How Does a Leading VC Add Value After Investment?
Ask An Investor: Mo Makhzoumi, NEA (Part 1)
Meet Mo Makhzoumi, General Partner at New Enterprise Associates (NEA). In this edition of Ask An Investor, Makhzoumi shares how a disinterest in organic chemistry led to a career in venture capital, details NEA’s distinguished track record in healthcare, and explains why he has the best job in the world.
How did you become an investor?
I come from a family of physicians. Both my parents are physicians, both my sisters are physicians, both my grandparents were physicians. So I’m like the black sheep in the family, in that I don’t have an M.D.
I really was attracted to the investing side of healthcare because it allowed me to have some of that feeling of helping people without having to pass organic chemistry.
I started at NEA as a summer intern in our Baltimore office in the summer of 2000 when I was still in college, and haven’t looked back. Today, I’m a general partner at NEA, where I manage its global healthcare services and healthcare IT investing practice.
Tell Me More About NEA.
NEA is one of the oldest venture capital firms in the world. Today, we’re also the largest venture capital firm in the world with $20 billion dollars of capital under management.
We have a very simple approach to investing. We are venture and growth investors in two sectors: IT and healthcare. On the IT side we focus on areas like enterprise software, consumer, e-commerce, and financial technology. On the healthcare side, we are focused, really, on three verticals: biopharmaceuticals, medical devices, and healthcare services and healthcare IT.
The common thread across all of these subsectors is that we’re looking to build large businesses.
We are partnering with management teams and entrepreneurs to create and realize a grand vision toward creating something that has enduring and lasting significance.
We’re not attracted to business models where we create a window for quick profit or revenue and then ultimately sell. There are a lot of interesting companies that are created with that kind of mindset. But, that’s typically not what we’re looking for.
We’re looking for companies led by entrepreneurs that are trying to build a large business. Building large businesses takes a lot of time and a lot of capital. Given our track record and our significant capital base, we have the patience and we have the ability to be along for the ride and support our companies at every stage.
We write checks anywhere from a $500K seed investment to a $10M Series A, a $25M Series B, a $100M Series C, a pre-IPO Series D round, or a public offering. NEA is the largest investor in every round — all the way through to public.
We differentiate ourselves in our ability to support our companies as they grow from seed to venture to growth to public. If you looked at our portfolio, you’d see an incredibly diverse set of companies, ranging from multibillion dollar revenue companies, to public companies, to venture stage, to the proverbial, you know, a guy in a garage.
In our healthcare services portfolio, we’ve got companies that are $1B+ in revenue to companies squarely in their seed stage. It’s an incredibly diverse set of companies, but the common theme that ties all that together is that we think there’s an opportunity to build a large business.
We’re not afraid to take substantial company building and venture stage risk, and expose large amounts of capital to that if we think the pay off on the other end is going to be significant.
We’ve been investing in health care services since 1978, when NEA was founded, and today we’re an investing practice with a dedicated team of five folks, and a portfolio today of about 14 active companies. Our historical dedicated nature is important because in healthcare, you’ve got a lot of tourists — investors and entrepreneurs — coming in and out of this space, a sort of ebb and flow.
We call it the “healthcare hokey pokey.”
These folks have one foot in, one foot out. Some folks say, “We’re all in on healthcare.” Then there’s a cycle of reform, and they soften their stance to, “Well, maybe not so much.”
How does NEA add value post investment?
At NEA we have one global fund and every sector that we invest in comes out of that singular fund. Other funds may have a growth and venture fund, or a healthcare focused fund, but for us all of that is irrelevant.
One of the great things about NEA is that we get to cross pollinate very, very easily inside of our own partnership with subject matter experts, and we get to team up with subject matter experts to go through diligence. Then after the investment, which I think is most important, we support our companies with very diverse viewpoints.
Any venture firm’s strength lies in its people and the institutional knowledge that it has. For NEA, that institutional knowledge has been cultivated over an almost 40-year history investing in healthcare services. I get to take advantage of this amazing wealth of knowledge, this wealth of portfolio companies that has been built across a 40-year period inside of NEA. And I get to leverage that to help us make informed investment decisions and then, as you said, help our entrepreneur partners build and grow their businesses.
So, to answer your question, I’d see our real value-add as threefold:
First, we are an incredibly deep, dedicated healthcare services investor. I’m not out there doing consumer deals and enterprise deals. I’m a healthcare services investor. And we have a team that does nothing but that. So we like to think that we can add real value from a deep domain expertise level.
Second, over the last 40 years we have built an incredibly diverse network of operating partners, entrepreneurs, EIRs, and venture partners, and within our portfolio we have pretty much invested in every pocket of healthcare services. Whether it’s acute care, outsourced clinical services, managed-care, direct-to-consumer, self-insured employer solutions, PT, ASC, etc., it doesn’t matter — we’ve pretty much done everything. We can add value through our network, which allows our companies to get the benefit of pattern recognition across multiple sub-verticals.
Third, we have a broadly diversified fund. So, this is incredibly helpful when there is a company that sits at the intersection of enterprise software and healthcare, or consumerism and healthcare. We’ve got a phenomenal and deep bench to bring people in to help. That’s incredibly important because pretty much every deal in healthcare, at least in my healthcare services portfolio, is multi-vertical. There are so many components in healthcare that are multi-sector and our ability to leverage our whole team to help our entrepreneurs is what makes us unique.
If you’re a digital health investor and would like to learn more about StartUp Health and our portfolio of 200+ digital health startups then email me at sean [at] startupheath.com.
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