VC LIVE!: The OZEMPIC® Trade: How Venture Investors Weigh the Impact of GLP-1 Drugs

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  Ludwig Schulze:
  Hi, my name is Ludwig Schulze, managing partner here at Alumni Ventures. Thank you for joining us today for The Ozempic Trade: How Venture Investors Weigh the Impact of GLP-1 Drugs. We’re going to slowly get started as folks come into the room. And to begin with, we’re going to hit some of the legalese. So this presentation is for informational purposes only and is not an offer to buy or sell securities, which are only made pursuant to the formal offering documents for the fund. Please review the important disclosures in the materials provided for the webinar, which you can access at www.avfunds.com/disclosures.

  With that out of the way, a little bit about what we’re going to cover today. To begin with, we’ll do a quick introduction to Alumni Ventures overall so you have a sense for who we are and what we do and how we do it. We will then turn to today’s particular topic and our panel to have a discussion around GLP-1. From there, we’ll turn to why venture—why venture capital is an asset class that has consistently seen capital from institutional investors and increasingly from individual investors. Then more about the Doctors Innovate Fund itself—what it is, what we’re investing into, etc.—and subsequently how you can invest if you choose that it fits your portfolio requirements. And lastly, we’ll spend a little bit of time for audience questions at the very end. So that’s today’s agenda.

  So to begin with, Alumni Ventures—a little bit of an introduction. We are America’s largest venture capital firm for individual investors. We serve over 10,000 of those investors. We have raised over $1.25 billion in capital from those investors and invested into over 1,300 different portfolio companies overall. In essence, our goal is to democratize and make venture capital more accessible to a wider group of investors and support promising entrepreneurs along the way. We originally organized around about a dozen alumni—two dozen Alumni Ventures funds—which are offered annually to all of our accredited investors. And we have a broader community of over 650,000 people who are interested in venture, who are investors with us, who are just curious about technology and it’s probably the most important part of the puzzle for us in terms of our ability to support the companies that we ultimately invest into.

  So that’s Alumni Ventures. Turning now to our panel, I’d like to introduce Meera Oak on our team.

  Meera Oak:
  Thank you, Ludwig. Really excited to dive into this topic of obesity and Ozempic at this point in time. It’s possible our audience has heard about Ozempic through the shortages or through TikTok, or that Oprah and Elon Musk are using it, or maybe you’re using them yourself. Regardless, I think the story of obesity in the U.S. is likely not new to our audience. It’s probably no surprise—roughly 70% of Americans are overweight and over 40% are obese. And obesity rates have continued to steadily increase over the past several decades. And until recently, it seemed as though there was no sign of this slowing down. 13%, or 40 million adults in the U.S., have diabetes with another 100 million estimated to have pre-diabetes.

  So today, obesity is the fifth leading cause for premature death. And although Ozempic has captured consumer attention in the past year or so, the story of this class of drugs really dates back to the early 2000s. Ozempic belongs to this GLP-1 drug class that was initially developed to treat type 2 diabetes, and they mimic a naturally occurring gut hormone called glucagon-like peptide 1—or GLP-1. And when they do this, they have different effects in the body. The drug was designed to stimulate the pancreas to release more insulin, as people with type 2 diabetes have trouble naturally regulating their glucose levels. Over time, the drugs were found to activate the brain to promote feelings of satiety and lessen appetite. And this decrease in appetite, as well as other cravings, has the average GLP-1 patient experiencing weight loss of 15 to 24% in total body mass. And so this is leaps and bounds beyond what we thought was previously possible.

  These drugs have people talking about weight loss in a variety of new ways, and that’s exactly what we will discuss on today’s panel. So with that, I’d love to flip to the next slide and introduce and invite my colleagues Naren, Alim, and Grant to the virtual stage as other members of Alumni Ventures’ investment team. Awesome. Welcome, everyone. Wow, there’s so many questions we could start with, and there’s so much promise in this category, but I think it might be actually beneficial to start with the efficacy of this drug category. I guess as an opener, what is the evidence that supports the effectiveness of GLP-1 drugs for weight loss and managing cravings? I’ll let anyone take it, but maybe for ease I can start with you, Alim.

  Alim Giga:
  Sure. Yeah. So it’s important to understand the impact and mechanisms of GLP-1 drugs. Essentially, these drugs function by reducing appetite, curbing other cravings, rather than enabling patients to indulge in any food while still losing weight. GLP-1 drugs primarily diminish the desire for unhealthy eating habits. Consequently, patients on GLP-1 therapy generally consume less food, particularly craving-inducing items like snacks, sweets, fast food, alcoholic drinks. Statistics show a notable decrease in such consumption. 77% of patients report eating less food, while 90% find themselves snacking less, reducing their intake by a significant 25 to 30% on average. Overall, those on GLP-1 drugs tend to eat about 8 to 10% less than they did previously. Early findings also suggest that these drugs may reduce cravings related to other addictive behaviors, including gambling, excessive content consumption, and other risky activities, hinting at the potential for an expanded market reach.

  Meera Oak:
  Yeah, no, I think that’s been the most exciting part—seeing the ripple effect in other forms of addiction. Can we dig into that a bit more just in terms of the potential benefits or side effects of using these drugs?

  Alim Giga:
  Yeah, absolutely. So benefits include blood sugar control. GLP-1 agonists help reduce blood sugar levels by enhancing insulin secretion and promoting insulin sensitivity. So this helps with reducing appetite, which of course is helpful for weight loss. Most common side effects include gastrointestinal issues such as nausea, vomiting, and diarrhea. That tends to decrease the longer you’re on the drug. Other potential side effects include headache and fatigue.

  Meera Oak:
  Yeah, absolutely. So I mean, clearly there’s so many folks who are seeing the promise of this, but I guess the question really is—how widespread can this actually get? Does anyone have a sense of actually what the foothold is now? What does adoption look like moving forward?

  Naren Ramaswamy:
  Yeah, I think I can take that. I’ll start with the total addressable market. So roughly 70% of Americans are overweight and over 40% are obese. And as you mentioned in the beginning, Meera, GLP-1 drugs—just for context—have been prescribed for type 2 diabetes patients for a while now. But there was a breakthrough in the new formulation of GLP-1 drugs a few years ago because patients and drug companies realized that this new formulation is actually great for weight loss indications as well. So estimates now suggest that 1 to 2% of Americans have used GLP-1 drugs for diabetes or weight loss. But the real question is what the future looks like. The addressable market is 70% of Americans. This is huge. And just in comparison, 40% of Americans own an iPhone and apparently 25% of Americans have expressed interest in these drugs. Morgan Stanley put out some research saying they expect 7% of the U.S. population to be taking these drugs within this decade. It remains to be seen how all this will play out.

  Meera Oak:
  Yeah, I mean, what’s going to drive this adoption moving forward? I mean, clearly TikTok—there’s clearly enough press around this—but what sort of really accelerates this moving forward?

  Grant Demeter:
  Yeah, I’ll jump in for this one. I would bucket that into three categories. The first category is consumer awareness and sentiment broadly. The second category is accessibility of the drug. And then the third category is availability of the drug. And I’ll just run through them quickly.

  So for consumer awareness and sentiment—I mean, the degree to which drugs are adopted requires a baseline of consumer awareness of the drug’s existence. So it depends on how good of a job pharma is doing at marketing these drugs and improving awareness. Depends on how good of a job startups are doing and other businesses are doing at also marketing and increasing awareness of these drugs. And quite importantly, it depends on how doctors are prescribing and recommending these drugs. And on top of all that, there’s a requirement for consumer sentiment to be positive, so that you’re pushing downhill rather than pushing uphill on the adoption battle.

  So that’s the first category. The second category is accessibility, and accessibility is measured both in time and cost. So cost accessibility is: how much does this thing cost? Is it easy to afford? Can anyone in America afford it? Can anyone in the world afford it? Is it covered by insurance? If so, how much? How long is the course of medication?

  And then there’s kind of the operational and time-based intricacies and complexities that could theoretically be a barrier to adoption. One of them is, how long does it take for me to get prescribed this drug? How many doctors do I have to meet? These doctors that I meet—are they available? Are they accessible? Does it cost money to see these doctors out of pocket? And then, how burdensome is it for me to actually get this drug administered? Do I have to go in for injections? Can I take this orally? Can I self-administer at home?

  And then the last category is, does this thing exist? Is there enough of it? And as we know, there’s kind of not enough of it right now. There’s a big drug shortage for Ozempic, and there seems to be looming drug shortages for other categories because demand has outstripped supply. That’s a good problem. But that problem extends to the question of not just is there enough for the existing audience, but who are the future audiences? Will this drug be accessible in other regions of America where it may not be currently accessible? Will it be accessible in other regions of the world? And how quickly can it be made accessible?

  Meera Oak:
  No, those are great points. And I know there’s been a lot of coverage on the cost, and of course the question of access is really top of mind, I think for a lot of people. If we piggyback off of the accessibility piece, and let’s just assume that GLP-1 is accessible to the population, I’m just curious to understand—maybe shifting more to the investment side as in our seats as investors—trying to understand the potential ripple effects of increased adoption of GLP-1, either its impact on other industries, the economy, and maybe our lens as investors.

  Grant Demeter:
  I sure.

  Naren Ramaswamy:
  Yeah, maybe I can jump in. So I think there are three layers of effects. So there’s first-order effects, second-order effects, and third-order effects here. So the first-order effects are pharma and biotech companies, healthcare companies broadly benefiting from the increased demand and adoption. The second and third-order effects are where it gets a bit more interesting, where you start looking at consumption patterns of users broadly. There’s evidence, for example, that Ozempic actually incentivizes healthier behaviors like healthier eating. Now, this could benefit healthy eating options like alternative meats. It could present headwinds to the fast food sector. For example, a third-order effect could be around lifestyle. If a whole swath of people is losing weight rapidly, this would promote short-term profits in the apparel industry, for example. Also, the airline industry might benefit in fuel efficiency if the average passenger loses, say, five to ten pounds. And this could actually become meaningful for airlines because fuel tends to be one of their largest costs.

  Meera Oak:
  It’s true. It’s hard. It’s crazy to think how many industries could be impacted by this new sort of drug class. I mean, who do we really think is the winner in this case? Which sectors do you think are really going to benefit from popularity here?

  Grant Demeter:
  Yeah, I think the rule of thumb here is to follow what Dora said roughly in terms of order of prioritization, which is if we’re going to have an investment strategy—which means investing behind the tailwinds for GLP-1 drugs—we’re going to start with the areas that are most correlated with the performance and distribution of these drugs, which is first-order effects, then move to second and then move to third. Because third-order effects are great, but if we’re going to be investing behind this as a thesis, we need to make sure that they are uniquely exposed to and correlated with the distribution and adoption effects of these drugs.

  So when we’re thinking about first-order effects though, we also have to think about—it’s great to have correlation, but you’ve got to make sure that you’re getting a lot out of it. There are companies in the first-order effects category who are focusing on distributing these drugs to consumers. Those companies need to have a good margin profile for them to be good investments. For example, we did look at a couple of investment opportunities in GLP-1 distribution and basically found that the bulk of the contribution margin from these products went directly to the pharma companies selling the drugs. And what these distribution companies got in return was the cost burden of distributing this thing.

  So in a way, you need to make sure that they have something that they’re layering on top such that they can win from the correlation with the drug distribution. So in first-order, that could be things like investing in other new drugs, new challenger drugs, new treatments, and new other therapeutics which are addressing either the drug or immediate drug adjacencies. Beyond that, we are interested in investing in distribution mechanisms, but provided that those distribution mechanisms are also layering high-margin services on top—and that could be diet services, exercise, other forms of regimes and advisory and consultative services. And then beyond that, if we’re going to invest in third-order effects, we’ll just need to make sure that they have a close and highly correlatable relationship with GLP-1, and that’s something that we’ll have to evaluate on a case-by-case basis.

  Meera Oak:
  Yeah, that makes sense. I mean, just because we are always looking at the winners and the losers in every category, I would love to make sure that we’re touching on the challenges that some industries might experience with the rise of GLP-1 or the decline in other categories. Anyone want to comment there?

  Alim Giga:
  Sure, I can jump in. Analysts expect about an 8% aggregate decrease in food consumption by GLP-1 patients to most directly hit grocery stores and food producers, especially for snacks and between-meal categories. As with food producers and grocers, restaurant basket sizes are also expected to decrease. This hits delivery providers particularly hard, who rely on larger basket sizes to generate contribution margin.

  Aggregate reduction in cravings and focus on healthy consumption driven by GLP-1 are widely expected to result in a significant reduction also in alcohol consumption. This is expected to impact beverage producers as well as the industries tied closely to alcohol consumption. We can also expect a decrease in more invasive weight loss procedures like liposuction, as well as other procedures that usually occur from weight loss problems like knee surgeries and sleep apnea.

  Meera Oak:
  Yeah, I feel like at this point we’ve covered a little bit more of the upside, the downside of this category. This is a brand-new category in so many regards, so there’s so much more that we don’t know about this space. So what are the areas of risks or uncertainty that you guys are weighing when you’re seeing opportunities in this space or just researching yourself?

  Naren Ramaswamy:
  Yeah, I can jump in here. First and foremost, it’s hard to predict the future, and in particular, it’s hard to predict how the second and third-order effects are going to play out. Some effects may already be priced in, and some of them may not actually have a material impact.

  Secondly, it remains to be seen whether the U.S. healthcare industry can actually sustain the demand for GLP-1. If 5, maybe 10% of the population ends up taking this drug, ultimately payers are going to have to support this cost. Right now, patients are spending close to $10,000 a year each, and it looks like as of now that patients may have to continue taking the drug indefinitely to continue seeing weight loss improvements. So this is a huge cost to the U.S. healthcare system. If tens of millions of Americans indefinitely take this drug, most of that would go to the payers eventually. For example, this drug is not covered by Medicare as of now, so this may be a risk of adoption for GLP-1s if patients have to continue paying out of pocket.

  And long-term side effects are also something we’ve been thinking about. There are still questions. We have to see if that creates any externalities. There could also be potential other solutions that pop up, like digital therapeutics that emerge that might have the same efficacy as these drugs—but that also remains to be seen.

  Meera Oak:
  Yeah, that’s great, and thanks for touching on the digital therapeutics scenario. That was a question that an audience member had, so it’s really timely. I guess shifting more towards our crystal ball or a bit more of our what’s-left-to-be-seen in this category—are there any ongoing studies or developments that could further shape this narrative around GLP-1? I know even in just the past six to twelve months, there’s been so many new innovations in this space, so just curious to see what you guys are reading or hearing.

  Grant Demeter:
  Yeah. I think Naren touched on this, and Meera you touched on it as well in your introduction, which is I think the hot topics today fall into three categories. One of them is rebound. The second is pancreatic effects, and then the third is new drugs hitting the market.

  The rebound effect is Naren’s point to the degree of—we don’t know how long an individual patient is going to, on average, be on a GLP-1 course of medication. These are organized in courses, as some of our listeners will know who might be patients. You ramp up, you sustain, and then you ramp down and then ideally wean yourself off of the medication and sustain your weight loss.

  Early clinical trials have shown that about two-thirds of weight has gained back, but those clinical trials can only go so far, as the drug was not actually approved for weight loss. It was approved, as we know, for obesity and has been used kind of as a shortcut for weight loss. So we’ll need to understand—in order to value startups in this space—what is the lifetime value of someone who is on GLP-1? How long should we expect them to be on a GLP-1? What services do we expect they’re also going to be needing as part of that course? Let’s say that it’s not healthy for them to be on more than X number of courses—then in order to keep the weight off, they may need a “keep the weight off” service provider. And this is a critical, critical topic for us to be able to evaluate the cash flows associated with businesses like this, believe it or not.

  So that’s something that’s going to be proved out longitudinally. The second thing is pancreatic effects. There’s been more and more news around the big risks here. As Meera, you mentioned—the primary mechanism of the drug is stimulating the pancreas, or Alim may have mentioned it. As a result, people have seen some pancreatic issues—people who are clinically predisposed and people who are on particularly high dosages. And so these pancreatic issues, if they prove to become more prevalent or more an area of concern for doctors, may require either changing in regulation or accompanying therapeutics or prescriptions or courses of behavior required. That being the case, we should make sure to invest behind those as well. And of course, we should also be investing behind the primary effect of this drug, which is diabetes—so we should focus on that too.

  And then the last thing is new drug development. There’s always new drugs hitting the market. These drugs have been fast-tracked because they’re focused on preexisting indications. A new one by Eli Lilly just hit the market in November—it’s called Zepbound. And then in parallel to these new FDA-tracked drugs, there’s a number of kind of holistic or alternative or other forms of medicine that are being explored and hitting the market obviously much faster, with potentially lower efficacy. But these drugs are potentially interesting to people who might be worried about side effect profiles and the longevity of the efficacy of these drugs.

  Meera Oak:
  Yeah, no, thanks so much, Grant. That was really helpful context to know. It seems like we could talk about this topic for a lot longer, but I think I have one final question—really just to bring it to the 30,000-foot view again. And the question is around regulatory involvement or the governmental policies. I mean, I think Naren, you touched on Medicare earlier. I’m curious to understand what the role of government will be in influencing this trajectory and how do you think it’ll impact the rise of GLP? And this is a free ball. Anyone can take it.

  Grant Demeter:
  I’ll hog the limelight and then I’ll see if anybody wants to jump in and finish off. But this is a build on what Naren already said, which is that in some cases, Medicare does approve and reimburse these GLP-1 drugs, but in most cases Medicare does not—and especially for weight loss purposes. Employer coverage often does reimburse these GLP-1 drugs entirely. Across all of these potential payers, most of them actually have some kind of hurdle rate that you have to have in terms of BMI to be able to take this for weight loss purposes. It’s really not available for people under, if I recall, something like—I don’t actually want to throw the number out—but a certain BMI level. And so for those people who are under a certain BMI level, in order to access this drug if desired, they’re going to need to have diabetes.

  Grant Demeter:
  And so this is of course hugely limiting the current total addressable market for these drugs unless people want to pay out of pocket. Now doctors are starting to—and they’re obviously being instructed on how to prescribe these things delicately and to improve reimbursement—but the fact of the matter is they were fast-tracked through the FDA process and went through all the proper approvals, but they were fast-tracked because they were treating an existing indication, which is diabetes, and they had the benefit of the weight loss as well. And that benefit was approved, but it is not the primary indication approved by the FDA. So if we want these things to truly grow and reach their full potential, we’ll need—ideally—either the FDA to approve them more fully, Medicare to reimburse them more fully, everybody to lower the bar for who gets access to it, and maybe private industry to jump in with financing and insurance products to make these things accessible out of pocket for people.

  So I think that’s what we’re going to need to see to believe in the super, super long-term promise of this. As Naren mentioned, 25% of people in America right now are thinking about and interested in potentially trying a course of GLP-1 drugs, and Morgan Stanley expects 7% of them to be in the next year or so—or 10 years or so. So we have a long time to go to start worrying about market size here. It’s very clear that this market size is huge. But that is the future, future big picture. On the regulatory side, on the risk side for regulatory, we do have to be aware of these side effect profiles and ensure that they’re not too worrisome. That being the case, there could be additional courses of medication required. There’s not very much precedent for this, but the FDA could withdraw some of its approvals. And then more importantly, consumer sentiment for these drugs may overall reduce.

  Meera Oak:
  I think the short story is: the story is definitely not over here, and we’re going to continue to monitor this space actively. I think this concludes the panel portion of the webinar. I just want to thank you all for joining and for participating in this really meaty discussion. I’m just really excited to dig into the space with you all. So with that, I think I’ll invite Ludwig back onto the virtual stage and depart myself.

  Ludwig Schulze:
  Thank you so much, Meera, Grant, Naren, and Alim, for all that panel discussion. Very much appreciated. For anyone who would like to dig in a little bit further—if you haven’t already read the blog that this team put together—I encourage you to take a look. It’s a great read. If you basically just Google “av.vc ozempic,” it should jump up for you, and you can get access to that blog to read further.

  So now turning back to the next set of our agenda items. The next piece we’re going to cover is a much more macro general perspective on venture capital in general. So what is venture capital, why is it an asset class that exists, and so on. And then we’ll continue further on to the Doctors Innovate Fund and so on.

  So, why venture? To start on this section, I want to begin with the context for really what venture is meant to do. And what you’ll see there on the left-hand side of your screen are a number of companies that are pretty well all household names—probably you’re using more than one of those products from one of those companies right now to be a part of this event. But the key thing that is consistent among all six of those companies is that they all originally were supported by venture capital.

  So they are examples of precisely the type of companies that we are looking to invest into. Obviously, for today’s conversation and related to Ozempic, we’re talking about more healthcare subjects and so no particular examples there—but there are plenty of healthcare companies that have been supported originally by venture capital.

  The thing that particularly drives that is that a venture capitalist—when they first met, for example, Jeff Bezos with Amazon—was a belief that these companies could scale exceptionally quickly, that they could grow from being a handful of people and maybe some pilots and a little bit of revenue into large businesses within something on the order of 10 years. And so each of these, of course, succeeded. That is success, obviously, for us in venture capital. There are other companies that won’t do that, because in essence what we’re asking these businesses to do is quite difficult. But I want to sort of ground us with: these are all companies that venture capital originally supported. They were effectively possible because venture capital was willing to give them the support early on.

  Turning to the “why” piece of the puzzle for venture capital: obviously, as with any financial asset class, performance is incredibly important. It’s a big driver of why people participate. And so I will just simply highlight the far-right bars here. This dark blue bar at about 28% is the average venture capital return in the United States over the last 25 years. So all of the funds, on average, returning in total there. In comparison is the S&P 500 at about 10% over that same 25-year period. And so that’s the delta, right? That’s the opportunity that venture capital represents—to be able to return very substantially interesting financial returns.

  I will note a couple of things. One is that all of these are after fees, which is important—and we’ll talk about fees a little bit later, but it is a consideration for fees. And I’ll also note that obviously the S&P 500 number is a single number, whereas the 28% is an average of all venture capital funds, and we’ll speak a bit about the importance and the variance therein as well.

  The second piece of the puzzle that venture capital, as an asset class, derives a lot of interest from is because it is fundamentally uncorrelated to public markets. So what you see in this graph is venture capital—obviously correlated to itself as a 1—whereas large cap equity (equivalent roughly to the S&P 500) and bond markets, in fact, are essentially not correlated. And this is very interesting for investors to be able to diversify their portfolios, and why many institutional investors have consistently invested into venture capital. You can think about endowments that are often into the twenties and 30% of their portfolios actually into venture capital, and this is a big part of it.

  The primary reason for this lack of correlation is the fact that venture capital is a long-term asset. This is an investment into individual companies relatively early in their growth, and as I described, often takes something on the order of 10 years for these businesses to get to a place where they’re large enough to go public or be acquired in an interesting way. I’m based in New York, and so in essence, whatever happens at Wall Street today won’t impact the individual company that is supported by venture capital. And so that’s the fascinating thing about this as an asset class—and a benefit to diversify a portfolio.

  Alright, moving now to the Doctors Innovate Fund itself. What is it? How does it function? In essence, this is a portfolio of companies that we put together for our investors around healthcare problems. So that’s a variety of different areas. It’s certainly digital health and supply chain and any dimension where we see an opportunity to improve upon healthcare delivery, healthcare services, healthcare solutions, therapeutics, etc.

  Each of these funds will have roughly 15 to 20 deals, and they’ll have a variety of different companies in there representing different stages of businesses, meaning maturity of those businesses. So in the parlance of the industry, seed stage is kind of the beginning, where companies are getting started. They may have pilots and a little bit of revenue. Early-stage companies may have several millions in revenue. And then late-stage companies might be in the tens or even hundreds of millions of dollars of revenue. Every one of our Doctors Innovate portfolio funds is going to have a variety of those kinds of companies.

  Equally, we’re going to have different sub-sectors—so we’re going to have some telehealth, and we may have some therapeutics, and we may have some digital health—but we’ll be representing a variety of different elements in healthcare tech overall. And we’re going to speak more about the lead investor dimension in a moment, but that’s another portion of the diversification that’s important. Practically speaking—and we’ll get to this a bit later—but there’s a $50,000 minimum.

  So why a Healthtech Innovation Fund? I think for anybody on the call here that’s in the industry, you’ll know very well why healthtech innovation is so important. You’ll appreciate on a daily basis that there are things in your work, in your life, in your care that could be better with technology. And this is certainly an industry that has a lot still to be done in terms of technology and the opportunities that technology can apply. And it is an enormous market—so roughly $2 trillion a year and growing at a very fast pace. So a lot of things to be changed, a lot of things to be improved, and precisely where venture capital and technology-backed businesses, we believe, can have an impact.

   

  Examples of those types of businesses would be AI-powered drug discovery, anti-aging solutions, healthcare analytics, medical robotics, telehealth care, etc. Not an exhaustive list, but some examples for you to contemplate—the type of things that we will be investing in with this fund. As an example, in the first half of 2023 alone, we had in the venture markets over $6 billion invested across 244 deals. There is quite a lot of activity in this space and we see it here quite a lot at Alumni Ventures. Equally, 140 health tech startups have reached unicorn status. We refer to that—I don’t actually know where it comes from—but these are companies that have reached valuations over a billion dollars, which is significant when you think that many of the companies that we are investing in, when we originally are investing in the businesses, their valuation may be $20 million or $50 million.

  So you can see that the change in valuation can be very substantial and many health tech companies have already done so. This is kind of the focus area for us with the Doctors Innovate Fund. I’ll clarify that of course many of our founders will be physicians or previous physicians or otherwise, and we will also be investing into companies that have founders who are not physicians—who are either repeat founders who’ve done other businesses either in health tech or otherwise. But those are the folks and the areas that we are interested to invest into.

  The team around the Doctors Innovate Fund is first of all myself and Ron as managing partners of the fund. Ron comes to us from Babson and Harvard Business School, spent some time at McKinsey, and like myself is also a founder. He won’t do it for himself, so I’ll put a plug in for Ron’s book. If you look on Amazon—Higher Purpose Venture Capital—I encourage you to take a look. It’s a great set of examples and stories of companies changing the world.

  So that’s me in the middle—Ludwig. I am Brown and Columbia MBA, spent some time in venture in the dot-com days, then at a large company you may have heard of called Nokia, and then also became a founder. We’re joined on the team by Andrew Padilla, who’s a partner. Andrew comes from venture capital both in terms of asset allocation (so investing into venture funds) as well as venture investing itself, including a fund called Ral Capital, which was created by Peter Thiel. Some of these other faces you’ll recognize from our panel—so Grant and Meera. We also have Brooke Stroud, Patrick Sweeney, and Jason Byrd on the team.

  But I will importantly point out that this team on Doctors Innovate is not working only by itself. We are a part of this larger entity, Alumni Ventures, which is around 40 investment professionals overall and 130 people across the country—in Boston, New York, Chicago, and Menlo Park, as well as Manchester, New Hampshire. All of us are working together—working together to identify opportunities, to evaluate those opportunities, to select the opportunities that are most appropriate to be invested into by each of our different funds.

  To give you just a rough feel, across the group we are seeing probably about 500 deals per month, of which we’re doing really a deep-dive diligence on about 10%, or about 50 of those companies. There is a scoring process that we use—a scorecard literally—and if you have an interest, we do have masterclass webinars where we go through that process in greater detail. Ultimately, we’ll invest into about 20 to 25 new companies per month overall at the Alumni Ventures level.

  Now, I mentioned lead investors in the previous slide and I think this is perhaps one of the most important pieces of the puzzle for folks that are looking at how we invest. And the simple version of this is that we are never the first or the only investor into a company. We are not running around to garages and trying to find the next Steve Jobs, per se. We are always going to be investing alongside what we describe as the established VCs—folks who have been in the industry for decades, who have great depth of experience in every single different vertical area that we invest in. And we can benefit also from their deep pockets to ensure that our companies get supported in maybe more difficult times, if they are still good companies.

  Many of these names are probably not household names—Kleiner Perkins probably the closest of them. GV, by the way, stands for Google Ventures, so I’m sure people are familiar with that. But these are firms that again have been in the industry and shown great success across a variety of different areas.

  In terms of some examples of companies that we’ve invested in: Clarion is a company that works on the supply chain side of health tech—so very much about making certain that health systems are optimizing and reducing waste and ensuring the best possible patient care. Another example would be Genetesis, which is a sort of MRI-like machine that is able to rapidly diagnose the severity of chest pain—in essence, being able to determine whether somebody is actually having a heart attack in the ER or not, much more quickly than is available today. Similarly, Accolade is a company that does employer health benefits platforms and is in fact a company that we’ve already exited as well.

  So just to give you a rough feel for the types of companies—there are lots more on our website. You can take a look. You can look at the companies that we’ve invested in historically in the sector. You can look at who we’ve invested alongside in each of those cases. And you can see the sub-sectors—big data, health tech, digital health, etc.—where we’ve invested. And of course AI.

  To be clear, AI is not exactly a new thing for us here in venture. So if you look at our portfolios over the last year, five years or so, most of them have had some dimension of artificial intelligence supporting their growth. And so it is now of course on the front cover of USA Today and naturally much more in people’s minds, but from our perspective, AI is a part of most every single investment that we’re making these days.

  The next piece of the puzzle that I’ll just touch on is: how do we get access to these great investments? It’s often a question that we get. There is sometimes an assumption that we’re sort of waiting outside the door of these folks to throw us a bone. And I just want to be very clear that that is not how we operate. We operate very much as a network-powered VC, and that is all about being able to reach out and benefit from folks like yourselves in our broader network sharing opportunities—introducing us to the founders themselves.

  Very, very important. We want to have a direct relationship with our founders. We want to actually meet them before they meet that lead investor. And we actually ideally would be the one to introduce those lead investors. And that’s possible because of the strength of our network. Having 40 investment professionals organized both around alumni communities as well as communities like the Doctors Innovate community makes certain that when there’s an interesting opportunity out there, there’s somebody in our community that is sharing that with us. Maybe it’s one of you. Maybe it’s one of our investors. Maybe it’s one of our founders. And that’s the power of our network and our ability to get access to these interesting investments consistently.

  Alright, turning to the next piece of the puzzle. If you are curious if this is something that might be appropriate for your portfolio, let me tell you a little bit more about how you can invest with us. I will begin, however, with the question of: is venture right or wrong for you? I think that it is a very important personal evaluation that you need to make.

  The first piece of that puzzle is portfolio diversification. Very common for most of our individual investors that we meet is that they have public stock market assets, they have bond assets, and probably either the real estate that they live in and maybe a second or third vacation home. And so the question becomes: is this sufficient? Is there benefit from adding another asset class to the overall portfolio? That’s, again, a question that you need to answer for yourself.

  The other dimension then is within that portfolio—if you determine something incremental from a diversification perspective would be worthwhile—the next question is: does your portfolio accommodate what is fundamentally a longer-term asset? As we talked about, more like a 10-year kind of asset and an illiquid asset.

  As individual investors, Wall Street investors, we’re kind of accustomed to public stocks—that you can trade Apple a hundred times in a day. That doesn’t work in venture capital in the same way. We are investing together via the fund into these companies. These companies are using that capital for salaries and for cloud services and for computers and so on. And as a result, we are waiting for each one of those 15 to 20 companies to be acquired or to go public. And until that happens, we can’t have liquidity in the fund per se.

  The next piece of the puzzle is: can you tolerate some turbulence or sort of lemons? As I mentioned very much at the beginning when we were talking about Amazon and Apple, those are the companies that succeeded—and succeeded extraordinarily well. For each of those stories, there are other stories that didn’t. More often than not, those failures or those less-than-successes happened relatively early in the timeframe of our investment—sort of that zero to five-year timeframe—and then the interesting outcomes kept more in the six to ten. For some people, watching that turbulence in those early years is upsetting, and I understand. We don’t like it either, but it is part of the reality of this business that you have to be somewhat patient for the good things to happen.

  In all cases, we encourage you to reach out to us. We’re more than happy to set you up with time with one of our senior partners to discuss further your particular questions. I also encourage you—if you use a professional advisor—to discuss further with them.

  Now moving to some of the key terms of investing with us, I’m going to walk through each of these in turn. So to begin with, investment amount. You can certainly invest with us into the millions of dollars. We have plenty of folks who do so. But you can also start as low as $50,000. There are fee discounts that kick in above $500,000, and we do have a Diamond Club benefit for our largest investors. If those things are of interest, please just reach out and we can give you more detail.

  How to invest: A number of different options. This says cash. What it really means is cash equivalents—so this is monies from a bank or a brokerage account, trusts, retirement funds. You can actually use self-directed IRA funds to invest with us as well. And again, from a timeframe perspective—for some folks, that works well.

  For any non-U.S. citizens or green card holders, we also do have a vehicle available for you to invest.

  Some practicalities on fees: The way that our fee structure works is that it is a 2% annual fee for the fund’s 10-year lifetime. So effectively it’s 20%. For example, $300,000 committed capital would be $60,000 of management fees. That’s put aside at the very beginning of your investment, so there are no longer any fees that you need to be concerned with going forward.

  In terms of profit share: In any example where there is a profit generated by an investment, the split of profits is 80% to you as the investor and 20% to us as Alumni Ventures. In the industry, that’s referred to as deal carry.

  Another slightly technical terminology piece—capital call: We do a single capital call. What that fundamentally means is you invest anywhere within the fundraising window for this fund with your capital at that time. We do not subsequently call you multiple times for incremental capital. That is then your choice—whether you would like to join us for subsequent funds, of which we will typically do a new fund every single year.

  As I mentioned, the term of the fund is effectively 10 years, plus up to two incremental years without any incremental management fee if there’s a particular reason and benefit to do so. But just to be clear—the way this works is you’re putting capital in once (so there’s one check into the fund), and you’re getting a bunch of checks back as those 15 to 20 different companies exit the portfolio over time.

  And as I mentioned, the retirement fund is available—you can use retirement funds for this investment as well.

  I want to come back to the cash or the cash-equivalent investment for just one moment, because there is an important potential tax benefit here. I cannot provide tax advice, but I do want to make sure that you’re aware that within the tax code there is something called the Qualified Small Business Federal Tax Exemption. It is effective since 1993, and it is all about encouraging investment into startups.

  What it practically means is that some of the companies in the portfolio may qualify. A lot of caveats, of course, but for a company that does qualify, there is the potential that you would get a 100% exclusion of your federal capital gains—and in some states, state capital gains as well—up to $10 million in gain or 10 times the basis, whichever is greater. So obviously, a pretty interesting potential tax benefit. We certainly can provide you with more information if you’re interested to dig into the nitty-gritty on that dimension.

  Alright, with that, that’s the core materials that we wanted to cover for today. I am now going to turn to any questions that the group may have.

  I also would encourage you—if this is something you’re curious about and you’d like to learn more—a couple of different mechanisms that you can go to to find more. One is to go to this website: av.vc/doctors. Once you log in there, you’ll be able to read a lot more materials about the fund, about how it works, about Alumni Ventures, and you’ll also be able to start the process of investing through a simple questionnaire.

  Lastly, on that website, you’ll also be able to schedule a one-on-one call with one of our senior partners to learn more about all of these dimensions and ask your individual questions. Of course, at any time, you’re more than welcome to email us here at [email protected], and that’s especially helpful if you have specific questions about—for example—non-U.S. investors or retirement funds, and we can provide you with more responses through that function.

  One other thing I should point out is sort of the deadlines that we have for this fund. And I should just point out that Haley has, in the chat function, put these links—so you could also directly click on those links and go to those websites now, or send an email now, or schedule a one-on-one call now.

  The last piece of the puzzle I’ll just bring up is the deadlines for this particular fund so that everybody is aware of them:

  • First Close: The end of February (end of next month).
    If you sign your documents by the end of next month, you also do get a fee reduction—10% reduction in the management fee that I described earlier.

  • Second Deadline: End of March (March 31st).
    That’ll be a 5% reduction.

  • Final Deadline: End of April.
    There will be no fee reduction by that deadline. That’s the hard deadline for our signatures.

  For each of those deadlines, I’ll point out—that’s a signature deadline, not a funding deadline. Funding can occur subsequently.

  Alright, I believe that’s all the things I wanted to cover. Now I’m going to go to the questions that have been submitted, and you’re more than welcome to add incremental questions if there are any pieces that I have missed.