Miraki’s Velis on investing in lab technology and reserving for today’s larger rounds

In May, Miraki Innovation said it had set out to raise a $175 million third fund to mine academic and research labs for technology.

Founder Christopher Velis said the Cambridge, Massachusetts-based firm is focused on medtech, including delivery systems for drugs, surgical robotics, nano-molecules, advanced visualization systems, and genetically modified proteins and peptides

He added that Miraki is stage agnostic, with an interest in seeds and Series As rounds, but also Bs, Cs and beyond.

VCJ recently had the opportunity to speak with Velis, who co-founded Auris Health. An edited transcript of the conversation follows.

Q: Funding for technology at academic and research labs seems on the rise. Do you see a trend here?

A: I do. And I hope that it is one that will continue. Because we’ve got a massive amount of research that is bottled up in these fantastic academic and hospital laboratories that doesn’t ever go through a translational process that gets it to the patient.

As more people approach the opportunity, I think the translation will happen at a faster rate and that is a positive thing.

Q: Where are you investing in the laboratory space?

A: Our strategy is not so much to start in the laboratory environment and look for technology, per se. It’s to identify a big problem that we have a great deal of passion about solving and then to systematically go through the research organizations where the best minds have been working on that problem, usually under grant money, and, say, which solutions are most likely the optimal solutions to this particular problem?

Q: What big problems are on your radar?

A: Some of the things we’re excited about are the major concern about antibiotic resistance, the decreasing number of antibiotics under development and the degree to which they are becoming ineffective.

Sepsis alone is about a $24 billion problem in the United States. It is a killer. Its numbers look like deaths from sepsis will exceed deaths from other major diseases, such as cancer, and diabetes and heart disease. This is an area where we are focusing on and saying what interventions can we develop that can intervene in a patient who is likely to go into sepsis shock and perhaps die from it?

We’ve looked at the broad spectrum of possibilities and already made an investment in technologies that filter out from blood serious components of the immune response in order to down regulate the inflammatory response the patient has. Hopefully that will have a major impact on outcomes.

Q: Anywhere else?

A: Accompanying that we are developing rapid diagnostics to identify exactly what the pathogens are so that we can in fact more accurately prescribe the right antibiotics.

Here is a major problem where we are applying innovative solutions and doing that in conjunction with some major academic institutions and government agencies.

Q: Do you reserve more these days due to round sizes?

A: Yes. Not only are we reserving more, but we are inclined to give strong investment and co-investment rights to our investors. And we’re inclined to have at least half of our investors be those who are really interested and willing to take those co-investment rights.

To keep our cap table simple, we tend to go back to our limited partners to fund on a going forward basis rather than syndicate among various venture funds.

Q: How do you view today’s high valuation levels?

A: Valuation gives every investor pause. You always have to think about it and be considerate. One of the factors of our strategy that helps mitigate my concern is we are often the founders of the companies we’ve invested in. So the cap table was constructed by us since the beginning.

And because to date most of our cap tables have had limited co-investment, we’ve had a little bit more oversight into how those rounds are priced and how they escalate.

Q: Are you closely watching valuations?

A: You always have to be considerate and thoughtful about that. What we don’t get involved in are these massive competitive bid-ups that you are seeing.

There are more companies out there under valued and struggling in medtech and in need of capital than there are receiving those unicorn type valuations. But those that are getting bid up can be a cause for concern.

Q: You work with Brown University, Columbia University and Johns Hopkins. What makes those institutions stand out?

A: They and others have an increasing number of young and emerging fellows and physicians who are exploring alternative career paths than just the research lab.

Some of the more senior investigators are saying, ‘I would really like to see my technology get to patients and help patients and not just get published in a paper.’

Those are the institutions that have a little bit of advantage in working with our financial community and venture community.