Latest / The BioHub - by Avetix / Episode 148 - Daniel Fero - Managing Director at OMX Ventures

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Episode 148 - Daniel Fero - Managing Director at OMX Ventures · The BioHub - by Avetix

0:06
So welcome back to another episode of the Bio Hub.
0:08
Today we're delighted to be joined by Dan Farrow, who's the
0:11
Managing Managing Director and Co founder of Omics Ventures, a
0:15
venture capital firm built around a clear mission,
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partnering with exceptional founders to translate
0:20
breakthrough science into real world impact.
0:23
Omics Ventures. Dan focuses on investing in
0:26
early and growth stage biotech and life science companies,
0:29
working closely with teams developing next generation
0:31
therapeutics, diagnostics and research technologies.
0:36
So join us today as we'll discuss Onyx's approach, raising
0:39
the first fund and the challenges that came with that,
0:42
as well as Dan's perspective on the capital markets at the
0:45
moment. So look, Dan, it's a pleasure.
0:48
Thanks for coming on. How are you?
0:50
I'm good, Tom. Thank you.
0:51
I appreciate the opportunity to be on with you.
0:54
Yeah, it's a it's a pleasure to have you on with.
0:56
So let's just start off with a little bit about your journey
0:59
through the field and how you got to where you are today.
1:01
So you started your career with deep exposure to biomedical
1:04
science before moving into strategy and investing.
1:08
How How did that transition shape the way you think about
1:11
building companies and and backing founders today?
1:15
Yeah. So as you mentioned, I started
1:18
as a PhD scientist. I did a PhD at UC San Diego,
1:22
worked in a bioengineering group.
1:25
After that, I did half a career as a strategy consultant and
1:28
moved into venture after that. You know, I think I've always
1:31
been a person who never had a specific path that I wanted to
1:34
follow in life. I was just generally followed
1:36
things that I found interesting and fulfilling.
1:38
But along that journey by being a scientist and then being a
1:41
strategy consultant, I think I trained two sides of my brain in
1:45
a way that's actually really helpful to being a venture
1:48
investor. You know, when you're a, when
1:50
you're a scientist and you you're doing a PhD, you kind of
1:52
learn to speak the language of science and understand how to
1:56
think critically about science, think critically about
1:58
technology, structure, R&D. And that taught me one skill set
2:03
that that I think is fundamental to how we invest as C and Series
2:06
A stage investors. And then in the consulting
2:09
world, I worked in a in a life science group.
2:12
And so all my clients were pharma and biopharma.
2:14
And we are helping them answer questions like, you know,
2:17
portfolio prioritization, which assets to buy, how to think
2:22
about commercial markets, how to think about therapeutic areas
2:25
and what types of products will win.
2:27
It's a completely different skill set, but it's highly
2:29
complementary to the work I do now where each time we're
2:32
backing a, a founder or a company, we're thinking very
2:35
deeply about what the product that they need to develop is and
2:38
what market that they're going to go into looks like and what
2:40
it will look like in the future. And so I'm taking this career
2:44
path from being a PhD scientist to a strategy consultant to an
2:48
investor is, I think, a phenotype you actually see a lot
2:51
in venture, but it's one that, in my experience, trains you
2:55
really well for the job. And it helps us really identify,
3:00
you know, the right founders with the right technologies.
3:02
And that's fundamental to what we do as investors.
3:06
Yeah, nice. And you see obviously a Co
3:10
founder of Onyx Ventures and I guess the, the the firm was
3:13
built around a clear thesis at the intersection of biology,
3:17
data and engineering. When you look at how the firm's
3:20
evolved, has that thesis evolved as well as you've learned from
3:25
building the firm and working closely with founders like to
3:28
talk through through that journey of of oomics to I guess
3:31
to where you are now as well? Sure.
3:34
Yeah. So that's right.
3:35
Our original thesis was essentially the biology is
3:38
becoming an engineering discipline and that biology is
3:42
or would be programmable to a certain extent.
3:45
And we generally gravitate towards companies like that.
3:48
I think the way our strategy and our thinking about that has
3:51
evolved though, is that we now live in a world where AIML is
3:57
very, very prevalent, very potent and only accelerating.
4:01
And so I think we, we are not augmenting that biology as as an
4:06
engineering discipline with how can AIML be used to create
4:11
durable advantages, better products and maybe conversely,
4:14
where where it doesn't. So I think there's a little bit
4:16
of an overlay now of some of the emerging technologies that the
4:19
world is, is working with. And so instead of focusing maybe
4:24
simply on just better tools, things like faster sequencing,
4:27
more automation, new technology advances, I think we think more
4:31
deeply about how all those components get stitched together
4:36
into a tight closed loop learning system.
4:39
I think we think about the the world now where you want data
4:45
generation to feed into model training, to feed into wet lab,
4:49
experimental validation and a tight circle on that loop so
4:53
that they continually reinforce each other in a way that's going
4:57
to create products with a, you know, a superior advantage to
5:00
what's in the market or have tools that unlock a capability
5:04
that previously didn't exist. And so we really think about
5:09
biology as being programmable with AI as an additional layer
5:12
to it. And it's, it's kind of the
5:14
connective tissue for how we think these biologic systems are
5:19
learned and how insights are derived in when you get to
5:23
those, that level of learning and insight, that's where you
5:26
create really novel and interesting products.
5:29
And so, you know, I think our original thesis is still there.
5:33
We're just more looking for companies and founders who think
5:37
about this cycle of learning and where you can get compounded
5:42
durable advantage from your insights.
5:45
And that's really for the a lot of these companies where novelty
5:49
and defensibility is going to live for their products.
5:52
And so maybe instead of just being a biology plus data plus
5:56
engineering mindset, it's biology plus data plus
5:59
engineering plus AI within a native biologic system that we
6:03
look for right now. Amazing.
6:07
And just your, your background is obviously both in investing
6:10
and in operating environments. How hands on did you intend on
6:15
mix to be from the start? Do you think, do you think of
6:19
omics is purely an investor or also as a company creation, an
6:23
early building partner and like upon investment, you leave
6:27
companies to it? Do you guys help with taking
6:30
active board seats? Do you guys have operating roles
6:33
within the companies or do you leave them sort of to it?
6:37
Yeah, I would say that from from day one founding Omics Ventures,
6:41
we knew that we didn't want to be and maybe probably couldn't
6:45
be just passive capital allocators.
6:48
I think biology is just too hard and the stakes are maybe still
6:53
too high, especially when you're focusing on early stage
6:56
technology. So we intentionally designed
7:00
OMEX to sit very close to the operator side of the spectrum.
7:04
Not that we are the operators of the companies, but really we're
7:07
helping founders think through their long term, their short
7:10
term and long term needs. And so things like, you know, we
7:15
help them think through product development, Rd. maps, market
7:19
prioritization, regulatory strategy, IP and even sometimes
7:26
early team design and hiring. I think we, we do in a way where
7:30
we don't want to be looking over their shoulder or being shadow
7:32
operators, but our job is really to help founders see around
7:35
corners. Maybe, you know, we often times
7:38
talk about we're the group that needs to look a few years down
7:42
the road because the founder is going to spend most of their
7:44
time looking a month or 1/4 down the road.
7:47
And we need to be, I think looking further ahead and making
7:51
sure that they're thinking about that as well.
7:53
And so I would say that we're not pure financial investors.
7:56
We're definitely not a venture studio, but we try to be kind of
8:00
a collaborator, maybe a force multiplier with our founders to
8:04
help accelerate the, their vision, help them, you know,
8:07
build a better product. And, but also at the same time,
8:12
when they're operating and building and doing things
8:15
correctly, we're happy to, to step back to give them space and
8:17
let them, them build a great company.
8:19
So we try to straddle somewhere in between.
8:22
And I think it complements the background of, of our, our Omic,
8:25
the, you know, the folks within omics, our team, a lot of them
8:29
come from operating roles and founding roles.
8:31
And so having lived that experience, I think it's really
8:35
helpful to to be able to sit side by side with our founders
8:40
from, you know, from day one of their company building.
8:44
Yeah, amazing. And just to go into omics a
8:47
little bit more, so it's not just a therapeutics company, but
8:51
you also invest across diagnostics, bio tools and then
8:54
broader bioengineering platforms.
8:57
How does your own sort of multi disciplinary background
9:00
influence that broader scope? So we've historically always
9:03
invested across that that full range of technologies.
9:06
And I think it's really because of the team that we built at
9:09
Omix. So there are some of us in our
9:11
group who come from more of a tools and diagnostics investment
9:15
background and others within our team that come more from the
9:17
therapeutic side. And really we work well across
9:21
that entire that technology spectrum as a team.
9:24
And what we've always said to ourselves is that there's a
9:28
belief that tools lead to new insights that lead to new
9:32
products, whether they be diagnostic products or
9:35
therapeutic products. And there's kind of that that
9:38
cycle of technology evolution within our space.
9:42
And by investing across all those areas, we always thought
9:45
that it gives us a front row seat to new tools that are being
9:48
developed, new ideas on how those tools would be applied at
9:51
an application layer and then how those will translate into
9:54
product oriented companies. And it allows us to, I think
9:58
invest more smartly across that whole range of company type.
10:03
And now as I think about the world today, I, I, you know, I
10:06
think that the cycles are speeding up, maybe the
10:08
boundaries are dissolving a little bit.
10:11
And so the path from a new tool to a new biologic insight to a
10:16
new product company are starting to blend together more quickly.
10:20
And we're actively thinking about that evolution.
10:26
But I, I do think that, you know, we're going to continue to
10:28
invest across that entire tech stack.
10:30
And I think, you know, our, our activities there do give us an
10:34
advantage as we see how new technologies get applied to
10:39
create the next great therapeutics company or the next
10:42
great diagnostics company that utilize a tool that we know
10:46
better than the market and we know its power and its
10:49
applications better than the market.
10:50
And that's one of the, I think the, the superpowers of, of how
10:54
our fund works. And it comes from investing
10:57
across that that entire, you know, technology spectrum.
11:00
And like is it a fairly even split across all of those
11:03
different areas across life sciences or do you lean more
11:06
towards one particular area, like what sort of split across
11:10
portfolio companies? Yeah.
11:12
So I, I would say that it's, we're pretty well distributed
11:16
across all those areas on a deal basis.
11:20
We are probably 5050 therapeutics, non therapeutics
11:26
maybe on a dollar basis. It's a little more heavily
11:28
skewed towards the therapeutic side.
11:29
They just tend to be more capital intensive companies.
11:32
I think we'll probably maintain a similar ratio as we go into
11:35
our next fund. But we, we like both sides
11:38
equally and we actually think that by investing in not some
11:41
non regulated products, things that don't have to go through an
11:44
FDA regulatory path, there's a little bit of a, a risk
11:47
mitigation within the portfolio. Those are, these are companies
11:50
that can build a product and immediately start selling it.
11:53
So the business physics are a little faster there.
11:56
So just from a portfolio perspective and a risk
11:59
management perspective, we like investing in both sides.
12:02
We think it's synergistic strategically, but also from a
12:05
financial perspective, we we think that there's a lot of
12:07
benefits in portfolio construction that you get from
12:10
doing both sides. And just just to go on to, I
12:14
guess raising a fund, it's it's always very difficult,
12:17
particularly raising the first one.
12:19
And I guess biotech, just given how it is, it always adds
12:22
another layer of complexity. Just talk us through, like, what
12:25
was some of the biggest challenges you faced in raising
12:28
Onyx's first fund? How did your experience help you
12:32
navigate them? And if someone with a similar
12:34
background to yours, but I guess it was maybe a little bit
12:38
earlier in their investing journey, asked for advice on
12:41
raising the first biotech fund, what would you tell them now
12:44
that you've been through it? So raising your first fund is an
12:47
interesting experience for sure. I think the, you know, you know,
12:51
for anyone who's out there who's thinking about or is raising a
12:53
first fund or even a second fund, I think it's very true
12:57
that in that first fund or sometimes second fund, what
13:00
you're really selling is a future vision for what you're
13:03
going to do. You know, to some extent you may
13:06
have a past track record, but really you're selling what the,
13:09
the future will look like and why you'll be successful.
13:13
And the investors are underwriting that vision and
13:16
underwriting your thesis and, and you and how you'll operate.
13:20
And I think in biotech, maybe the, the perception of risk is
13:25
amplified even in the investor mind, because cycles are really
13:29
long. Technical risk is, is really
13:32
high. And so you really have to come
13:35
in with a specific, precise, well articulated thesis for, you
13:42
know, not only why the world needs another biotech fund, but
13:46
why this biotech fund. And so I think, you know, as we
13:53
pitched ourselves and to to investors, we really wanted to
13:57
anchor what we were going to do and how we were going to invest
14:01
in our lived experience as as company builders.
14:05
And it is as investors in our days prior to forming fund one,
14:09
I think LP's can really just smell a generic pitch from a
14:13
mile away. And so bringing in real examples
14:17
of of, you know, how we worked with companies, how we worked
14:21
with founders, you know, how we added value to their companies
14:26
in specific ways was incredibly helpful.
14:30
Often times having those founders as references for us
14:36
was incredibly helpful. In fact, you know, as I look at
14:38
our, our Fund 1, you know, LP base, many of our, many of our
14:43
LP's are actually founders from companies that we had previously
14:46
worked with and backed who are now investing in us to kind of
14:49
create and invest in the next batch of great companies like
14:52
theirs were. And so for us it was being very
14:56
crisp about what our thesis was and how it, it was informed by
15:01
our previous experiment, our, our previous experiment
15:04
experience. I think the other thing that's
15:07
important to do when you're raising money in a in a first
15:11
fund is you're looking for a like a psychological fit with
15:19
your LP's as to how capital flows will take place in the
15:23
future. You don't want to mismatch of
15:26
how you expect to invest in the companies and then receive exits
15:30
back from companies. You don't want to mismatch with
15:32
how your LP's are expecting that to go down.
15:36
And so being really clear about the timelines under which you'll
15:40
be making your investments and the timelines under which those
15:44
investments will likely be exiting and turning into returns
15:47
is actually really important. You know us as a seed stage
15:49
fund, in order to go from a seed stage fund to a meaningful exit,
15:54
those companies have many years of, of, of R&D and growing and
15:59
capital raising to get to a, to a successful.
16:01
I mean, data will point you to say it's a six to nine year
16:04
journey for a lot of these companies to get to a very happy
16:07
exit. And so for an LP, having capital
16:11
locked up for six to nine years before seeing any of it back is
16:14
a different value proposition than funds that are maybe doing
16:18
more crossover style investing where you know, they're
16:21
expecting their capital to be locked up for a year or two
16:24
years or three years before seeing distributions back.
16:26
So being very clear about that, that kind of the capital journey
16:29
that you're about to go on is also really important when
16:33
you're raising that first fund. And I think if you can get all
16:36
of those elements right, you'll naturally find the LP's that
16:41
understand why you're going to be a good investor and why you
16:44
have a particular differentiation within the
16:47
market and who buy into kind of the the capital allocation and
16:52
capital distribution model that you're selling to them.
16:57
And that's the best you can do. Nice.
16:59
And as you guys look ahead to raising the next fund, how do
17:03
you think your perspective has changed compared to when you
17:05
were first launching OMICS for the first time?
17:09
I think it's a, it's a great question.
17:11
I think, and we've been thinking about this deeply lately, It's
17:15
as you go from a first fund to a second fund, I think it's
17:19
important to to talk about how your organization expects to
17:25
grow in scale, but also how it has learned from the experience
17:29
of the first portfolio. I think LP's are going to expect
17:33
a little bit of both of those in your thinking and in how you
17:36
talk about yourself. So as we think about going into
17:39
the next fund, we're much more focused now on how do we scale
17:43
our organization in a way that makes the things that we did and
17:48
fund one that were successful. How do we make those repeatable.
17:51
So what are the processes, what are the cultural norms that we
17:54
have instituted within our group?
17:57
How are our decision frameworks changing or or evolving because
18:02
they now want to underwrite AVC group that will be consistently
18:07
excellent and improving versus having done a one off on
18:11
creating an interesting fund 1 portfolio.
18:16
And so we're looking for, you know, LP's that are are kind of
18:19
committed to this journey with us to build a strong capital
18:23
base so that, you know, as our organization goes forward, it
18:26
scales up, we become more repeatable.
18:30
And over time, I think that just amplifies success for us and
18:34
success for our LP's. Yeah, amazing.
18:37
I always like to ask the question, particularly people
18:41
from a venture perspective, just with how difficult the markets
18:45
have been the past few years, I guess you obviously have a
18:47
unique way of looking at it. But yeah, you've, you've
18:50
obviously seen the capital markets from different vantage
18:53
points as a scientist, as an advisor, as now a fund manager.
18:58
What do you think today's capital markets are getting
19:01
right and wrong about early stage innovation?
19:05
I would say that I think the capital markets get a lot right.
19:08
I think one of the things they get right is that biology is
19:12
kind of entering a a bit of a generational shift where there's
19:19
this convergence of computation and automation and new
19:23
technologies that allow you to interrogate biology differently.
19:26
You know, I think if you look five years ago and you asked the
19:31
question, what percent of the design rules of biology do we
19:35
understand? You know, I think the answer is
19:37
closer to 0% than 100% five years ago.
19:41
Now today I think the answer is still closer to 0% than 100%.
19:46
But the rate at which we're advancing our biological
19:48
understanding is improving significantly driven by these
19:53
new tools and new technologies, particularly AINML.
19:57
And I think the capital markets are starting to recognize that
19:59
and starting to see that biology is really going to be.
20:03
A market of the future, what's going to be the century biology
20:05
in our opinion. And so you see capital flowing
20:09
in that direction in a way to kind of underwrite and harness
20:12
that convergence. But I think where the markets
20:15
may get it wrong a little bit is that there's a mismatch on maybe
20:22
their expectation of what the tempo of improvement can be.
20:27
Just just fundamentally true that biology doesn't move at the
20:31
same speed that software does. Exactly.
20:35
And so and that's even true when it's computationally enabled.
20:39
You know, I think biology is just hard and tricky and it
20:42
actually takes time to test hypotheses and test assays in
20:45
biologic systems. And so I think there was a
20:50
little bit of a mismatch when the broader market looks at the
20:53
speed that technology companies, pure, pure technology companies
20:59
are advancing and the speed at which biology slash technology
21:04
companies are advancing. And I think sometimes the market
21:09
may be over over funds certain hype cycles and maybe under
21:14
funds things that look like they're moving slower, but
21:17
they're just actually moving it up at a pace that is required
21:19
for the discipline that they're in.
21:22
And so, you know, we actually think that the speed in the
21:26
temple of biology is improving, but it's it's not moving at the
21:29
same speed as as the tech side of the world.
21:32
And so it's, you know, you need that that collection of a great
21:38
thesis, a great model, and then great assays to create that
21:44
design test build loop. And that will continue to, to, I
21:51
think, you know, lead us into this next generation of biology
21:55
and biology as a design discipline, but it will
21:58
necessarily go a little bit slower than than other sectors
22:02
in, in the, in the, in the space.
22:04
And so I don't know, I'm not, I don't, I don't talk about the
22:07
market that much. But I do think if there are, you
22:10
know, folks out there in the capital allocation space or
22:12
thinking about this, I do think that, you know, the the cycles
22:17
that biology is going to go on will just be necessary a little
22:20
bit slower. But the downstream implications
22:22
of that will be much more I think world changing than often
22:27
times than what we're seeing in other sectors.
22:31
Yeah, for. Sure.
22:32
And this is a question that we always finish with on the
22:36
Biohub. And I know I wanted to give you
22:37
a bit of a heads up because it's it takes a little bit of
22:40
thought, but if you were to have dinner with any free people who
22:44
have influenced the way that you think about science, business or
22:47
building institutions, who. Would you pick and?
22:52
Why? And yeah, why would it be those
22:55
3? Yeah, I appreciate this
22:58
question. This is, this is, I think the,
22:59
the hardest question you ask. So I, I don't, I don't know if I
23:04
have a great answer, but I have an answer that's maybe specific
23:07
to me and might, might, I might have, they might be weird
23:09
answers. So the three folks that I
23:12
settled on, I think the number one clear answer for me would be
23:15
my, my thesis advisor from PhD, doctor Shu Chen, super
23:19
interesting guy. He's kind of a stalwart in the
23:21
field of bioengineering. And it's someone who thinks both
23:24
deeply and broadly about science.
23:26
I mean, he's built a huge lab. He's worked with, you know,
23:29
international institutions and really just thinks about the
23:32
power of science and how it can all and how science is a large
23:35
discipline can move forward and solve big challenges.
23:38
And I always appreciated that about him.
23:42
I think my second pick is actually would probably be I had
23:45
a coach in high school who is very, I mean, very foundational
23:49
and like how I became an adult human.
23:53
He was my track coach in high school.
23:55
And I think one of the things that I learned from him more
23:58
than anybody else in my life was this idea of kind of constant
24:03
forward progress as being the goal.
24:07
And when you think about it in the athletic sense, it's
24:10
obviously very simple, right? You kind of you go to practice
24:12
and try to get better every day. But when you apply it to
24:15
everything else that you do in your life, it is an incredibly
24:19
helpful framework just to think about anything you do, whether
24:22
that's, you know, being a scientist and doing the next
24:25
experiment, whether you're building an institution, whether
24:27
you're building a fund. I think the idea of kind of
24:30
constant forward progress and being very intentional and
24:34
thoughtful about that is, is necessary to live a, you know, a
24:39
successful life. I couldn't really think of a
24:42
good last pick, but I think an area that would be interesting
24:46
for me. And I don't, I don't know if I
24:47
have a person identified. I now work at the Adventure
24:51
Fund. You know, we're going, we're
24:53
making that transition from being a fund one to more of an
24:55
institutional VC. And I'm really interested in
25:00
this idea of folks who have kind of done that journey and maybe
25:05
taking a maximalist view of how do you scale from a venture fund
25:09
into an institution that can truly support founders, truly
25:15
support company growth And really think about the full life
25:17
cycle of how do you be a a true capital partner, but also just a
25:21
partner to your founders. And so I don't, I don't know if
25:25
I have a specific person, but if I think about, you know, like
25:27
the early days of like Sequoia with like Doug Leone and like
25:29
folks like that who like went from like really interesting,
25:33
you know, investment vehicle to a foundational platform that
25:38
that companies can build off of. I would love to have someone
25:41
like that at the dinner and just learn from how they made that
25:44
transition and how they built an, you know, an institutional
25:47
venture firm because I would love to do the same thing.
25:50
So I think it'd be a, it'd be a fun dinner.
25:52
Yeah. Amazing.
25:53
We'll look 3 great answers there and thanks.
25:55
Thanks again for coming on and helping us out with this.
25:57
It sounds like what you guys are building at at Onyx is super
26:00
exciting. I look forward to following the
26:02
next progress that you guys have including the next fund.
26:07
And for sure we'll be definitely following some of the the more
26:09
broader portfolio companies closer.
26:11
So, yeah, thanks again for coming on down.
26:13
It was a pleasure. And yeah, really interesting to
26:16
hear your your story and Omex's story well.
26:20
Thank you, Tom. I appreciate it.
26:21
Yeah, hopefully it was good. Hopefully, hopefully it's
26:23
helpful for folks out there listening.
26:25
I, I listen to your show, so I appreciate being on it.
26:27
I think. I think you do a great job.
26:28
So I appreciate the opportunity.