SAN FRANCISCO – Cryptocurrency hasn’t done so well for tech investors. Neither has the metaverse so far. Self-driving cars have been slow to arrive, and social media hasn’t had the lightning-fast growth it did a few years ago.
So where can a savvy tech investor turn these days in search of the next big idea? Two words: dietary supplements.
Some venture capitalists who have made their fortunes investing in software and hardware are investing tens of millions of dollars in companies that manufacture probiotic pills, capsules filled with herbal extracts and other nutritional supplements like a potential new frontier.
As a consumer product, supplements are more associated with the Kardashians or Joe Rogan than with Silicon Valley. The industry is infamous for its lack of regulation under a 1994 federal law that exempts supplements from most Food and Drug Administration scrutiny, and it’s boomed in recent years despite questions about efficacy. .
Now, venture capitalists are betting that advances in DNA sequencing and related techniques will usher in a new wave of more credible supplements, particularly focused on gut health.
Roelof Botha, the managing partner of Sequoia Capital, one of the world’s largest venture capital firms, is among those buying. He said there was a “societal awakening” about the complex human gut biome where hundreds of species of bacteria live. .
“Inadvertently, we entered this era where we had an adversarial position between humans and the rest of nature,” he said. “We overdid the antibiotics. We abused the soaps. And now we are back to equilibrium.
Botha is best known in the tech industry for his early bets on Instagram and YouTube, but he said he became interested in gut health after Sequoia invested in genetic testing companies such as 23andMe. This interest led Sequoia to invest in Pendulum, a San Francisco startup that sells probiotic supplements.
He takes them himself. “There’s nothing quite like getting live microbes into your system,” he said.
Sequoia has plenty of company. In 2021, venture capitalists invested $488 million in probiotic companies and other supplement startups around the world, five times what they had invested five years earlier, according to PitchBook, a research firm that tracks startup investments. Last year, the money went to 99 separate funding deals – a record for activity, according to Pitchbook.
The money includes investments from pharma and food giants, but also from the Silicon Valley elite who don’t come from the biotech world.
Khosla Ventures, led by a Sun Microsystems co-founder, is also an investor in Pendulum. Y Combinator, a well-known tech incubator, owns a stake in Persephone Biosciences, a startup researching potential cancer treatments involving gut microbes. Social Capital, another big venture capital firm, is investing in a startup called ZBiotics that sells a probiotic drink as a cure for hangovers.
This is a welcome development for some startup founders.
“Five years ago, investors were health investors who had a health background or food investors who had a food background,” said Sofia Elizondo, co-founder of Brightseed, a San Francisco startup that develops gut health products.
“And what we’re seeing now is a lot of cross-interest from investors, where a lot of capital shares the thesis that precise proactive health at the molecular level is the way of the future,” she said. .
There’s already been a cautionary tale about how a probiotic startup can go wrong. uBiome, a San Francisco startup that promised to give people insight into their microbiome based on fecal matter testing, has attracted tens of millions of dollars in investment including venture capitalists Andreessen Horowitz and Y Combinator.
But last year, federal prosecutors said uBiome’s tests were not scientifically valid and charged founders Zachary Apte and Jessica Richman with fraud. The two had been living in Germany since last year and were not extradited to face charges, The Wall Street Journal reported. Their attorneys did not respond to requests for comment.
Still, the episode didn’t sour venture capitalists on the potential of “nutraceuticals,” which fit into a certain strain of the Silicon Valley self-improvement culture known as biohacking. .
As a business, probiotics and other supplements have at least two benefits that venture capitalists typically seek out. One is stable recurring income, which comes from people who take pills daily or from food manufacturers who use them as additives to control insulin, improve digestion, or try to lose weight.
The other is the lack of strict regulation. Ingredients should generally be considered safe, and manufacturers may not market supplements as effective as research shows, but supplements do not need to go through the same rigorous approval process as pharmaceuticals.
Botha, of Sequoia Capital, said he believed genetic research had similar potential to microchips a generation ago, when the power of microchips was expected to double every two years according to a principle called Moore’s Law. .
DNA sequencing has “progressed faster than Moore’s Law”, he said. And that, he added, makes this sector a good target for Silicon Valley. “It’s about understanding biology as an information science.”
Elisa Marroquín, assistant professor of nutritional science at Texas Christian University, said the science around the new wave of supplements is still new, but she said at least some tech startups seem to be on the right track. She said she has no financial relationship with any startups, although she has spoken with them about obtaining samples for research.
“We are still very early in understanding these bacterial species,” Marroquín said. She co-authored a science review this year and said future probiotic supplements show promise compared to supplements that have been available for decades.
“I believe they are going to have stronger effects on our health than the current probiotics that are on the market,” she said.
But part of the challenge for the new wave of supplement startups is changing the perception of their industry as unscientific or some kind of Northern California sorcery.
Among some scientists, “probiotics are definitely that voodoo,” said Colleen Cutcliffe, Pendulum co-founder and CEO. She has a PhD in biochemistry from Johns Hopkins University, and her two co-founders also hold PhDs.
“In fact, in the first eight years of our company’s existence, I didn’t let anyone use the p-word to talk about our product,” she said, referring to probiotics. “I said, ‘It’s a microbiotic intervention.'”
So far, Pendulum sells a few products, including a supplement containing akkermansia muciniphila, a gut bacterium it markets as a “next-generation probiotic” linked to controlling diet-induced obesity. The bacterium is difficult to make alive because it can die on contact with oxygen, Cutcliffe said. Pendulum has therefore developed an exclusive process that prevents oxygen from entering.
Cutcliffe said there are tens of thousands of strains of gut bacteria left to study, with a $60 billion global probiotics industry waiting for new products – which has caught the attention of investors.
“What attracted these people was the idea of category building and a huge market that already existed that hadn’t had innovation for a long time,” she said.