One of LA’s most fascinating investors, DA Wallach, tells us about touring with Blink 182, making a song with with Diddy, becoming an investor with Ron Burkle, and his current life science focus at Time BioVentures.
David and I are here today with D.A. Wallach. D.A. is an extremely thoughtful life science and health care investor and the co-founder of Inevitable Ventures and Time BioVentures. He’s backed some impressive companies like Spotify, Space X, Ripple, Doctor on Demand and Beam. D.A., thank you so much for joining us today.
Yeah, thanks for having me. It’s so great to see you. Likewise. Good to meet you. Yeah.
Good to meet you. Well, you know, David and I are super interested in hearing about your health tech investing, but I’m going to be super remiss if I don’t start with a little bit about Chester French and getting discovered by Kanye, touring with Lady Gaga. You know, it’s hard to skip over those exciting events.
Yeah. So what you’re alluding to is that I had another career before I became an investor and just started right after college. It actually started during college my freshman year. This is in 2003. Feels so long ago. But I started a rock band with some of my classmates. And then right before we finished college, we met Kanye and Pharrell and we got a record deal. And so I moved out to L.A. not to be a venture capitalist, but to to work my rock band.
And so we spent about four years making records and touring. And that was, you know, as you mentioned when we toured with Lady Gaga and Blink 182 and Weezer and all these awesome acts. And and it was via my music career that I found my way into investing. And Spotify was that first real investment that that got me hooked. So was it glamorous, you know, in a way, I mean, I think it was kind of surreal.
We were 21 when we got the record deal and it was kind of, you know, it was the dream, right. Like, we had started this band. We’d worked really hard for a few years with the ambition of doing it professionally. And, you know, and then a year later, we were like playing in stadiums with artists that we had grown up being huge fans of. So, yeah, it was amazing. I think the unglamorous part of it was the reality of living in a tour bus with eight guys, you know, which is it’s a very specific lifestyle.
So it wasn’t the right one for me. It wasn’t something I kind of looked into my future and thought. Do I want to be doing this when I’m 50? And the answer was definitely not. So I kind of over time, music became a hobby. And that’s what it is today. I mean, as you see, I’ve got a bunch of music crap all over here, and I still do a lot of fun making music. So would you tour a particular country and just hop in a bus and drive across the country?
Is that what was going. Yeah.
I mean, you know, at first. At first you’re in a van. So, you know, when you get a record label, it’s like a little company that gets a seed round. You know, you don’t you don’t start out in the big office with the fancy conference room. You’re driving around in a van. And so it was it was me and six other guys in a in a Sprinter van, you know, driving across the country over and over to and shows every night.
And then ultimately, sort of as we were a little more successful, we’d get a bus. And that’s sort of the the big breakthrough, because now you’re not driving. You know, you’re sleeping. Well, you go to the next city and it’s a part of what makes the lifestyle weird is you you sleep at night. I mean, obviously sleep at night, but you sleep well. You’re getting to the next city. So you kind of wake up in a parking lot somewhere, hang out all day, do a rock show, go to sleep in your boss, and you wake up in a different city.
And that’s that’s the life.
Wow. OK. When you put it that way. But I still think that a lot of kids who are, you know, whatever, 18 years old that is still their dream is to get in that sprinter van.
How did you how did each step of that how can someone recreate some of that success?
Like what were the big breaks that that let you get there?
Well, I mean, the big break was was when Kanye made a bet on us. I mean, he didn’t he didn’t sign us, but he tried to give us a record deal first. And so he was kind of like the big break. And again, you know, because of the topic of this conversation, it’s it is kind of a good analogy to start ups. It’s like, you know, you’re some little startup. No one’s heard of it than Sequoia comes in and does your series or something or TenOneTen.
So it’s you know, you need that kind of validation now.
We were coming out at this interesting moment of transition where the industry was going from one that was very gatekeeper driven to now one that’s much less that way. And so, you know, today the artists that get big tend to kind of get big organically on the Internet. We were part of the first wave of that. A lot of our early credibility came from building a fan base on MySpace and Facebook and then Twitter. So
That’s that’s how it works now. It’s a great segue over to your you know, how you got into venture and through Spotify. How did you go from being a performing musician to being an investor or being connected with Spotify? Sure.
So, you know, I’d always been interested in technology. Making music involves a lot of computer. And in high school, I had done web design to make a little extra money and that sort of thing. I was also an engineer in in the recording studio.
And then obviously through my music career, I really came to understand how the music industry worked. And people had tried to do streaming music several times before. But the big enabler was broadband, mobile Internet.
And so to me, when that moment occurred where you could stream any song ever instantly to your mobile device, I thought, OK, now this can happen. And there were, I think, four companies that I looked at at the time that were trying to do this, Spotify being the one ultimately that I that I chose to work with.
But it was like Spotify Rdio, la la, which Apple bought. There are like four of them, Pandora.
I went in Pandora. Well, Pandora was already public Pandora’s public.
And it was kind of they’d built a great business around this, quote unquote, lean back experience. That was kind of like if you weren’t if you weren’t a super music fan, you’d get Pandora. And you’re just one of those people who’s kind of like, yeah, I like everything, has put it on in the background while I’m at work. But if you were a collector of music, you were still in a file based, a download based behavior.
And so anyways, I met all these companies. I concluded Spotify was the most tenacious and the people were the smartest. And they had a big advantage coming out of Sweden because for historical reasons, the Swedish music industry was much more amenable to doing licensing deals with them. And so they were able to build a pretty huge footprint in Sweden and basically prove out this model in one constrained market. And then they used that example to convince the rest of the world that this was an OK thing to try.
That that was the hard part of Spotify was getting the record labels to do these deals.
And my view is kind of like whoever has the stomach to get that done will be the winner.
But now you’re you’re really full time investing in inhealth tech. Is that true?
That’s right. And I would sort of distinguish between healthcare and life sciences and more in the life sciences side. But I’ve I’ve done a bunch of both.
You know, normal early 20s rock stars don’t look at find a company and figure out how to get their money into it. How did you do that? You know it. It wasn’t obvious to me at all what to do. It was it was kind of like. You know, I think I had always had this almost aesthetic intuition about certain artists or fashion brands or products where I’d like discover something really early.
And I’d be like, man, this is gonna be huge. And historically, I just I’d never had any way of acting on it. And so when I had that feeling about Spotify. Then then, to your question, it was a tactical matter of like, what do I do? So what I did was I met Daniel, who had started the company. He introduced me to Sean Parker, who had just invested in it. Sean was still at Founders Fund.
Sean kind of saw this as the unfinished business of Napster. And so he’d been kind of dying to make this happen for 20 years. And and then I just kind of convinced them that. Basically, they they needed me to act as a translator to artists. I think, you know, that that was all I had to offer was was basically, I understand in a very sober way how this business works and how your model works. But I also am an artist and I also know other artists and they’re very emotional.
And, you know, to their credit, they bought that.
And then as I met more people in the technology world and then people in Hollywood who were sort of dabbling in Silicon Valley, like Ashton Kutcher became a really good friend and, you know, just sort of realized, oh, there’s this interesting kind of merging happening now between the worlds of technology and the worlds of media and entertainment.
And then, you know, that led to me learning about and having access to other companies. And I would just start asking them, like, hey, can I put some money in or can I get some sweat equity or some options or whatever it is? There was no strategy at first. It was just when I think something’s gonna be big, I just want to be a part of it somehow.
And now that’s all I do. So anyone listening who’s not in those areas, I’m irrelevant to the four areas that I invest in are drugs, diagnostics, research tools. And then sometimes health care, I.T. or health care services, businesses.
And so those are the four things I do. We generally make investments between two and six million dollars and we try to invest very early, which can vary depending on how big a company is going to get. Maybe, but, you know, as a general frame, it’s like seed through Series B tends to be where I’ll invest. And Inevitable Ventures.
You started with Ron Burkle, who also was he an investor in Ashton cultures or he was one of the co-founders of Ashton Kutcher Catches First Things. It was that kind of the the bridge. Can you tell us more about how you got to know Ron and how you guys started that?
Yes. So the connection with Ryan, interestingly, was also kind of via music and in very unexpected. I had years ago become friends with Diddy, Puff Daddy, and we had made a song together and a music video ours.
So this is you know, this is like 2009 or whatever. And so when I started working on Spotify, I called Puff and I said, hey, you should really invest in this. And I raised a bunch of money for the company from artists, friends of mine like him. And then that same year, I guess this is 2011. He took me to the Clive Davis Grammy party that he was hosting, which is like I’ve only been that one time.
It’s like the best party. Ray Davies from The Kinks was performing it. Was it memorably it was the night that Whitney Houston died and she was meant to perform at that party. And so it’s kind of morbid. But she was. Her body was still in the Beverly Hilton Hotel as we were in the ballroom having this party. And that kind of put this weird shadow over the evening. But nonetheless, I went with Puff Daddy and he and Ron had been business partners for a long time.
He had done some clothing companies like Sean John, and maybe just give us the background.
I doubt those listeners probably know who Puff is or dead. I’m not sure. But but regardless, Ron Burkle, Maybe you could give us some color there, too.
So Ron’s just a great and he’s one of the great L.A. investors. So he grew up in Yucaipa, which is, you know, 100 miles east of here, and started as a bag boy, I think, in the state or brother’s grocery store and, you know, ended up owning the whole grocery chain and then buying more.
And Ralph’s was a business of his a sort of became the most important grocery entrepreneur in the country and made a bunch of money earlier in his career and then has since then owned a series of operating businesses and just been a great deal maker and Rons really a terrific value investor, an operator. Among the things in his portfolio have been a mirror. Cold is a large cold storage business on the more glam side. He owns Soho House, which has been a very interesting story in the world of hospitality over the past decade or two.
And then Ron has. Along the way actually had a lot of success in technology investing. But he’s largely done that through other people and backing younger investors who he’s met. So as you pointed out, he had been the partner in A grade, which was Ashton Kutcher and Gug Oceare and Ron. And I mean, they were just phenomenally successful. I mean, SBN be Uber, Spotify, Warby Parker. They made some amazing investments. And then at a certain point, Ashton and Guy spun out and they now run a firm called Sound Ventures.
It’s also great. And Ron and I. By that time had become friends. And he approached me about kind of creating a successor to a grade. So that’s what we did. And that’s what Inevitable Ventures has been. It’s just me and Ron. And and now Time BioVentures is this new fund that I’ve created and Ron as a partner of ours and that as well. Got it. And so time biosensors, if I’m an entrepreneur approaching you, I’m kind of approaching you about time BioVentures.
That’s right. Doing those those four areas that you talked about. Yes. Tell us more about about what you’re doing at time, I guess.
Who are the entrepreneurs you’re usually meeting? I imagine it’s not exactly the, you know, MBA student who’s coming up with a new drug discovery or something.
Yeah. So, you know, you’re getting at a key attribute of our model, which is that we invest in very technical companies, companies with generally a lot of intellectual property at their core. So oftentimes these originate in academia.
There are some investors who go out and they kind of look for this intellectual property and then they try to build companies and they do the spin out. We like to invest once. That’s kind of already happened. So we’d like there to be amazing technology that’s really protected and defensible legally through patents paired up with a really great entrepreneurial talent.
And so we spend most of our time looking for new drugs that we think can be game changing for patients. And then I talk about kov. It is a really good kind of window into what we do because it highlights how those four areas are all connected.
So if you think about this crisis, everyone who’s been watching the news will appreciate that you need innovations in all four of the areas I talked about to put a dent in it. So we hear a lot about vaccines, antibodies and other therapeutics. Those are the drugs that are ultimately going to treat patients or prevent infection. So that’s the first box. Second is diagnostics. And we’ve all heard about the antibody test or the active infection tests. So those are diagnostics.
The third area is research tools. Those would include rapid DNA sequencing technologies. And it’s that kind of tool that enabled us to very rapidly understand the structure of the corona virus. And it was within weeks that we actually knew the genetic sequence of the virus. And that has opened up all of the abilities to both diagnose and treat it. And then the fourth area that I talked about, his health care I.T., the example in this instance would be things like contact tracing.
So and maybe Covid is a good example, but what’s the relationship with, like Big Pharma in these cases? Like. When is it the right thing for a startup? When is it the incumbents?
Well, Big Pharma is kind of like a record label. So just like really very similar. What?
So what I described earlier was that kind of before our time as as a band. But even while we were getting started, the goal was when you’re a little new artist, you want a big record label to pick you up and make you a star. And what it’s now become as a result of the Internet is you kind of got to make yourself a star first on online and then they’ll just come buy you and you’ll get a record deal. But they’re going to give you a lot of money.
They’re just effectively buying the profits that are sort of a sure thing. So in the pharmaceutical industry, what’s happened in the past couple decades that’s very similar to this is that a lot of the
big new drug is used to be invented at the pharmaceutical companies, and now they have shifted to this model of buying startups. So the big pharma companies, which are generally big public, multi hundred billion dollar megaliths, their business model is to let the venture capital market develop new inventions, get those drugs to a certain point where they’ve been de-risked, and then Big Pharma comes and pays a lot of money to buy them. So when we’re looking at investing in drugs, there’s actually no shame in our intention that if they work, a big pharma company is going to come and buy it.
And that’s basically what what you want to happen. That’s how most companies exit. And I think there’s an amazing stat that I don’t remember about how much each year farming companies are spending, but it’s a lot.
Yeah, they’re buying, I think, 15 to 20 billion dollars worth of start ups a year for the past few years.
That’s huge. Do you think that’s a good thing, that that you sort of need those billions of dollars to put a drug out to market and the system right now can’t really work it a different way? Good, bad, indifferent. Yeah, well, you compare it to the old model I described, and in the old model you had these huge companies effectively trying to do startup stuff. And as you can imagine, because they’re big companies, that was very inefficient.
So in a certain way, this evolution, I think, is a good thing for for the whole system, because now they’re they’re sort of banks there, like investor. They’re like basically late stage investors who bet on things once they’re de-risked and then they have the capital to do the very expensive clinical trials that you often have to do.
So it depends what kind of drug we’re talking about. But say you had a great drug for hypertension, which, you know, if you wanted to to deploy that drug at scale to get it approved by regulators, you might need to do a clinical trial that costs over a billion dollars.
The tenacity of those big multinationals comes from their control of distribution still. And so, you know, you’re talking about a company in L.A. that’s involved in drug distribution. You know, most drugs today still get sold through a doctor prescribing them. And that doctors typically being called on by a sales force that works for the big companies. So you got, you know, tens of thousands of these sales people still running around in the physical world, talking to doctors and teaching them about the new drugs.
Let’s take on distribution in the sense of, you know, right now hospitals are these huge forces in how we all get service
I think hospitals are very dated, 19th century model.
You know, that the kind of two big unconquered institutions are at least two of them that stand out are schools and hospitals. And they both are products of essentially the industrial revolution. So, you know, we used to have one room schoolhouses where kids of multiple ages co-mingled and it was much more kind of organic. The industrialization movement led to this idea of schools as factories. You move kids through them at the same pace in these defined cohorts.
And similarly, in health care, you know, we had these sort of the doctor who does house calls and knows you for 30 years and really knows your family and all the context. And instead, we changed that into this, you know, huge factory model of hospitals that, you know, in theory give you some kind of economy of scale, but in practice don’t actually seem to do that. They just create huge amounts of inefficiency all around.
where do you see things changing on the delivery side, I guess?
Well, what you I mean, the the big goal on the delivery side should be it should be a global goal. But let’s start with the U.S. and the goal should be that every patient receives the best care that human knowledge and technology can deliver. So at a minimum, we should all be aspiring towards essentially standardization. You want to bring the quality of everyone’s care up to the highest possible level. And the only way you do that is by making it much less local.
I guess what I mean by that is right now there’s huge variance in what kind of care you receive if you are rich and you go to a Memorial Sloan Kettering or Cedars Sinai. And if you’re poor and you go to some E.R. every time you get a cold, which is what poor people do, they just go to the emergency room. They don’t have a doctor. No one knows what’s going on with them
I was that asked how you sort of square the idea of a standard of care in a standardized care with innovation and the need for, you know, some fluidity. And you’re talking about maybe a model of how we look at things is broken. Yeah, that’s that’s a great question. It’s in some ways that is like the question that I think about the most just consistently that issue is at the core. So for listeners who aren’t aware of this, there’s this concept in medicine that you raised the quote unquote, standard of care.
And what that means in practice is that when a patient comes into the doctor or the hospital and they’re diagnosed with some condition, the standard of care is what the physician is supposed to do. And that is meant to be informed by the collected evidence that exists. And generally, the standard of care is defined by medical societies that are particular to each specialty. So, as I said, the head and neck cancer doctors will have a national society. The I don’t know what there is is, but it will be the American Society of head and neck cancer doctors and they’ll have an annual meeting.
And at that meeting, all the gurus will get in a room and they’ll compare notes and they’ll basically put out what are called guidelines. And those guidelines will specify what the standard of care is. Now, just with that example, you can begin to see how it’s inefficient because the refresh rate on the standard of care will be. However, frequently that society has their meeting, which might be once a year, it might be every other year when the physicians, these gurus get in a room and they talk about this, you know, in principle, the choices they’re making are related to what’s the newest evidence.
But they also are informed by, you know, assessment of risk. So some guru in that room is going to go, yeah. You know, there is some evidence that doing this procedure instead of the old one will be more effective, but it may also invite more malpractice risk. Or did you think about that? It may also be, you know, so it’s an imperfect process, updating the standard of care. And then the final issue is effectively around the the implementation of that standard of care and how quickly it’s implemented everywhere.
So its ability to be put into practice is contingent upon the physician at the local hospital having read up on on the new standard of care. So, you know, there are I would say fundamentally two types of medical cases in one case. What should happen to the patient could essentially be turned into an algorithm and there would be so little ambiguity about what the physician should do, that it should almost be a computer program that just takes in all the patient data, all the diagnostic test results, and then spits out what should be done.
And that that could probably drive care decisions for, you know, I’m being arbitrary.
But 70 percent of patients then the other segment of cases are, to put it simply, cases where if you’re the patient, what you really need is for a doctor to think.
And, you know, that’s why they’ve been you know, that’s why they’ve gone through eight years of schooling and rad to read all this stuff and memorize all this stuff, because what you want them to do is integrate all the information. But, you know I think what we want is more technology for the first cases, the 70 percent and probably less technology in some ways back to how it used to be for the 30 percent.
Let’s talk about investing for a second. Are there certain things that you’re getting pitched all the time that you’re just like. This is not in my area of interest? Like, can you help guide entrepreneurs a little bit better?
Yeah. You know, I mean, the one thing I’ll throw out there. Because I assume a lot of listeners are kind of more tech startup oriented software people. There’s a very pervasive naivete when people from the world of software and computers go into the world of biology and the world of health care. And the the two. Kind of flavors of this naivete are on the health care side. They think that the health care industry, the delivery industry, hospitals, insurance companies, the government, all that they think it’s about to be disrupted, just like everything else has been OK.
And in fact, not everything else has been. you know, there’s a reason that it’s been slow to change.
You’ve got real monopolies. It’s heavily regulated. So public policy is really important. So it’s like that’s the first naive thing is thinking like, oh, we’re just going to come in and, you know, we were two guys at Google, so we’re just going to show the health care industry how it’s done. And like, that’s almost always stupid. The second is the equivalent in biotech, which is software people essentially thinking that drug development is easy and that A.I. or whatever software they have is about to, you know, upend the global pharma system.
And, you know, you see I see these kind of pitches from people who just don’t know what they’re talking about all the time.
But how did you become knowledgeable, uncomfortable investing?
I just through making mistakes, you know, I mean, I kind of I, I say all this not I don’t know, I’m not speaking from on high about this. Like, I had to get the scar tissue and I wish I wish I could have skipped that step.
But, you know, one thing I would say is that, the user experience can can definitely be improved. That’s just like build good software. And so there’s a lot of stuff that dies in health care tech, not because the product isn’t good. Very few things die because the product sucks. They almost all die because it’s impossible to get customer traction. So, like, I can’t tell you how many awesome things I’ve seen.
Smart software people build that hospitals should all use. But then they go to each hospital and it’s like, oh, what to do? Let’s do a six month pilot unpaid. And then you do it there at Cedars Sinai. And then you go to UCLA and they go. It’s great that it worked at Cedars, but let’s do a six month unpaid pilot. And we by the way, we need a bunch of customization. And, you know, now the company is at a series A.
. It’s got no paying customers. It’s got two pilots. And it’s totally unclear how much of a clinical impact it’s having. They’re not making any money. It’s hard to raise more money.
So the thing to mind is the business model. That’s the that’s usually the rub with these healthcare software stuff. Well, in the interest of time, I think we need to like, not endlessly talk about health tech investing and move into talking more about you, D.A., the person one of the big questions I have is, is sort of around how you remain creative.
Yeah, I don’t. I don’t know. I mean, I think it’s. Know suspicion of authority mixed with like curiosity, open mindedness.
I think, you know, just kind of. And exploring, like, you know, like I was talking my friend yesterday when my best friend and we were we were talking about how. There’s there’s not much question for either of us that reading is the most valuable thing we do. But like we always are struggling to have enough time for it and discipline to actually do it. And the reason I think it’s so important is it’s like the. I think we have this assumption that creativity comes out of thin air.
But like, it doesn’t really. I think it comes out of, like, constant consumption of ideas. And then they do they stew up in your brain and you maybe get some weird ones. And so, you know, if I think about the artists that I’m friends with, musical artists or whatever, I mean, they’re endlessly listening to other music. So for me, you know, like. Both to have you as an investigating, both to have an information advantage and to get new ideas.
It starts with just ingesting tons of information, talking to lots of people, reading lots of stuff, and and then just kind of randomly, you know, new ideas pop out.
Yeah, it’s unfortunate. I’m really not very literate. So I, I, I’m not. So I appreciate that perspective.
My equivalent might be surrounding myself with really interesting people, because if you’re around those people with interesting creative ideas and you’ve had this chance to rub elbows with all sorts of people.
So like, Kanye just announce he’s running for president?
Yeah. Very creative idea.
Good answer. Good answer. Oh, my gosh. Well DA, I don’t have a I don’t have a lot more probing personal questions.
You do have exclamation points in your name, do you not? Just on just on email. I didn’t, you know, came out of music. I did years ago. One of our big early kind of mentors was Travis Barker, who is the drummer from Blink 182. And Travis is just like the coolest, nicest dude. And he kind of took us under his wing when he got to L.A. And he used to have like in his email name, not the e-mail address, but like the, you know, the display name.
It was like Travis Barker. But like the A was a star. And like, every letter was the coolest alternative symbol that you could recognize. And I loved getting e-mails from him because it just like spiced up my inbox. And so. So years ago, yeah. I just I just made mine D.A., but instead of periods, I did exclamation marks. And I don’t know if it’s fun for people to receive, it’s great.
I love it. I got your e-mail and it’s a deal. It’s got these were A. S Lezley like coming to you. Fantastic.
I appreciate that. Keep it up and see where he’s having you on the show today.
Yeah, it’s fun talking to you guys. Thanks for having me.