For more than two decades 5AM Ventures has been investing in life sciences entrepreneurs out of offices in San Francisco, Boston and New York. Their steadfast focus in this category provides them an expertise in an area that aligns with some of NVNG’s partners as well as with the growing health innovation ecosystem here in the Upper Midwest.
We had the chance to talk with 5AM Ventures Managing Partner Andy Schwab for our “5 Questions With…” series.
Q: Tell us a bit about 5AM.
AS: We started the firm in 2002 and the name 5AM means early which is when we typically invest. We get into companies in the early seed stages and our investing is all focused in the life sciences category. Many of our companies are in therapeutics but we’re also invested in some tools and technologies and areas such as genomics and proteomics. Many of our portfolio companies have gone on to receive FDA approval so we have been doing this long enough to see ideas turn into real treatments for patients. We’ve got products that treat thousands of patients a day around the world.
My partner was a PhD scientist at Stanford who had built a couple of successful biotech companies and I was a med school dropout who really loved biotech companies and entrepreneurship. He and I got together to build a firm focused in that space. Our team is almost all MDs and PhDs and in the sciences. We are technophiles and it’s very much a science driven strategy.
We also have a team called “4:59” – one minute before 5:00AM – which is really a company creation accelerator. It’s sort of a think tank where we think about new areas of science and medicine that we want to be investing in – things like gene editing or AI/ML or some of these big new technology areas. We develop a thesis about how we want to invest or where we want to invest and that often leads to creating our own company if what we want to invest in isn’t a company yet.
Q: Why are 5AM and NVNG a good fit?
AS: Having a local connection is invaluable. It helps us tap into local deal flow and work with individuals who not only understand our objectives but can also assist in identifying promising opportunities. It’s a bit like scouting in both directions. NVNG is seeking coastal firms to invest in Wisconsin, and we’re looking for partners who can help us identify the right opportunities in Wisconsin.
This is especially relevant to us given the types of technologies that are coming out of the University of Wisconsin and the types of entrepreneurs in Madison. That exchange of information back and forth and boots on the ground who know the landscape is extraordinarily helpful.
Q: What’s your take on Midwest venture ecosystem?
AS: We are open to investing anywhere, and we’ve had successes in both non-traditional and emerging tech hubs. Madison, for example, has seen significant investments, particularly in the tools and technology sector. Our investments have stretched beyond Wisconsin to states like Ohio, Indiana, Michigan, and even cities like Toronto, Vancouver, and Florida. So, we do invest outside of California and Boston.
At 5AM, we typically aim to invest in 15 to 20 companies per fund. This approach sets us apart from seed and pre-seed investors who often spread their investments across hundreds of companies, hoping one will become the next Google. Our approach is more hands-on right from the beginning. Therefore, we’re highly focused on finding the best 20 ideas to include in a fund, which means we cast a wider net in our search. However, the downside is that when you’re in a region like the Midwest, for instance, it’s more challenging to find prolific opportunities statistically.
On the flip side, once we make an investment, we’re fully committed. We allocate our team and resources to support these companies and drive them forward. So, it’s a balancing act. It’s about building the right relationships to discover the ideal fit.
Q: What trends are you seeing right now in terms of deal flow or starts?
AS: It’s a tough environment to be an early-stage investor right now. The financial markets are very much focused on less risky companies and less entrepreneurial situations. It is the reality of the time we’re in which just means you’ve got to work a little bit harder and focus a little bit more on your existing companies to both find great ideas and help those companies be successful. We’ve been through a bunch of cycles now in 25 years and this is just one of the tougher investment periods. But it’s not a lack of science. It’s not a lack of entrepreneurs. It’s a lack of so-called risk capital but the fundamentals are absolutely still there.
Q: Thinking about the work that you guys have done at 5AM what are you most proud of passionate about?
AS: The ability to point at 20 FDA approved products from our companies feels really momentous. We made bets on investments in risky new medicines and to see those come to fruition to treat patients and benefit society is awesome.
I also like that we have proven to be a very entrepreneur-friendly firm where we have relationships with our former CEOs and entrepreneurs that go on to this day. This idea of being entrepreneur-friendly and really partnering with entrepreneurs to be successful is a part of who we are, and I think our reputation precedes us as that type of investor.
Finally, I’m proud of the relationships we’ve built and the partnerships we’ve fostered with pharmaceutical companies, other investment firms and other partners. I feel like we’re a good partner to these enterprises as well.
