Announcing KdT Ventures… without further ado, let’s get to work.

At KdT Ventures, we see the intersection of technology and the life sciences (biology, chemistry, physics) as the most meaningful area for development and subsequent investment in the coming decades. As Marc Andreessen famously said, software is eating the world, but we at KdT prefer to modify that into a more precise statement: computational technology is enabling the understanding and subsequent development of the physical layer (chemicals, agriculture, and medicine), which is dominated by the life sciences. Let’s try to break this down…

The current technology and software markets are based on engineering (electrical and physical) principles that allow large amounts of data to be organized and processed efficiently. Over the years, a subclass of the workforce has emerged, known as “computational engineers”, whose diverse skills include the understanding and fluency in machine language (“code”) and mathematical principles. VC investments in this space have shifted from hardware (silicon chips and machines), to operating systems (Apple and Microsoft), to software and applications known as “apps”. Software itself is simply an abstraction of machine code, meaning that instead of seeing the 1’s and 0’s of binary language of the “chips”, you are instead dealing with only the “functional” layer that may be your word processor, CRM, Quickbooks, etc… Advances in computer power and machine intelligence have allowed us to efficiently programitize and automate many parts of our day to day life, though some parts remain relatively untouched and underinvested in, specifically the physical layer.

The physical layer can be explained with this real life example:

Cars have made amazing technological advances over the years, such as auto-lane change detection, backup sensors, error readouts, and most recently self-driving vehicles. However, the physical parts of the car: tires, paint, metal for bolts, leather for seats, etc… have undergone virtually no innovation and gained relatively small advantages (think things like 3D printing) from the technological revolution. Even as technology pushes automobile function further, we still need these physical (note real) products.

The reason for the lag in physical layer innovation, is due to a combination of reasons, most saliently stated as:

  1. A lack of understanding of the complexity and highly networked system that is biology/chemistry
  2. Regulation within the space
  3. A relative abundance of raw materials with large incumbents
  4. General “unsexiness” of the space when compared to “high flying” areas like software

KdT plans to invest, incubate, and enable the disruption of the physical layer, as this will be the the most important areas of innovation over our lifetime due to its immense and immediate effects on humanity. The investment verticals KdT will focus on are outlined below.

Cloud & Synthetic Biology

Synthetic biology (sometimes known as industrial biotechnology) can be defined as the design, construction, and manipulation of biological and chemical systems and devices for directed and useful purposes. Many simplistic examples of synthetic biology exist today, such as bacterial systems used to synthesize insulin (these innovations led to a $46.8 billion acquisition of Genentech by Roche); however, with recent advances in genomics and systems biology (see graphic below depicting plunging cost of both reading and writing DNA), a new paradigm has emerged. Rather than merely producing a functional product, reprogrammed cells, bacteria, and novel synthetic organisms will become the product. We can now consider cells as computational units functioning under programs written by biologists, executing “apps” that can accomplish everything from turning algae into diesel fuel, indicating levels of food contamination via activation of a “program”, or even detecting diseases in their earliest state through ultrasensitive biological pathways.

The industries and markets touched and created from the application of engineering and software principles to chemicals and biology are HUGE. Chemicals and Agriculture alone constitute ~$5T (trillion with a T), with less than 5% of the industries having been addressed by synthetic/computational biology. Of course there are also applications in medicine, though the time to fruition will be long and arduous (more on where this intersection is interesting from an investment perspective below). Lastly, new markets that could obviate or function in parallel are also possible, particularly as we move away from a petroleum dependent society (the majority of the physical layer is petroleum derived FYI… Oil is not only used for energy).

Computational Medicine and Digital Diagnostics

Although US healthcare comprises ~$3.5 trillion dollars of spend yearly, large enough in scale to be ranked the 4th largest country in the world if it was its own country, healthcare innovation investment has lagged behind other sectors consistently (see chart below on US venture capital activity by sector). The reason for this is likely explained by the heavy amount of regulation in the industry (meaning slower time to monetization with increased risk of external failure) coupled with the difficulty/technicalities of the problems being addressed, such as reimbursement issues and the difficulty of drug development. Traditionally, the dearth of investment in the sector is offset by large government grant programs, though these programs are arduous to secure capital through, inconsistent in budgeting due to political pressures, and not always “translational” in their aims (meaning sometimes funding science simply for the sake of science).

Despite this, being such a large and important market, private investment in innovative medical startups is increasing. The majority of private investment in healthcare has gone towards areas such as traditional drug development, insurance companies and tools, and alternative care delivery models. Very few of these companies are involved with the integration of technology in the disruption of the actual development and processes at hand, instead simply seeking increased efficiency in an inefficient system.

KdT Ventures strongly believes that the layer of medicine that will allow us to move into the future is the emerging discipline of computational medicine/digital diagnostics. This field is devoted to the development of quantitative approaches for understanding the mechanisms, diagnosis and treatment of human disease through applications of mathematics, engineering and computational science. The core approach of Computational Medicine is to develop computational models of the molecular biology, physiology, and anatomy of disease, and apply these models to not only improve patient care, like streamlining and automating diagnostics and therapeutics, but also to create entirely new paradigms.

Announcing KdT Ventures… without further ado, let’s get to work.