Silicon Valley goes from high tech to biotech

This article originally appeared on AFR.

Founder of Silicon Valley firm 8VC, Joe Lonsdale, says the time to invest in Uber was 10 years ago. A day after ride-sharing company Uber agreed to sell $US10 billion in shares as the precursor to a stockmarket listing, one of Silicon Valley's rising stars claimed the Uber investors were about 10 years too late. Joe Lonsdale, who is used to making more than 500 times his money from tech start-ups, says the hottest thing in Silicon Valley now is in the biosciences. He classifies companies such as Uber and rival ride-sharing company Lyft as being in the same category as public companies, which have returns that a venture capitalist would not sneeze at.

"One of the key questions you have to ask as an investor in Silicon Valley is: what's possible now that was not possible five years ago?" he says. "It's like the edge of the ecosystem where you're helping it evolve, helping explore new ideas. When there are big breakthroughs in the world you get very big companies coming out of that change."

Lonsdale says investing in ride sharing before the advent of the smartphone did not make sense. But if you are investing in ride sharing now you are not going to make 100 times your money. These comments reflect the mindset of someone steeped in the culture of a place that has produced companies worth more than the GDP of many nation states. If you think a great investment means doubling or tripling your money, then think again. For example, Lonsdale, who founded Silicon Valley venture capital firm 8VC, says his best investment was a $US1.5 million seed funding round for an American mobile commerce start-up called Wish. His investment in Wish in 2010 valued the business at $US6 million. The latest round of funding for Wish valued the business at $US8.5 billion.

Another one of Lonsdale's successes was being a co-founder of big data analysis firm Palantir. Over the past 10 years, it has grown from a start-up to be worth $US20 billion, based on its last round of funding. "The top funds in venture capital are investing in series A and B and that's where the really high returns are," he says. "Talking about Uber and Lyft right now is the equivalent of talking about good public companies. A really great public company might earn you 5x, and an amazing public company could be 10x."

CRISPR breakthrough

Lonsdale says 8VC has become solely focused on the biosciences because that's where there will be the really big venture investment wins.

"In our opinion one of the very biggest changes in the last five years is a lot of the biological sciences have turned into information problems," he says. "There's a lot of new breakthroughs. Sequencing has become very cheap, writing DNA has become very cheap and gene editing has become really accurate and inexpensive."

Lonsdale says tools such as CRISPR, which is a genetic engineering technique, have triggered huge breakthroughs because they allow scientists to accurately edit genes.

"One way to think about it is that for the most of the last few billion years on Earth, the main battles have been between bacteria and bacteriophages or viruses that attack bacteria," he says. "So, there's all this evolution that happened at that level in that battle."

"The most important evolution in the kind of weapons of war for bacteria were the catenin protein along with this strand of RNA to go and look for viruses that match."

"What it does is allow you to go and edit genes. This is a really big breakthrough in the scientific community. It's being used by hundreds ... of institutions now to research and test and explore."

"All these new tools and the whole new set of sequencing has allowed a whole set of things to come about."

The emerging areas in biosciences include microbiome, synthetic biology, genomics IT, microfluidics and epigenetics. Lonsdale's company has invested in half a dozen companies which he refers to as the new wave of bio-IT. The companies he has invested in include Senit Biosciences, Color Genomics and Bolt Threads. Bolt Threads is a synthetic biology materials company that has developed a means of brewing spider silk and other fibres found in nature sustainably on a large scale.

Spider silk

Lonsdale is fascinated by the process of making spider silk in large quantities by taking the gene from the spider and putting it in something that can produce the same protein.

"It turns out the most effective way to do this is with baker's yeast," he says. "It turns out baker's yeast is very useful for all sorts of synthetic biology. You basically are cutting a DNA out or taking a DNA strand out and you're putting it into the yeast in the right spot to get it to produce a lot of these proteins. So you're basically brewing spider silk. You have a big giant vat and you're brewing with yeast and you're getting these proteins to fall to the bottom."

Lonsdale takes the opportunity when prodded to defend Silicon Valley against its critics, including Jonathan Taplin who has published the book Move Fast and Break Things.

Taplin argues that Google, Facebook and Amazon have become too big and now threaten the creative arts because of their lack of respect for the intellectual capital of others. He says these companies now have power on par with big oil and big pharma and should be broken up. He reserves his most vehement criticism for Peter Thiel, who also co-founded Palantir.

Lonsdale says his preference is to stand up for the little guy against the big guy. He thinks Amazon, Facebook and Google have been positive for consumers and created enormous amounts of wealth.

"Let's make sure power is not abused," he says. "I think if you're on the right you're very scared about what the government is going to do to break things, and if you're on the left you're very scared about what companies are going to do to break things."

"I think the actual correct answer is we should all be scared about what happens when big companies and governments get together."

"What really scares me is when Google has the best access to the White House as they did for such a long time."

"And when they're putting rules in place to help themselves against people in the ecosystem, that is not a positive thing."

"We don't want the companies working closely with government to help themselves. Just because they're technology companies, it doesn't necessarily mean they're good companies."

"They still have to be watched carefully, because when you have concentrated power you have to watch it carefully."