Two Bear Capital: Why Montana, why now? Transformational Opportunities and Life Science with Mike Goguen

Two Bear Capital is led by Mike Goguen, a 20-year veteran of Sequoia Capital. Between 1996 and 2016 Mike sponsored and led 54 company investments to a combined market value exceeding $64 billion. Mike had 26 companies exit above $100 million – 11 of those above $500 million, 6 above $1 billion and 3 above $10 billion in peak market value. He led investments across sectors including cyber security, bioinformatics, biopharma, IT infrastructure, and semiconductors.In this free webinar, Mike Goguen will share insights from his successful VC career in Silicon Valley. Learn how Mike found opportunities through the dot com crash, the great recession, and the clean tech bust and how he’s applying those lessons to COVID- 19. Hear why he decided to build Two Bear Capital in Whitefish, Montana and invest in healthcare and biotech.

Full Transcript:

Christina: Welcome everybody. I'm Christina Henderson, Executive Director of the Montana High Tech Business Alliance. Welcome to our webinar: Two Bear Capital: Why Montana, why now? Transformational opportunities and life science with Mike Goguen. This event is part of a series of free webinars the Alliance is hosting in April in May, you can find the full schedule and recordings at mthightech.org/webinars. And we'd like to thank the board of the Alliance and our members for making this series possible. Today we're pleased to welcome venture capitalist and philanthropist Mike Goguen. Mike is the founder of Two Bear Capital in Whitefish and a 20-year veteran of Sequoia Capital. He led investments across sectors including cybersecurity, bioinformatics, biopharma, IT infrastructure, and semiconductors. We'll be conducting this webinar in a Q&A format. So if you have questions during the program, please type them in the chat box or in the Q&A tool. And I also have a few questions that we collected in advance. But before we dive into that, I'd like to turn the floor over to Mike for him to offer a few opening remarks and hopefully share his screen.

Mike: That's right. Welcome, everybody. Wish I could see ya, I'll just pretend I'm looking at the sea of happy faces. Some of you may have been in attendance, I think it was about a year ago, when we did a little bit of a grand reveal of Two Bear Capital. When we had some of the folks on the team on board already, we added some more. So I thought I'd start by just giving you guys a quick update of who we are, what we're doing, and maybe what's changed since last time, and then we can delve into the questions. So here's where I'm going to try the share screen. Let's see if this works.

Christina: It's working. Thumbs up.

Mike: Great. So I'm taking some of the pretty shots from our now active website. We do have a website, Two Bear Capital, feel free to check it out. And I think we just actually linked our companies onto the website. That's a new development this past week. But I've always liked this picture, it reminds me of Liz Marchi, who's the person responsible for connecting us all together. I don't know why I always think that's Liz looking off into the sunset, or in the beautiful landscape. But we mentioned last time that one of the visions here is to create, not only, the way we put it, not only the next 50 year top tier venture capital firm, which you might guess comes from where I came from which Sequoia Capital has been around 47 years near the top of the stack, and had a front row seat for 20 years as a managing partner so we can understand the formula pretty well. And we want to replicate the good parts and, but have a little bit more of a ‘we’ focus into what we do. And what that means is the companies that we focus on and we fund and we try to grow into giant companies want them obviously to be ones that are massively successful financially and as investments, but we also want to make sure they're companies that do something important. And one of the ways we accomplish that pretty easily just by picking the right sectors, but if we pick sectors that sort of inherently contain companies that are trying to do something really good, then that's an easy extra checkbox. So these are the sectors we focus on, I guess the theme that knits them all together; it's kind of a convergence of biology, healthcare, computing, and IT. We can get to the 'why now' a little bit more later, but I think the world understands a little bit better than they did a month or two ago, why biology is so important, and how it can massively affect us all for good and bad. So I think we picked the right sectors, and there's a little bit more evidence of that I can talk about, but you know, biotech can span either biopharma, our plan is that it'll be some true biopharma companies that we'll fund, and there's a few examples of what we have already in our initial fund, but maybe about 20% of what we do will be true biopharma. But that also includes molecular diagnostics, and we have a really important company in that space. Bioinformatics, for all of you not familiar with the term that's the genomic sequence in revolution, when the Human Genome Project first decoded the first human genome and as you might be familiar, the cost of sequencing went from the billions. When that project was done down to getting closer to $100 per thing, it's still close to 1000. But that massive drop has caused sequencing of just about everything agriculture, life and so on. That data, the study of that data, the interpretation, that data is called bioinformatics, and it's super critical, because that's really where we decode the code of life. Healthcare/IT, a lot happening there. You know, COVID is a good example of why there needs to be an awful lot of improvement in health. You're not in terms of the care that's provided. But I'm on the board of KRH, some of you are familiar with that. And with a front row seat of how the stresses that healthcare is under from a financial point of view, operational point of view, and then a crisis like COVID really exacerbates problems that are already there. It screams out for new solutions, so I think there's big opportunities there. Machine learning and AI, kind of a horizontal technology breakthrough. But it really is just barely being applied now with huge runway ahead of it to a bunch of areas, not the least of which is healthcare and bioinformatics and biology. And then Information Security sort of pervades everything. So those are sort of the themes that you'll see us focus on in the next decade or two. Some additions to the team. You've seen a few of these phases before I put the location as well. So we have the two bookends here, Whitefish, Montana, we have a good chunk of folks at our headquarters in Whitefish. Seth and Alex are our Silicon Valley outpost. Both super brilliant technologists. Seth is our most recent. So Seth was a really high profile guy at Stanford, where he was one of the lead group leaders of a core part of what was called the ENCODE project. So for those of you who were familiar with the Human Genome Project, which was a decade or two ago, couple decades ago, when we decoded the human genome, one realization after that project was that only 1.5% of the base pairs actually code for genes. At first, the rest of it was called junk DNA until they started to realize that we meant that the rest of it's really important, it's the regulatory region, it's called epigenomics. It basically is all the important stuff that codes for things that aren't genes but controls the whole biological system. So disease is now correlated strongly with what's in the rest of that region. The ENCODE project was about a four or $500 million government project. That was sort of home-runned at Stanford, all the data had to go to Stanford and Seth headed up the program that sort of collected all and interpreted that data and did something with it. So we're super happy to have Seth. He's been amazing, I think he's on the line so he's probably turning red. We have Alex, who I mentioned last time, but just to sort of drive home the point, Alex really is an icon in machine learning. It was his thesis in 2012 that is credited with sort of starting the modern AI revolution because prior the notion of neural networks and the models thanks to his professor, Geoff Hinton, a very famous computer scientist, were thought to be promising, but no one really had shown amazing results yet. So it was Alex's work that showed this stuff can really do amazing things in computer vision and elsewhere, and it began this revolution. And he spent the next five years at Google, and now he's with us. And the rest of the team. We have amazing biology folks, in addition to Ryan, who you met, is going to be an all around sort of A+ athlete AI learning fast about healthcare. In fact, he's assigned right now to become the expert in healthcare tech and all the craziness in the way payments work and that sort of thing. So anyway, a very well rounded team. First geography, sorry. So we are Montana based, Montana focused, if we could wave a magic wand, we'd have every company in Montana, but you know, we have pretty big funds and we know that isn't quite possible. So northwest Montana, as many as we can, some of the Seattle area, some Silicon Valley, some San Diego, heavy concentration in biotech there, Rachel on the last slide was located in San Diego, we might have another hire there as well. And occasionally we do companies in New York. Speaking of the companies, with the $15 million, two year capital seed fund one, which is a fully invested fund. We have a couple of really high profile, bio companies, biotech companies right here in Montana. Specicore is amazing. Associated with both on the periphery of U of M both at MonTec. Do all kinds of amazing neuro breakthrough work, all kinds of things, epilepsy, nerve regeneration, as central nervous system injuries, spinal cord injuries, nerve regeneration, amazing things. Fire diagnostics as a molecular diagnostic company. And let me spend a second here because you might have just seen the press release. So when COVID started, we got all our brainiacs together, including all our companies, and even a prospective company that we're doing in the main fund. And everybody focused on what we can do about COVID. Turns out, Fire, the purpose of the company, the reason it started in the first place was basically alternative reactions to PCR to the traditional real time PCR, for sort of higher fidelity in, I guess, more expanded testing, easier testing of biomarkers, micro RNA, Pico RNA, all that kind of stuff. And the brilliant founders there decided they could alter one of their processes and do a rapid test for COVID. And the press release was on that, I think yesterday, the day before, and it is looking amazing. So we've been working with all the institutions across Montana, all the healthcare institutions trying to solve that urgent problem of mass testing, mass scalable testing, very high fidelity tests and doesn't require the real time PCR machines, low cost, easily scalable, we're excited as heck about that. Spiral Genetics is in Seattle, this company has some software to decode a big chunk of the genome that, in a better, more accurate fashion than anybody else has become critical to the COVID fight as well. XIX is our computer vision company, there's an angle there as well, which people are talking about now. No touch biometrics, you know, post COVID, which, if we ever have a post COVID. You know, you're looking for technologies where, how can I use things like authentication without a lot of physical touch? And then the last couple of -- Pulsedata in New York, so Pulsdata is a super exciting company growing fast. It's aiming right at one of those key healthcare problems I talked about, a payment model change that put pre COVID-- the systems are an incredible stress now, with COVID, but even pre COVID, there were changes in the payments the way that CMS in particular, Medicaid, Medicare was going to reimburse hospitals. I think there were positive changes, there are good changes, but there are different and new for hospitals. So suddenly, bam, huge strain on a big chunk of their finances. And this company comes along with technology to help out, verifies a local company doing fraud prevention, detection. It's just important generically, it fits in in a way I can explain at some point. XD Bio is another Whitefish company and there, if you guys know GitHub, ever heard of GitHub, it was actually a Sequoia company that sold for 7 billion, I think, to Microsoft. So it's sort of the GitHub for bioinformatics now with a special COVID twist. So Seth is working with Carlos, Carl and Tim the founders, and they're getting them in the flow. The purpose there is to try to help fix the problem of, for COVID, for the next version of COVID, for the next SARS related potential pandemic, how do we help the world's ecosystem remove friction from getting the Bioinformatics, the latest information on the gene sequences, the RNA gene sequences and every mutation that's discovered, how to quickly get that on common platforms that everybody has instant access to, so we can get the world's brains on it. So anyway, that's where we're at now, we're doing a kind of a big fund now. And we've already made our first commitment, another Missoula, company. Really interesting company, not quite announced yet, but working actually on vaccines and for COVID, among many other things that we're already excited about and that work looks super promising. So I'll stop screen sharing. That was the intro.

Christina: Well, that's a fantastic intro. Thank you, Mike. So the first question we have is from your vantage point as a longtime business advisor and investor, how would you describe what you're seeing among companies during the COVID-19 crisis? 

Mike: Well, I was at Sequoia for a good 20-year chunk, 96-2016. And if you recall, that caught at least two sort of big bubbles and big crashes, so the.com crash/telecom crash in 2000/2001 and then to the 2008 crash. So I've been telling my companies and any entrepreneurs who are curious, sort of what happens on the VC side, in general. So what happens to especially the funds that are up and running and have tons of portfolio companies at all various stages--very first reaction is freeze. Because the first thing they have to do is triage, they have to understand which of our companies are really in trouble. Because, you know, if you built your whole model on a pre-bubble bursting ecosystem, in terms of assumptions about rounds you're going to raise and valuations and all that--that all changes in a split second. So the first thing VCs do is say, what kind of trouble am I in? So in terms of your company, you want to go get VC funding, it's a tough time, partly for that reason. Well, actually, the way I parse it even further, the Sequoia Capitals of the world which I considered doing, you know, we consider ourselves doing it the smartest way, even if we had to do that first. The first step was, you know, triage, then a Sequoia Capital type firm would kick into a mode where, wow, it's actually a really good time to invest. Right? Because you know, there is a bit of a Darwinian filter I used to call it, that swept across the ecosystem, meaning if there are two me too companies in a category suddenly there weren't because, you know, it's kind of like only the strong survive. And there were only the best entrepreneurs, the grittiest, the best ideas, in some sense, even having the guts to try to get funding, the rest of them just packed up and went home. And then you tend to, the noise leaves the system, you get better companies, obviously from the VC side, and the evaluations have been super super inflated, they're down. That's not good news for the entrepreneurial side. But you know, it makes it a good time to invest. And we had good correlation between post-crash companies we made our initial investment in and ultimate outcomes of those being some of the best biggest companies. So that's sort of one thing. If you're on the company side, by the way, obviously, you have to do the smart thing right off the bat, you have to quickly figure out what are my assumptions going forward about hiring, burn rate, when I was going to raise money next and realize, you know, kind of just about how everything changes. We can talk more about the implications of COVID. But I think you'll hit it a few more times in your questions later.

Christina: So, revisiting this idea, we just saw a New York Times story hit yesterday, highlighting Montana as one of the new places in the interior of the country for venture capital investment. I've heard a number of other investors say that they think once COVID clears places like Montana could be very attractive for a number of reasons. One of the core questions and the title of this is why Montana, why now? What's your answer to that?

Mike: It is obviously a stronger 'why now' I think, post-COVID, but we have made the choice pre-COVID. So, you know, we had a lot of logic beforehand, already. The logic beforehand, besides the fact that I'm super biased and in love with the place and I would have invented a rationalization if I had to ask the why here because this is heaven on earth, I think. But honestly, I think if you just watched the direction that places like Silicon Valley were going in terms of the increasing, it was heading for a pop, you know, it was heading for a bubble to burst in that traffic, you know, wages, rents, everything--we're just getting to that breaking point. And I think it was true in other highly dense urban areas, the New Yorks and the Bostons and so on in startups. So already there was a sort of force that said, Gosh, you know, why does it have to be Silicon Valley, the real world as we're all being forced to live with right now where you can get a lot done remotely. So, that has some employees in a dense location. The issue with Montana though, was, I always heard this from folks on this on this call, I bet. We always had a bit of a chicken and egg issue. We always had, well, there's no companies because there's no venture capital, and there's no venture capital because there's no companies and there's no big successful companies to shed people because they didn't start in the first place like this whole chicken and egg thing. So, part of the game plan, when we thought about Two Bear Capitalist, was to sort of plant the flag in a big way and bring in a lot of venture capital to the state and start the engine working. What we found right off the bat to my pleasant surprise, was it actually was a lot easier than I even thought to recruit people here. And companies, we had Silicon Valley companies or funding who took the idea of moving here pretty seriously. And I was pleasantly surprised. Now post-COVID, I just think it's even easier for the reasons you were alluding to.

Christina: So from the outset Two Bear Capital has focused on healthcare and biotech, you've highlighted some of the great companies you've already invested in. You've also mentioned plans for a biotech incubator in Whitefish. Why did you target this space? I mean, in some ways, it's kind of inherent to the problems that we're all dealing with which you implied earlier, but why did you target it? What are the opportunities you see have shifted for your team in the last few months in this biotech space?

Mike: I'll answer the first part, which is, I really believe that quote that, you know, biology is the next computing revolution, in a way. I'm sure some of the characteristics of when we had the transistor, had the semiconductor, had the first computer, and what followed. I feel like we're at that--with the firing gun and started in biology in a similar fashion. I mean, take just for example, biopharma. I was shocked as I built up my own depth in that space and expertise, I started with oncology, big fixation on oncology. I was actually surprised how many drugs are on the market still to this day, where when you ask the inventors, you know, the investor, the Chief Scientific Officer, okay, exactly how does this work and their answer sometimes is we're not sure. You know, basically, the history of sort of biopharma was more than a little bit of a blackbox. It was, you know, it seems to do X hence the big trials and crossing your fingers that there aren't crazy side effects and so on and drugs get approved or had gone through for decades that, by that way, were you really didn't understand the molecular mechanic level, what was happening? Well, then we shifted as an A big part of it was, you know, once you know, when genomics really started to understand the code for a certain receptor on the on the surface of a cell and what an aberration that part of the genome could do to make the receptors that are slightly different, potentially identifiable as a Excel or cancer cell versus not. And then you started to have with the advent of precision medicine, targeted therapeutics. And we're starting to shift into a world where, you know, at least there's a design thesis in mind when you're designing. Take, for example, this immunology company vaccine company. They know what they're trying to do. They're, specifically in their case, designing molecules to exactly match certain receptors and to have certain molecular characteristics in their synthetic model molecules to trigger explicitly different what they call pathways. By the way, for you non bio geeks.,I didn't understand a concept of what you mean by pathways. I was a networking guy from computer networking, right? And I was like, You mean these actually sort of biological connectors, I don't understand. Simply put, you know, pathway signaling, they used word pathway a lot biology, it simply means a chain reaction, if you will, of molecular interactions, that when you draw it out on a whiteboard, you get almost zero draw like a network, you know, this turns into this this turns into this... Anyway, we're now at the point where we're designing drugs, like explicitly intending this pathway to be chosen versus that pathway, and there's ways to actually validate Yep, the drug actually did exactly that. So since we'll record a brand new world, and on top of that, just the pace of discovery. And then on top of that, the tools we have. We have tools that can do gene editing in a precision fashion, right? Oh my gosh, and people are, take my analogy earlier, literally, people are actually talking about, you know, biological computing, or biological--synthetic biology is a big field where you actually take almost from a library, almost like computer software, library of genomic elements you want, you know, the genomic code, and stitch it together and make the biological system do what you want it to do. I mean, we're just in this crazy time. Then on top of that, the impact on humanity, it's not just solving disease problems that we've had forever, we're now there's a glimmer of hope that we can actually tackle them, you know, cancer or some of these really intractable problems. This is all making us aware, we have to, we actually have to focus on that. Or else, you know, this kind of thing just accelerates from a statistical point of view, not to mention that biology translates easily also to the environment, environmental impact, everything we worry about in the environment, and sustainability of food and so on. That's all biology too. I just already was a big believer, this is where the action is going to be, you know, going forward, this is where it's going to shift to. And then, I feel really good about that choice. And then this happened. So it's just accelerated things. So as you saw by some of the companies, but part of the answer your question too, was changing the last few months in the bio incubator, no real change other than maybe slight slowdown in pulling the trigger on a few things on the personal side, you know, philanthropic side that it was going to, but still the game plan is to get some sort of incubator going this year.

Christina: That's still exciting. We also heard from you at the end of 2019, that you were planning to raise a whole new pool of money to invest in Montana and the Rocky Mountain West. At the end of 2019, Montana saw more than 150 million dollars invested in companies. Does this change that picture for 2020? For startups that are looking to raise VC money? What is your outlook for venture capital?

Mike: I mean, we can't announce certain things quite yet. A bunch of rules on that. But I'd say, this is to say, yeah, that there is going to be a very significant increase. We've already seen it not just with us, but you know, big needle mover, pretty massive increase in the availability of venture capital for Montana, but it's also important to note that a firm like ours, I expect to have kind of similar ratios to Sequoia Capital in terms of, you know, we saw, we see a lot of companies and invest in, you know, some very tiny percentage of the companies we saw and kind of had to be that way, if you want to really have, you know, what we used to call dent making companies, you know, it's got to be sort of just the right combination. So, what we've done, though, and I've encouraged everyone we've hired, and hopefully you'll all feel this from us, is whether we choose to invest or not in a particular company, we want to make sure we provide value. So, you know, with a lot of you, maybe this has already happened, hopefully in the future. You know, we plan on doing a lot of interactions with lots of Montana companies. And if it's not exactly for us, that's okay. We're going to try to boost your chances. You know, we're trying to try to give you advice almost as if we were the investor to sort of help massively increase your probability of success--either of getting funding elsewhere or reshaping the plan so that, you know, it is fundable or whatever. And we've done a lot of that already.

Christina: Good news. Okay, I want to shift a little bit. We've had some questions submitted from participants and I want to hit some of those. So one is, biotech often takes years to develop and get approval before a product pharmaceutical or devices available to their market, at what point in a biotech company's lifespan, launch, pre sales, revenue after X number of early stage customers, etc. are you investing?

Mike: Well, I mean, our focus is on the closed fund now that the $50 million fund is seed. It was explicitly a seed fund company. So it was, you know, pretty early, small number of people in the company, you know, What we have found observed both down in San Diego and up here as well, even in Silicon Valley companies we've found in that sort of bio space, the scrappy entrepreneurs and the ones we like and are attracted to have usually done wonders with grant funding, you know, they're usually, the really good ones are kind of masters at the whole NIH process and so on. So it isn't that they haven't taken in funding yet. They've usually actually gotten reasonably far along improving whatever their thesis is, with grant funding. But now they want to sort of kick it to the next level. And that's where we've been in the seed fund. What we're investing now is more primarily Series A focused, some seed, some Series B. So how that translates to sort of a bio company--and you know, we're not going to, as I mentioned, it's going to be a minority percentage of the companies we invest will be full on biopharma companies that have to go the whole FDA you know, putting a drug inside your body kind of process. Diagnostic testing companies still have to go through their own process of some other medical devices too. But even so, all the companies that we funded will have to go through a process that still will be less than 50% of the companies. But the answer to the question is we're doing companies that in that space that are sort of heading to the initial part of their FDA process, you know, phase one kind of process.

Christina: All right, thank you. We have another question related to the job market. So prior to COVID-19 heading this, this person says, "There were a couple of articles I read about needing experienced tech employees in Montana, then COVID-19 happened. Do you think it will be a long time before there is a big job market for experienced tech employment for those wanting to move to the area?"

Mike: No, I don't think it will be a long time. Hopefully you'll see a significant ramp up this year in opportunities, you know, certainly for for our companies and the companies we fund will be hoping to attract quite a bit of tech talent. You know, what I found, even just focusing on the software side, for example, there seemed to be a lot of ... sprinkled around, there were a lot of good programmers. The ones that were here, though, typically had jobs where they were working remotely, with, let's say, some big company, you know, somewhere else in the country. Which gets to be a bit of a lonely process after a while, I think we're all feeling that right now. You know, just working by yourself online is perfect for some but for others, you know, it can get a little old after a while. So that's talent that's already available, potentially to jump into, you know, exciting, fast growing companies. The other sort of zooming in a little bit on Montana, a particular problem we want to help solve is that right now if you look at the state, and let's say you did grow up in this part of Montana, Flathead Valley, and you wanted to get into computer science programming, there hasn't been a lot up in this part of the state, maybe down in Bozeman, maybe Missoula. So one of the early things we're doing is filling that void and you know, creating a draw so that we can recruit people from the Bozeman area up to here and recruit them from other states. But certainly if you grew up around here, or this was where your heart was, there just hadn't been any jobs, we want to help fix that. 

Christina: We've had a couple questions related to higher education and how you engage with the academic community. Obviously some of the startups that you mentioned earlier are connected to MonTec and University of Montana. But broadly, how would you answer this question--and we also have some inquiries from a healthcare IT startup from MSU. They have friends at Expesicor and Fire diagnostics, who are tied to UM researchers. Would Two Bear consider advising the Montana university system on which research areas should be doubled down on at our universities to be able to expand the research to company pipelines?

Mike: Yeah, absolutely. I mean, we're incredibly sort of fixated on trying to bring up the university systems with us. It's a critical part of the ecosystem. If you look back, in fact, a lot of analyses decades ago about Silicon Valley tried to analyze why did Silicon Valley become Silicon Valley, or any other tech ecosystem? And oftentimes, they said, well, it had to start with the university. So that was an assumed precondition in the case of Silicon Valley, it of course was Stanford. And, you know, in our part of the country and of the state, anyway, Northwest, we don't have a big university. So we wanted to sort of disrupt that thesis that you don't necessarily need the university right there, but statewide we do. So MSU, U of M, it's part of our mission in a way to sort of elevate those two universities as high as they can possibly go. So short answer, yes, absolutely, we'd love to help and advise. And we work a lot with U of M, Seth is a great guy. And on this COVID testing program, for example, you know, we're constantly looking for ways for the university to help and some of the core researchers they have there and facilities they have there and how that can help out. MSU is just further away, I haven't been to it as much. But, in fact, Expesicor which you mentioned, that's the neuro company talked about, actually nice, specific work. I get the two mixed up--the two founders, they share founders so it gets a little confusing--so at Fire, that diagnostic company that's doing the COVID testing, when we originally invested, a lot of it centered around a patent they had licensed from a brilliant female prof at MSU. So even though they run the MonTec next to U of M, their core technology, a bunch of it, was MSU related. So, you know, I think we have amazing potential at two universities. We're also doing a lot of work up here in the Flathead. The Flathead Valley Community College has given me a whole new look at what it could mean to be a community college, because I just had the normal impression a lot of folks have around the country that, 'Oh, that's the sort of place that people go if they can't get into a college or something. Gosh, Flathead Valley with Jane, the president here, completely blew my mind. I've gone there, I've been a student, I got my EMT there for Two Air Rescue. But she's having a lot of discussions about how do we have for example, computer science degrees here, whether it's they get accreditation or they do a joint thing with MSU or U of M, but we will bring a lot more High Tech, higher education, bio education, right here to this part of the state as well.

Christina: Fantastic. You have a long record as a philanthropist in the Flathead Valley you mentioned Two Bear Air Rescue and also that you're on the Board of Trustees at Kalispell Regional Healthcare. You alluded to it earlier about the impact that COVID-19 is having on organizations like this that are on the frontlines of saving lives. Could you dig into that a little deeper? What are you seeing and what do you think the impact will be?

Mike: Well, it's, you know, a lot of this has been sort of highly publicized. Greg Lambrecht is the new CEO, you don't have to do the recruiting on him. He was an ex military commander, so he has a really great command and control style and I think there he's been really good at communicating, you know, very frequent communication to the community. So a lot of what they're going through is quite public. But seeing up close, Rh Bozeman, all the other healthcare institutions, and then the exact same statements can be made nationwide, about the healthcare institutions. First there was the mass, you know, the surge, overwhelming aspect of the critical patients that needed to be cared for. And given the virality of COVID, the virus itself, coupled with the lack of testing, let me tie it into testing, why that's a bit of a key and why we had so much fixation on trying to get mass testing spun up, at least in Montana, is if your giant healthcare system right now in the United States, or most of the world, because there isn't universal testing, easy, quick testing for everybody--and we could talk a little bit more about testing. There's a lot of confusion. There's tests out there that are these 500 blood tests getting talked about--that can help detect antibodies, which your body only produces after a while of fighting something. In other words, they're not designed to be the detection tests, if you have COVID or not, people in the general public are confused about that. They're wonderful and a super important role to figure out later who's immune and who's not, who might be immune. But the testing of who has an active virus has to be the you're looking for the active virus particles. And that's where we have worldwide actually this testing bottleneck the technology is called real time PCR or quantitative real time PCR. In Montana, we have the state testing labs, some of the hospitals have their own machines, worldwide shortage of the reagents, the chemistry that has to go into those things. Slow turnaround time, the actual testing process itself as a thermal cycling 2030 cycles. That's right now in Montana, if you had to send it to the state testing lab, you know multiple day kinds of turnaround. So because of that, because of the testing shortage, worldwide and certainly in the United States with taking the approach that well, since these tests are rare, let's only test the sick people. But all the data indicating right now is that 50 plus, some new data from the US military, the Navy who tested universal testing across one of the aircraft carriers, had something like 60% of the people who tested positive were asymptomatic. So the point is, there are a ton more people with it than are being tested. So back to the healthcare system, you're running this giant hospital, you don't know who's infected or who isn't, in your staff or coming in the door. So you have to be cautious. You have to shut down all other elective surgeries. Anything that's sort of optional gets shut down, right? Guess what, that's where the hospitals make their only tiny little profit margin. I mean, hospitals are, I've learned up close, big top line revenue, really teeny profit margin, right. So all of a sudden, you're immediately losing millions, you know, very quickly, and then the shortages of the PPE, the masks and everything are because you don't know who's infected or not. So everybody has to wear a mask, you know, everybody has to wear highly protective gear. So the solution is, if even starting with the healthcare systems, you had rapid universal testing. I mean, everybody who shows up to work gets tested 30 minutes later, you're good, you're not, whatever. You could start to theorize, of, hey, I can start to maybe reopen because what I could do is open up a big chunk of a medical campus. As everyone who goes in and out has been tested repeatedly, patients, whatever, they're good, I can save all the PPE gear for this part of the hospital, let's say maybe a whole different bill. And that's the key. And you can take what I just described, and apply it across Montana and apply it across the country and apply or across the world. So that's why you hear so much fixation about testing being the key, because I got to tell you that besides just the horror of like in New York of dealing with the patients in death and all that the hospital systems healthcare system, the United States is facing a massive existential threat of just going out and like going bankrupt fairly soon unless, you know, things change. So anyway, that's why there's massive urgency.

Christina: We have a number of questions that are around specific technologies and whether you'd be interested in investing in them. And some of these, to be frank, I can't even pronounce the words that they're including. So what we'll do is we will collect all the questions that have come in and forward them to you in text afterwards, so that you can sort out what the specific technologies are, but to ask a more broad question that perhaps encompasses this larger group of companies and these specific technologies: What sorts of things are you interested in investing in through Two Bear Capital? And how might an entrepreneur that has a given technology approach you as a firm to see if it's a good fit?

Mike: Let me address the last part first. You can always reach us through the website, email, but in terms of improving your chances of really knowing you're hitting the mark, we don't have it already, on our website, we will shortly. It's kind of modeled after Sequoia and a lot of VCs in Silicon Valley did something similar, which is to post like a little primer, you know, here's the elements that you should make sure you think about, you know, that you have and sort of little primer on, you know, sort of a business plan primer of have you talked about, you know, competition, market size, blah, blah, blah, blah. So, we should have a little helper primer if we don't already on our website soon. So that's one answer. But um, I covered some of the areas that we'll be focused on most. So simple filter would be if you're a Montana entrepreneur and it's not even close to any of those areas, you know, you're opening a pizza shop or something, I wish you the best, we need more pizza in Montana. But it's probably not something we would fund. And on a friendly basis, maybe we could give you a word to advice or point you in the right direction. But let's say that it's a technology company, and it's getting kind of close to our area. You know, we're trying not to be too strict about the categories. You know, you don't want to exclude things that might be Wow, that's, that sort of, doesn't exactly fit in one of our labels. But boy, it's close to the theme. The theme for us is, first of all the basic stuff. Let me backup for a second. There were a lot of firms that, starting in about the mid 2000s, said that they were going to be impact firms. You know, we were going to be do-gooder firms. I'm going to give them the spiel last year. I'll just repeat it, and there's plenty out there and they're funded on the third or fourth or end fund. So the problem in my mind, in the mind of the limited partners to endowments that give them money, is that in general, those all have the reputation as being really noble, but they're pretty terrible performance. You know, they don't ever generate returns. And that's, you know, in some sense, okay, the giant LPs endowments, foundations, whatever say, well, I'm kind of checking the box, at least trying. I don't think it has to be that way. And we don't think that has to be that way. So our thesis is a little different. Our thesis is, we wouldn't invest in anything that wouldn't pass muster. If I were back at Sequoia, you know, in terms of having all the right elements that wow, you're addressing massive market pain, it is a, you know, much better solution, I could see why they're going to be big pull for what you have, you know, it really is sort of all the parameters are correct, you know, of building a big company. Oh, by the way, hey, does this company matter? You know, that's our extra filter that maybe doesn't exist in some of the VCs from Silicon Valley. Our extra filter is, okay, now that I checked all those boxes, I could see how you could become a giant company financially. Success wise, is what you're doing something that, you know, we think is really important. And the ones will say no to maybe it'd be, I don't know, sometimes I pick on ad tech or something, you know, hey, we'll help you advertise better. Awesome, you know, I bet, you can get picked up by Facebook for a billion dollars or something down the road, but it's probably not for us. But if it's, hey, there's this massive problem in this industry or that industry and here's how, you know, we massively help it get better than it can be for us. So sorry if that was a little vague, but the problem is they come up in all different areas so you can't give a real blanket statement.

Christina: So we're down to the last minute. I will say, before I turn the floor over to you to close this out, that we are recording this webinar, we will transcribe it, and we'll also collect all the questions and share them with you and with the listeners so they can have this as a resource following up. But I would like you to have the final word, Mike. On your website, it reads 'from here we can see the future.' Any final words about what you see in the future at this present moment?

Mike: Well, I think some aspects of the future to me have become more clear to all of us. If you think about what we're going through right now. This isn't, you know, it's not a blip. It's this once in 100 year kind of event, if you think about different points in history, when sort of, suddenly there's a shift, and I clearly think we're in one of those phase changes. So you have to think about, well, what's the new future look like? And how does this-- what's going to affect it? And I think for one, it sort of validates our theme, I mean, it does shift a lot more attention span to, to human health biology to a lot of the sciences that we're spending a lot of time focusing on. It does dramatically point out sort of inefficiencies in what we've had, as critical parts of worldwide infrastructure before. And relating to some of the points I made earlier about even just the flow of information, critical information that benefits the human race, you know, why is it the way it is, in terms of its inefficiency, and so on, this has to be better systems going forward. I think the extra stress it's put on healthcare, which is a trillion dollar industry, by the way guys, just really amplifies, the problems are already there. But all sudden, you take sort of a weakened, kinda like when you have a weakened immune system, and then you get attacked by a virus, not to overplay this yucky analogy, but, you know, obviously, you're going to get sicker right? Well, the healthcare system already had fundamental, you know, massive issues in it and then a big shock to the system like this just reveals them in a really dramatic way. So I think my point is, there'll be a lot of more recognition and all these things are really important. The message I'll leave the entrepreneurs with is just think about whatever it is you're, you're starting and obviously try to do something you're passionate about. We always say the best entrepreneurs are somebody solving a problem. They're close to, instead of sort of intellectualizing, wanting to start a company. We used to call them the slick Stanford Business School people. I went to Stanford, I shouldn't bash it, but the slick Stanford Business School students coming out who just said, I want to start a company, I don't know what, and top down they'd intellectualize a company and have a super slick pitch. We weren't that crazy about them. Because what we wanted was the entrepreneur that maybe did their whole degree in some area of science or math or, or machine learning or whatever, and they came up with a way something could be better, right? They breathe the problem. Or maybe you're on the customer side, maybe you spent your whole career and you know that if only in this giant industry, we had X and you start to try to fix it yourself. So find a problem you're passionate about, but the our final litmus test, you can just use yourself is like, you know how really important is this problem and the more important the problem is the more interested folks like we will be. And you know, if you think about it in terms of your own legacy, that potential bigger dent you can leave on the universe, as they say, if you succeed, so it just makes all the pain you have to go through as an entrepreneur kind of worth the run.

Christina: Well, thank you so much, Mike, for sharing your insights today. Thank you for bringing Two Bear Capital to Montana. We can't wait to see what's ahead.

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