Protein Design who runs his own labs called Neil King. One of the things Neil is really known for is a thing called the universal flu vaccine that they’re working on. These guys were very clued into what was happening.
They were basically saying 30 to 70% of people are going to get COVID this season and 100% of people are going to get it over the next couple seasons. For us, that was like a big wake up. I was like, “holy shit.” At that point there were a couple of cases in the States and we thought maybe it’d be a flare up. Of course, the President was “15 cases going down to zero.” So that was, “Oh my god this is gonna be really really serious worldwide. This isn’t just going to be a China thing or Italy thing.”
That was when we started having conversations with mainly our synthetic biology portfolio companies, making sure that they were aware of what we had just learned, so that they could either start to prepare themselves financially or start to see if they could potentially address solutions or at least be part of the discussion around how we might be able to prepare for this. The preparation time turned out to not really be a thing. That’s the nature of exponential growth curves. It goes from coming to here in a huge way, incredibly fast. It wasn’t like anyone got any lead time here. It was just kind of like run, run, run. For us, it’s an all hands on deck moment.
It really does feel like World War II. And I don’t think that’s a dramatic comparison because the scale of the threat is actually quite similar. If you look at the middle of the road epidemiological model for COVID-19, in a world where nothing was done, tens of millions of people are dying. If you think about this as a World War II-scale thing and then you look at what happened during World War II, the technology community and the financial community rallied together like never before to win. Everyone said “this is our responsibility to contribute.” And if you look at what came out of it, we got mass production of antibiotics. We got therapeutics. We got skin grafts. The first flu vaccine actually came out of that effort. We got radar. The microwave oven. Nuclear power. The first programmable digital computer. Essentially that effort, where everyone got together and said “we need to figure out how to win this war,” basically laid the foundation of technical progress for years to come.
We basically said, “Hey, this is really terrible what’s coming so we all need to contribute to it. There’s a potential silver lining if we all respond to this the way the community responded to World War II. We might not only beat back COVID-19, but we might build a technological foundation that benefits generations of people to come. Isn’t that hopeful? If you are only acting through fear, it just immobilizes you. For us, that’s how we started to start to think about it. It was important for us to give our portfolio companies permission to focus on this because when you’re a startup, the most scarce thing you have is your attention. It’s kind of scary to say, “We think this is really important but is it okay for us to spend money on this? Is it okay for us to spend time on this?” Part of what we were trying to do is to say, “Yes, this is a humanity-level crisis. It’s okay for you to spend time on it. It’s okay for you to spend money on this. We wanted to do that both through words, but also also through action.
ImpactAlpha: What’s the significance of the uncapped notes?
Bannon: A little while ago people started using these things called convertible notes. Then Y Combinator came out with their version called the SAFE. Basically what these things do is they allow you to just agree on one thing, which is the price. You put a cap on the note. Then everything else, all the other rights you kick down the road to the equity financing. There’s a version of the SAFE called an uncapped note, or uncapped SAFE, where you’re basically saying, “forget about the cap. I’m just going to give you money and it’s just going to convert that whatever the terms of your next financing are. We have never done this in our history because it’s considered an investor-unfriendly instrument. You’re paying a price for some future milestone but you’re taking the risk of the present. It’s the most founder-friendly way you can invest in a company.
We thought it was really important to just be able to give these companies money fast and not have them have to think about it. This way it was like, “Here’s basically free money now. Take it. Go build out your solutions. Scale them. Spend whatever money you need to.” We thought it was important for us to communicate to our own founders that this was okay, to give them the capital they needed to do that. We also hope it sends a message to the rest of the VC community. You can do this too. Take a small percentage of your funds and just offer it as uncapped notes to any of your companies that are addressing this crisis. If everyone does this in aggregate, it can add up to a huge amount of capital.
ImpactAlpha: This wasn’t money to keep them afloat. This was new money because they had to do new product development and new distribution and pivot.
Bannon: This wasn’t a lifeline because they need capital to keep running. This was, “You’re okay. You need money to push for your COVID project. For some of them, they might have not needed cash but they were at the point where they couldn’t really afford to push forward a COVID project without more cash. If they launched a new project, then all of a sudden maybe they would be in a precarious cash position. We wanted to say, “If you have some ideation or you have some validation or you have some development you need to do, just take this $25,000 and go do it, because this is important. You shouldn’t have to worry about any of these other things.
ImpactAlpha: How many took you up on it?
Bannon: Seven took money from us to push forward their COVID projects.
ImpactAlpha: $25,000 each?
Bannon: Yep. Some of them ended up being a little bit more. It’s not trivial, but it’s not painful. At the end of the day we still want to make money. As we’ve talked about, it’s really important for us to show that you can invest in these types of companies and make money. We want to bring back non-concessionary impact investing. We did go to our LP advisory committee and all three of them said “absolutely, this is incredibly important.”
ImpactAlpha: Have you seen interest from other investors in doing something similar?
Bannon: We have started talking to some funds and there’s actually a decent amount of interest to do something similar. The main concern people have is, “What are our LPs gonna think about this,” and we said, “Just go talk to them like we did and our strong suspicion is that you will be surprised at how eager they are.” The crowdfunding platform WeFunder is offering $50,000 uncapped SAFE investments to new companies working on COVID. I would not be surprised if in the next week a few of the funds we’ve been talking to are launching similar uncapped programs.
ImpactAlpha: What are two or three examples of how your portfolio companies are addressing the COVID crisis?
Bannon: The one that is most ambitious is HelixNano. They’re developing a multi-antigen mRNA vaccine. This is basically a vaccine that could not only vaccinate us against this version of COVID, or specifically SARS-CoV-2, but against potential mutations of it. This would be basically a vaccine you could get, and you’re just done, which would be the end of the problem. One of our companies, called BillionToOne, they repurposed their technology, which is used for prenatal genetic testing, to create an extremely high-throughput COVID-19 test. If it works – they’re still in the last stages of validating this – it could unlock a million tests per day capacity.
Some of these companies, they built a technology and they’re pointing their core technology at a new thing. It’s a slight deviation. Some of them are saying, “This is tangential to what we’re doing, but we think it’s so important we’re going to make that difference.” One of our companies called Solugen, they enzymatically make industrial chemicals. They use a lot of ethanol alcohol. Hydrogen peroxide is used in hand sanitizer and they make hydrogen peroxide enzymatically. They’re literally making hand sanitizer and shipping it off pro bono to health care facilities that are in need.
ImpactAlpha: Is there something about the 50 Years thesis, your ability to look forward and understand challenges that may not affect you at the moment, that enabled you to take what you heard at dinner in February seriously and move quickly?
Bannon: I think so. We are a deep tech fund. A third of our companies are synthetic biology companies. We know how amazing of a scientist David Baker is and how amazing of a scientist Neil King is. These are serious people. They don’t exaggerate. They’re the type of people that typically underplay things. Great academics do that. When someone like that gives you a number so astounding, you can’t dismiss it.
Two, I think there is something for the fact that Silicon Valley deals in exponential growth. It’s a very important concept here. Exponential growth is really hard to grasp. Our minds are just not set up to understand exponential growth.
ImpactAlpha: Exponential growth is a Silicon Valley thing. But why was Fifty Years able to move quickly to solutions?
Bannon: Balaji Srinivasan, who was almost the FDA Commissioner and is a pure Silicon Valley guy, had this clever tweet today where he said, “In good times, you make things people want. In serious times, you make things people need.” Our whole thing at Fifty Years is to make things people need.
ImpactAlpha: Ah ha. Expand on that.
Bannon: We don’t like the trivial things. We like the truly important things. We like the things that are going to combat the climate crisis, that are gonna enable people to get educated, or that are going to enable longer health spans. When we heard that there was this unbelievable thing coming, if you’re an e-commerce investor or e-gaming investor, you’re gonna feel pretty hopeless, because there’s gonna be like, “I hope that’s not true, because if that’s true, it could be really bad for me and my portfolio.” But for us, it was like, “Oh my god this is the type of problem that our firm was founded to combat. Let’s get to work.”
Bannon: Our founders feel the same way too. They’re all in it to solve the truly horrifyingly big problems. When they see one of those coming, they’re not like, “Oh shit.” They’re like, “We gotta fix this.” I do think that is one of the reasons that our portfolio was able to mobilize, maybe more quickly than others. This is what we deal with every day.
ImpactAlpha: Does this moment somehow validate that long-term, Sustainable Development Goal or impact thesis?
Bannon: I would imagine so. We don’t know what the world’s gonna look like coming out of this but if you look at what McKinsey, for example, is talking about as the new hot sectors, it’s the important ones. If you look at what people are talking about as the really at-risk things, it’s the stuff no one really needed anyway.
ImpactAlpha: You mean the most “at risk” of not making it out of this.
Bannon: Yeah, of being really really hurt. It’s the silly frivolous things that people don’t really need. The crap you sell people to make them feel better. Those things are hugely at risk. Things like health care. Climate tech. Edtech. These are all the things that these prognosticators think will be en vogue. I don’t know if I’m in a position to say that. I think this might accelerate the movement towards capitalism being geared towards the really important things. But I’m not confident enough to say for sure.
ImpactAlpha: What parts of the COVID crises are sovable from a tech perspective?
Bannon: So many. There’s the obvious things like we need to scale up production of masks and ventilators. We need to figure out a way of checking people’s temperature. If you look at the countries that are starting to come out of this, and not have huge flare ups, they check temperatures everywhere. We don’t have the technology to do that, we don’t have the supply chain to do that. Things like therapeutics, where if someone’s sick, you can fix them quickly. Obviously vaccines are technical problems. There’s all sorts of information systems. When someone is sick, how do we track that and notify people in their network that they should get tested. That’s gonna be really, really important. We need antibody tests everywhere, especially if you’re a healthcare worker. It’s way safer for those people to go and treat the patients because they can no longer get sick.
I think that there’s going to be huge applications in telehealth because people can’t move around as much, because parts of our healthcare system are so consumed with treating and triage. We have now a bunch of parents trying to figure out how to educate their children at home. This might be finally a spur that enables some really interesting edtech to flourish. They actually have an economic model in a way that we didn’t before. For sure, I think, not only is there going to be real sort of psychological help needed for our healthcare workers but also, I think a lot of people. This is a really stressful time and social isolation is one of the largest drivers of depression and anxiety. I think helping people through this time is going to be really important and that’s something that you can imagine technological solutions to as well.
ImpactAlpha: Does it feel like there is something like a Manhattan Project-style mobilization in the tech world and in the science that is happening right now?
Bannon: It does feel that way. Every single entrepreneur, or person in fact, that I know about is contributing. It could be something as simple as making sure that they aggressively make it easy for employees to work from home to flatten the curve. Silicon Valley was doing that even before any regulator was mandating that. It could be something as simple as that to redirecting their manufacturing capacity toward PPE, or offering infrastructure to allow scientists to better collaborate, to actually building the vaccines or therapeutics.
It really feels like just about every entrepreneur I talk to, is saying, “is there a way that I can help?” and is taking action, be it something as simple as making sure that they’re not contributing to the spread to actually diverting some of their resources and that has been actually really inspiring. I don’t actually think there’s ever been a time where the world has focused on one problem like this in my lifetime.