Investing with (and in) Brains

The brain is a promising area for growth investments. Yet lately, it hasn’t produced a whole lot of exits.

Those are some takeaways from an interview earlier this week with Roger Quy, a neuroscience Ph.D. and general partner at Technology Partners who has carved out a niche investing in what might be called the “brain space.”

It’s a focus area involving companies applying advancements in brain science to everything from mental illness therapies to market research. And while in some ways it’s a classic growth sector – particularly with advances in research promising treatments for diseases previously considered uncurable – it’s also a challenging one, Quy pointed out in Q&A sessions, excerpts of which follow:

Q: Research firm NeuroInsights just put out a report saying brain-related illness is the largest unmet medical market, with 2 billion people worldwide needing care. Is that an overstatement?

A: Brain disorders are at the frontier of medicine. We’ve had a lot of advancements in cardiovascular health but neurogeneic disorders – such as cognitive and mood disorders – are a huge problem, particularly cognitive disorder as the population ages, and we’re all living longer.

Still, seems like it’s been a tough area for exits. Public markets, in particular, haven’t been receptive to life science and pharma IPOs in the last few years. How does that impact your investment outlook?

The biggest risk today is not technical but financial. Public markets have been pretty much closed down for a while, and that has an overall impact. Hence, we’re looking at models outside the traditional life science, medtech and biotech areas, such as consumer medicine. That offers opportunities to look at business models where there is less regulatory risk and self-pay models.

Most of your investments are in companies developing therapies. But one of your portfolio companies, EmSense, seems to have a particularly unusual business model: It measures brainwaves of shoppers and provides that data to marketers. What attracted you as a venture investor?

EmSense has clients like Unilever, Pepsi, and Time Warner. The approach is different from traditional marketing which has used tools such as surveys and focus groups which rely on consumers to relay purchase decisions.

A big attraction of Emsense as an neuroscience company is that it doesn’t require any regulatory approval, and we can sell all we want. It’s one of our approaches to deal with increased regulatory risk.

Companies developing cognitively stimulating “brain games,” like Posit Science and Dakim have gotten funding recent years. What’s going on that space now?

We’ve looked at a number of brain training companies, but right now it’s not clear how the business models will be scalable… For example Lumos Labs has been online, but it hasn’t succeeded compared to some of the regular gaming companies

But if Zynga can be worth close to $4 billion largely on a simple farm game, one would think there would be a business model around brain training.