The Start-Up Star
Venture capitalist Terry McGuire Th’82 has the connections and vision that have helped build more than 25 successful new companies. No wonder so many entrepreneurs wouldn’t dream of launching a business without him.
By Scott Kirsner
In a conference room at his suburban Boston office, venture capitalist Terry McGuire Th’82 sits down across from an entrepreneur whom he is meeting for the first time. Within a few minutes, they are discussing Wolf Blitzer and beef-on-weck sandwiches.
The sandwich — roast beef piled atop a seedy, salty roll — is a delicacy in Buffalo, where both McGuire and the entrepreneur, Ronald Dozoretz, were born. (Blitzer, the CNN anchor, hails from Buffalo, too.) Every initial meeting between a venture capitalist and an entrepreneur pitching a new business idea is a kind of courtship ritual: Is there mutual interest, and if so, who has the upper hand? McGuire has sat through hundreds of these encounters. Dressed casually in khakis, a blue button-down shirt, fleece vest, and black clogs, McGuire doesn’t strain to impress Dozoretz or a colleague accompanying him. He’s mainly in listening mode.
McGuire, who co-founded Polaris Venture Partners in 1996, doesn’t need to be overly eager. His firm has raised more than $3.5 billion to invest in promising companies. He has backed start-ups including Akamai Technologies (one of the most successful public stock offerings of the dot-com era, and today worth nearly $10 billion) and the Dartmouth spin-out GlycoFi, acquired by pharmaceutical giant Merck for $400 million. He has been working in the venture capital field since 1984 and recently wrapped up a stint as chairman of the National Venture Capital Association. He’s a regular recipient of calls from top academic researchers interested in forming new companies around their latest breakthroughs. And far more often than he decides to pull out his firm’s checkbook, he calls an entrepreneur after the initial meeting to say that the opportunity just isn’t right for Polaris. “Hopefully, I’ll read about you in The Wall Street Journal someday,” he often says, “and I’ll be the first to raise a toast to you.”
Dozoretz has started and sold several successful healthcare businesses, and he’s here to talk with McGuire about his latest project, Genomind, which aims to use genetic information about a patient, obtained from a saliva sample, to help psychiatrists better prescribe antidepressant drugs. He’s looking for about $5 million of funding.
The job of a venture capitalist is a mix of talent scout, thoroughbred handicapper, wise uncle, pinch hitter, and, occasionally, axe-wielder. Venture capitalists collect money from wealthy individuals, university endowments, and pension funds that they invest in a collection of fledgling companies. By picking the right ideas, markets, and teams — and trying to guide them as a member of the board of directors — their aim is to build a company that can go public or be acquired by a more established player, usually within a decade of their initial investment. Venture capital firms survive by taking an annual fee on the money they manage (usually about 2 percent), and also pocketing 20 percent of any profits that their investments yield. (The other 80 percent goes to the investors who have bankrolled them.) Venture capitalists such as McGuire are sometimes called upon to help their start-ups recruit key employees, forge relationships with important partners, and, on occasion, fire a CEO who isn’t working out or pull the plug on a company that isn’t making progress fast enough.
McGuire himself had only had one brief job at a start-up company after earning his master’s degree from Thayer. He spent about two years at a Boston-area company that was developing computer simulations to test out different corporate strategy scenarios. A few years later, while earning his M.B.A. at Harvard Business School, he landed a summer job at American Research & Development, generally regarded as the very first venture capital firm. “The appeal of venture capital, for me, was being able to work with lots of different companies,” he says. He currently serves on the boards of directors of 10 companies in the life sciences and energy industries, all but one of them still privately held.
For McGuire, there have been two key components to his success. One is a network of contacts who can introduce him to promising entrepreneurs and academic researchers. The other is a collection of scientific, technical, and business themes he feels will be important in the next decade or two, which serve as a lens through which he views potential investments (see below).
McGuire says that he has funded and helped build more than 25 start-up companies in collaboration with researchers at MIT, Dartmouth, and the Scripps Research Institute. GlycoFi, which sought to control the sugars on the surface of a protein in order to produce better biotech drugs, was among that group, as was Momenta Pharmaceuticals (now publicly traded) and Sirtris Pharmaceuticals, a company that sought to commercialize research on anti-aging mechanisms done at Harvard and MIT. Sirtris was acquired by GlaxoSmithKline for $720 million, even though its drugs are still wending their way through clinical trials.
“Based on seeing many, many things being done in research labs, Terry has a sense of what’s good and what has potential,” says Robert Langer, head of a lab at MIT that is best known for developing polymer-based systems for drug delivery. “It ultimately comes down to a judgment call of what’s just a laboratory project and what’s big science and good intellectual property that isn’t too far off.”
One of McGuire’s latest investments, SustainX, certainly qualifies as “big science.” Based in West Lebanon, N.H., the Dartmouth spin-out is designing a system that can store energy as compressed air. “Renewable generation technologies like wind or solar are intermittent, so you need to store the energy somewhere if there’s not immediate demand,” McGuire says. “And we think using compressed air has a lot of advantages over batteries,” such as lower cost. The company was co-founded by Charles Hutchinson, Thayer dean emeritus, and three Thayer alumni, Dax Kepshire ’07 Th’09, Ben Bollinger ’04 Th’04, and Troy McBride Th’01.
“Terry has built relationships with researchers to the point where neither Bob Langer nor I would ever think about taking an idea forward without taking it to him first,” says Hutchinson. “He has committed himself to establishing those networks of people, who in turn help connect him to other professors and students.” As for McGuire’s passion for commercializing academic research — which is not universally shared among other venture capitalists — Hutchinson says, “For him, I think it’s a very straightforward analysis of why he does it this way, namely that it makes money, which is his world.”
But McGuire says there are challenges in trying to pluck the best ideas from university campuses. “At some universities, there is a feeling that commercializing an idea might taint great research,” he says. “But others see start-ups as a mechanism to get great research out into the world. Still, I think too few universities actively celebrate entrepreneurship.” (He says his continuing involvement with Thayer, where he currently chairs the Board of Overseers, was triggered by the school’s interest in spurring more entrepreneurial activity.) And some professors, he says, simply view venture capital money as another source of research funding. That’s a danger when an idea may not necessarily be maturing fast enough to become a marketable product or service, but its originator is reluctant to acknowledge that. “The attitude can be, just keep sending those checks,” McGuire says.
McGuire’s past investments have already begun to shift the way that medicine is practiced and drugs are delivered. One company, Advanced Inhalation Research, developed new ways of making drugs inhalable that could previously only be injected. Another, Remon Medical, designed a tiny implantable sensor to monitor diseases such as congestive heart failure from inside the body and wirelessly transmit the information to doctors. The company, deCODE Genetics, created a vast library of genetic data and is using that to develop new tests that could diagnose diseases earlier.
“He sees where things can go,” says John Santini, co-founder of a Polaris-backed company called MicroCHIPS. The Boston-area start-up is developing a small implantable chip that can either perform sensing of a disease state inside the body or dispense regulated doses of a drug. Within a few days of the first meeting Santini had with McGuire, McGuire sent over the paperwork for Polaris’ initial $250,000 investment in the company. “As an investor, Terry doesn’t feel like he needs to be in the weeds of technical details. I think he puts a high degree of trust in the people running the company,” says Santini. McGuire says his strategy is to start with small investments to help a company get to its first “proof point,” followed by more money if things are working out well.
McGuire isn’t a self-promoter by nature. He doesn’t maintain a blog or use Twitter. “He avoids publicity,” says Bob Metcalfe, an entrepreneur and Polaris partner who recently joined the faculty of the University of Texas. “He doesn’t think that’s important.” More important to McGuire, perhaps, is a good cup of coffee in the morning. At home and in his office, he has a Bezzera espresso maker, and Metcalfe says that McGuire has imparted some of his cappuccino-making techniques, “like holding your hand on the metal milk pot so you can tell how hot it is.”
Metcalfe describes McGuire as “magnanimous and articulate and open with praise,” but says he’s not afraid of making the tough decision. “It’s interesting to watch the switch flick, from nodding and smiling and listening carefully, to saying, ‘No, we’re not going to do that, we’re going to do this.’ ”
“He’s very straight with people,” says Langer, the MIT professor. “I’ve certainly seen him let people go or be dissatisfied or feel that things could’ve gone better — and he’s not hesitant to tell people.” But Langer also says McGuire is quick to roll up his sleeves. With Advanced Inhalation Research, McGuire helped the company forge partnerships with Eli Lilly, Pfizer, and GlaxoSmithKline. “He’d fly in with us and go to meetings and get the deals,” Langer says, adding that McGuire eventually helped sell the company to Alkermes, a publicly traded drug developer.
In Polaris’ conference room on a cloudy Monday morning, Dozoretz, the Genomind founder, is trying to persuade McGuire that his start-up could be Polaris’ next big hit. “We will change psychiatry around the world,” he says. “No one will order an antidepressant without getting a couple hundred dollar sputum test done on their patient.” McGuire asks a string of questions about the company’s potential competition, its business model, and the way psychiatrists and pharmaceutical makers might regard genetic tests.
After a little more than an hour, McGuire thanks him for coming, and says, “Let me talk to my guys.” It isn’t yet clear whether McGuire considers Dozoretz’s concept worthy of Polaris’ backing.
“You try to make the most educated decision you can possibly make about whether to invest or not,” McGuire says, sitting in his office after the initial meeting with Genomind. “No one bats a thousand. Not every company we touch will work out. But the fun part is that oftentimes we’re dealing with industry segments that are just being born, and technology that is rapidly changing. And with life sciences companies, when we do our jobs right, we can actually change people’s lives.”
Venture capitalist Terry McGuire’s guide to initiatives worth funding
Reducing healthcare costs. The amount we spend on healthcare is climbing faster than other parts of the economy, so I look for opportunities to take costs out of the system.
Home healthcare services. If people are going to live to be 100, how do you keep them from spending those last 15 years in and out of hospitals?
Regenerative medicine, such as the potential for stem cells to grow new tissue or organs that can be transplanted into patients.
Personalized medicine: delivering the drugs and treatments that will work best for a given patient based on the individual’s genetic make-up.
New approaches to producing and distributing energy represent an enormous opportunity. It’s huge, which is the good news and the bad news. Shifting the United States from its reliance on fossil fuels will be a project comparable to the Marshall Plan after World War II. It needs to be a substantial commitment, driven by industry and government.
For more photos from this issue, visit our Winter 2011 set of images on Flickr.