INSUBCONTINENT EXCLUSIVE:
From its glass-lined offices in San Francisco leafy Presidio national park, six-year-old Mithril Capital Management has happily flown under
Now it leaving altogether and relocating its team to Austin, a spot that, among others the firm had considered, has &enough critical mass of
a technical culture, an artisanal culture, an artistic culture, and [is] not necessarily looking to Silicon Valley for validation,& says
firm cofounder Ajay Royan.
The move isn''t a complete surprise
Royan, who cofounded the growth-stage investment firm in 2012 with renowned investor Peter Thiel, hasn''t done much in the way of public
relations outside ofannouncing MIthril existence
Thiel and Royan —who&d previously been a managing director at Clarium Capital Management, Thiel hedge fund — largely travel in social
circles outside of Silicon Valley.
The firm has always prided itself on finding startups that don''t fit the typical ideal of a Silicon
One of its newer bets, for example, is a nine-year-old dental robotics company in Miami, Fla
that says it performs implant surgery faster and more effectively, which is a surprisingly big market
More than500,000people now receive implants each year
&It was a hidden team, because it in Miami, and it was a field that was under invested in,& says Royan, noting that one of the few
breakthrough companies in the dental world in recent years, Invisalign, which makes an alternative to braces, caters to a much younger
demographic.
Even still, Mithril departure is interesting taken as a data point in a series of them that suggest that Silicon Valley may be
losing some of its appeal for a variety of reasons
One of these is so-called groupthink, which had already driven Thiel to make Los Angeles his primary home
An even bigger factor: the unprecedentedly high costof living
As The Economist recently reported about the Bay Area narrowing lead over other tech hubs, a median-priced home in the region costs
$940,000, which is four-and-a-half times the American average
&It hard to imagine doing another startup in Silicon Valley; I don''t think I would,& said Jeremy Stoppelman, who cofounded the search and
reviews site Yelp, took it public in 2012, and continues to lead the San Francisco-based company, to The Economist.
Late last week, to learn
more about Mithril move out of California and to get a general sense of how the firm is faring, we sat down with Royan at the space the firm
will formally vacate next year, when its lease expires
We talked for several hours; some outtakes from that conversation, lightly edited for length, follow.
TC: You and I haven''t sat down
When did you start thinking about re-locating the firm
AR: In 2016
I started seeing a lot more correlation in the companies that we were seeing; they were looking more similar to each other than before, and
the volume was going up as well
So to put that in context, 2017 was our largest volume in the pipeline, meaning the number of companies coming through the system
And it was also the year that we did the least number of investments
We made one investment, in Neocis [the aforementioned dental robotics company].
TC: You don''t think this owes to a lack of imagination by
founders but rather serious flaws in the overarching way that startups get funded.
AR:The problem iswhat I call time horizon compression
Soa pension fund is supposed to invest on a 30-year time horizon, but if you look at the internal incentives, the bonuses are paid on an
annual basis [and the investors making investing decisions on behalf of that pension] areevaluated every six months or every quarter
So you shouldn''t be surprised when people do really short-term things.
There are very short-term versions of investing in the private
It the 15th AI company, or the 23rd big data company, or the 256thonline-to-offline services company
Alot of the people making these investments are very smart
Thequestion is:why are they funding these companies And why are people starting themI would suggest it becausebothareunder tremendous
timepressure, and pressurenot to take real risk
If you&re really smart, and you&re toldthatyou&ve got to make returns tomorrowand you can''t take a lot of risk, then you do a me-toocompany
and you look for momentum fundingand you try to get out as quickly as possible
It&sa perfectly rational response to bad incentives, andthat&spart of what we started to see a lot of inSilicon Valley
I think you have a lot of it going on right now.
TC: It feels like the &getting out& part has become a problem
The IPO market has picked up, but it not exactly vibrant
Do you buy the argument that going public limits what a team can do because of public shareholder expectations
AR:I think that fake
Private investors are maybe even more demanding than public investors, because we have material amounts invested generally
Certainly, we do at Mithril
When it comes to governance at our companies, it pretty tough, and we get a lot of insight into their activities
It not like a public board, where you get a quarterly meeting and a pretty presentation and then people go home.
I do think it risk budget
and time horizon, bottom line
So the ability to take risks in ways that are not supported by historical models would be: if it goes well, people are happy; if it goes
south, the public markets I don''t think will forgive you.
TC: What about Amazon, which went out early, lost money for years, was hammered
by analysts, yet is now flirting with a $1 trillion market cap
AR: Amazon is like the sovereign exception that proves the rule
It like [Jeff Bezos] was structured to basically not care both in terms of governance, or he cared in the way that was actually constructive
to building Amazon, which is, ‘I&m just going to keep reinvesting all my profits into things that I think are important, and you all can
just wait,& right And not a lot of people have the intestinal fortitude to do that or the governance structure to sustain it.
TC: You&ve
made some big bets on companies that have been around a while, including the surveillance technology company Palantir, which I recall is one
How patient are your own investors
AR: Palantir is still doing extremely well as a company
What interesting is 80 percent of our capital in [our first of three funds] is concentrated in, like, 10 companies
Our two biggest investments were Palantir and [the antibody discovery platform] Adimab [in New Hampshire], and I&d argue that Adamab is even
We actually helped them not go public in 2014 when they were thinking about it.
TC: How, and why was it better for the company to stay
private
AR: Adimab was founded in 2007, so it was already seven years old when we encountered them
And I was looking for a company that would be not a drug company but instead [akin to] a technology company in biotech, and Adimab is
that.The&ve built a custom-designed yeast whose DNA was redesigned based on the inputs from a multi-year study of about 120 human beings, I
think at Harvard, where they assessed the immune responses of the humans to various diseases, then encoded what they understood about the
human immune system into the yeast
So the yeast essentially are humanized proxies for the immune system.
TC: Which means .
AR: You can attack the yeast with disease, and the antibodies the yeast produces are essentially human antibodies
Think of it as a biological computer that responds to disease vectors
We now have a database of 10 billion antibodies that we can use to figure out how best to interrogate the yeast for the next generation of
diseases that needed an immunotherapy solution.
TC: Is the company profitable
AR: It is
They don''t need any new money
We&ve just begun a program to help them restructure their cap table so they can take out early investors.
TC: An 11-year-old company
What about employees who are waiting to cash out
AR: They want more stock, so we&ve created the equivalent of stock options that are tied to
value creation.
A lot of biotech companies go public very early on
If Adimab had, they would have been under tremendous pressure to actually build a drug company.People would have said, ‘Hey, if you&re
discovering all these antibodies and they&re empowering other people drugs, why don''t you just make your own drug& But the founder, Tillman
Gerngross, who also the head of bioengineering at Dartmouth, he doesn''t want to be in the position of having to sell or be under tremendous
pressure [to create a drug company] when he thinks the full impact of what Adimab is building won''t be realized for another decade.
TC: In
Austin, you&ll be closer to this company and some of your other portfolio companies
But are you really certain you want to leave sunny California
AR: The cost of trying is what I&m worried about [here]
That applies to people who are starting jobs in someone company, or trying to start a company themselves
If it expensive for the company to take risk, it going be expensive for you to take risk inside the company, which means your career will
take a different path than than otherwise
After [I was an] undergrad at Yale, New York was a natural place to go, but I never worked there
It just felt like a place that was externally very pressurized
You had to conform to the external pressures that dictated your daily life
Your rent was $4,000 to $6,000 a month for craziness for like a walk-up in Hell Kitchen
Social structures were fairly set, like, you had to go to the Hamptons in the summer or something
There were these weird things that felt very dictated and you had to fit and you had to climb the pyramid schemes that people had
Otherwise, you were out.
What made [Silicon Valley] really attractive was it was a one giant incubator as a society, with a lot of
pay-it-forward forward culture and a low cost of trying
Now I&m worried about all three of those.
I&m not saying that just by moving, that gets fixed
But if you conclude that this is an issue that you need to think through, and try to find thoughtful ways to get around, you have to enlist
And one of those allies might be reducing unidirectional environmental noise, and having more voices that you can listen to and being
exposed to more lived experiences that are varied.
Itbuilds your capacity for empathy, and I think that important for good investing and being a good founder.
TC: What are your early
impressions of Austin
AJ: It a great town
Everyone been super friendly
I get to wear my cowboy boots
You can actually do a four-hour tour of food trucks without running out of food trucks
Also, most of the people I&ve met are registered Democrats and like, half of them own really nice guns
And these are not considered contradictory at all.
