Venture capitalist fulfils ultimate dream

By Yoke Har Lee

One of the doyens of the United States venture capital industry, Franklin "Pitch" Johnson, has reached what many of his ilk can only dream of in their lifetime - backing a winning biotech firm which now has a more than $US30 billion ($60.6 billion) market capitalisation.

Amgen started life worth less than a cent a share and now trades at Nasdaq at just under $US50.

The company's roaring success is based on two key medical products - Epogen, which was launched in 1989, and Nuepogen, released in 1991.

Epogen stimulates red blood cell production and Nuepogen is used to prevent infection in people undergoing chemotherapy and bone marrow transplants.

Ten years after its launch, Epogen is still recording double-digit sales growth, making it one of the most successful biotech products ever developed.

Amgen, formed in 1981 with 20 workers, now employs 6200 and has annual sales of $US3 billion.

"It is a rare but happy miracle of growth [for investors]," Mr Johnson told the Business Herald in Auckland yesterday. "In any lifetime, you might hit one or two of those."

Mr Johnson is in New Zealand to attend an investors' party thrown by Morel & Co's first venture capital fund, No 8 Ventures.

He became involved with biotech investment through another venture capitalist, the late Robert Swanson, who founded biotech success Genetech with Herbert Boyer, the pioneer of recombinant DNA.

Thirty years ago Mr Johnson launched Asset Management Company, one of Silicon Valley's oldest establishments, and now uses it to manage his private assets.

Less of a financial success but more emotionally taxing was his involvement with a company known as Boole & Babbage.

Formed in 1967, success eluded it until the 1990s.

Boole & Babbage, a pioneer of the software package concept, has since been sold to BMC Software, which has nearly $US1 billion in annual sales.

Mr Johnson counts Amgen and Boole & Babbage as his two most sentimental investments.

The latter was an example of the timespan needed to get companies right.

"I got pretty involved. We were off to a bad start and there were several changes in management.

"That's the one I spent most time in, had the most heartaches from and finally had the pleasure of seeing it through, although it was not a great financial success.

"It had some very low spots. It did eventually make it, but that is an example of a company starting in 1967 but never becoming really successful until the 1990s."

Some of its problems included not having the right management, not doing the right marketing and not dealing with competition.

Mr Johnson has helped fund other Silicon Valley stars such as aha! software (which was acquired by Microsoft), Octel (bought by Lucent) and Portola Communications (acquired by Netscape and now part of American On Line).

While venture capital played a crucial role in developing businesses, Mr Johnson said such capital alone was not enough for entrepreneurs.

"Venture capital is one important element. Emphasising venture capital by itself in any country, as opposed to making entrepreneurs thrive, is a waste of time in my view. Venture capital by itself can't do the job.

"The main show comprises the entrepreneurs. In order for the entrepreneurs to exist and thrive, and want to stay entrepreneurs, a number of conditions have to be in place."

These included a moderate tax rate, a low capital gains tax rate and medium-to-low income tax rates.

Another aspect was the "climate of approval" needed to support entrepreneurial dare.

Mr Johnson said that in Germany, for instance, an entrepreneur was not highly respected.

"Someone fails and he is blackmarked for the rest of the life. In other countries if people fail, they try and then try again.

"It is not thought of as a black mark against you if your businesses don't work sometimes."

For technology ventures to flourish, the right infrastructure had to be in place, especially a good education system, a ready pool of production and engineering skills and a sound knowledge base.

Venture capital was not just about making passive investments. Venture capitalists had to share the zeal and commitment with which entrepreneurs dedicated themselves to the businesses.

"The important thing to understand about venture capital is that it is a lot more than providing money.

"I don't like to think of venture capital as an investment business.

"A lot of the successes that you see in sportsmanship or anything, they have zeal, desire and willingness.

"A venture capitalist has to share that."

A small country such as New Zealand with a limited market would always need external capital to develop markets if there was no domestic venture funding.

This was why it made sense for New Zealand to develop its own venture capital industry, he said.

"If I am going to be a primary investor, it is going to get difficult if you are in Los Angeles, London or Boston.

"I could see myself saying, 'if we are going to work with you, it is going to be difficult'."

Mr Johnson said New Zealand could keep innovative ideas in the country if it could strike a balance between providing scientists with a lifestyle choice and investors with cost advantages for keeping development here.