Alan Frazier

Founder & Managing Partner, Frazier & Co.

Alan Frazier is the founder and managing partner of Seattle-based Frazier & Co., managing partner of the firm’s health-care funds and co-managing partner of its technology funds. He is active in evaluating the funds’ therapeutic, medical device and e-health companies. Previously, he was executive vice president and CFO of Immunex Corp. and later served as the CFO of Affymax. He also serves on the board of Voyager Capital and the Evergreen Venture Capital Association.

What is the first step you would take in setting up a $400 million venture firm?

As you know, the business is fairly complex these days, so the day of the generalist is way past. I would have looked at my own personal power alley and tried to start from there – where can I source my deals from, what value-added do I bring to the companies.

So I would suspect I have a particular strength in biotechnology, having been on the industry side. I would go with a sector fund, so I would have made the decision not to be multi-line, but find a sector that’s broad enough. If my power alley was biotechnology, I would be all over health care.

Whether health care or IT, I would want to make sure it was a broad enough industry that I can play in quite a few different areas. There are times when biotech is slow and there are times when e-health is the place or devices, etc. It’s important to understand the entire industry and have it broad enough that you’ve got many different places to invest.

Looking at me as an individual and building a firm around myself, I would spend a fair amount of time thinking about my own power alley so when I go out and recruit my additional GPs, I would have a good idea of the types of GPs I would have. For a $400 million fund, I would want three additional GPs.

Who would you want to be your general partners?

I would want someone who has incredible industry contacts in devices. I’d want another one in biotechnology, along with myself. I would want to have a very strong IT-oriented guy.

In identifying these partners, are you also identifying the specific health-care sectors you’d be targeting? Are there any additional emerging sectors within the health-care sector you might be moving towards over the next two or three years?

I’d be thinking about bio-infomatics. One of the people I’d want to have as a senior associate or as a GP would be somebody who can help us make sure we’re going down the right angle there.

More generally, how would you structure the firm? What kind of staff would you have?

I would make sure I have a kind of staff that goes from top to bottom in experience – analysts as the youngest staff, some associates, some vice presidents and some general partners. I would have great serial entrepreneurs as industry counsel in a couple of different geographic areas. I would have great people out of existing companies for deal flow and to add value.

I would probably have made the decision not to be multi-office because this is my first-time fund. It’s incredibly important that we all know how each other work, the type of coordination we’re developing. By setting out in business with multiple offices, I think we’d be doomed to failure.

Where would you set up that one office?

Boston or San Francisco. Since I picked health-care, those are the two areas with the highest concentration of companies and people we’d want to be dealing with.

What sort of strategic relationships would you develop?

I would have three or four search firms I have really great relationships with and put them in our friends program to give them some incentive. I would have an in-house legal counsel, have that person double as chief operating officer. That person would have venture experience, either coming out of a VC firm or someone who has dealt many times with venture-backed companies.

What about LPs? Who would you want to bring on board?

I would choose not to go after individuals. I would like to have, as long as you’re letting me dream here, a bunch of top 20 endowments and one or two of the top-bracket pension fund managers as partners.

And strategic investors?

No, I would take care of those strategic relationships with the people that I have either as GPs, or as entrepreneurial counsel.

What kind of relationship would you develop with your LPs?

I would like to have fewer LPs, so that I had a tight relationship with them. I would have gotten people that can act as advisors to me. When I go to my LP advisory board meeting, I would have seven or eight of the top investors in the U.S., and I would have their people that sit on other advisory boards. I would have people that I’ve known in the past: they trust me and I trust them and their advice to me.

What stage companies would you invest in?

I would want some flexibility to invest throughout the spectrum. About two-thirds of my money would be going into deals that I was the first venture money into. I would also have such a strong domain expertise that I would also be doing some interesting buyout or buy-in, spin-off types of activities.

Why favor early-stage investments?

I think the big money is to be made creating, sustaining and developing long-term, enduring companies. By getting in first, you get a handle on the steering wheel of the ship. Economically, you get to own large chunks of the company.

Speaking of money-making, what kind of carry would you have on the fund?

I would be realistic. If this is my first fund, a 20% carry.

Going back, would you do follow-on investing?

Absolutely.

Would you invest in a non-U.S.-based company?

Probably not.

Will you focus your investments geographically to maintain a tight relationship with the portfolio?

I would be geographically unconstrained.

What about the number of board seats a GPs can sit on at any one time?

Five to seven.

Why limit it there?

I would invest nationally, so I’ve got to travel a little bit. Plus, as a first-time fund, I’m having to do a lot more spade work, develop my deal flow, work on my fund. I would also want to create the highest value-added, so you have to have time to spend on these companies. By having a lot more board seats, I would be in a tough spot to deliver that value-added.

If several firms were competing for the same deal, how do you distinguish your value proposition? How do you pitch your fund?

We know this domain. We know everything that moves in that domain. By so doing, we’re going to bring great informational knowledge as a board member. We’re going to be able to help in M&A, whether it’s to expand the company or sell the company. We’re going to know the industry and be able to help.

I would sell ourselves on the fact that the great team you’ve allowed me to create has great expertise beyond just the specific board member dealing with the company. I’m going to approach this investment as a team, so there’s probably three of us from the firm going to be associated with the investment. You’ll always be able to get someone here. I’d also deliver a financially oriented person, somebody who knows the domain space, someone who knows the technology.

In terms of M&A and financial advice, do you have a preferred exit strategy?

No. I do have a very strong preference that the team I invest with is motivated for shareholder value, that will look at an M&A exit as well as an IPO.

What would you call your firm?

I would not call it Frazier & Co. I would call it something with a positive spin, more than a non-descript name. Something that would symbolize quality, or symbolize contribution or symbolize growth.

Given the choice, would you attach yourself to a corporation or remain an independent VC firm?

I would remain an independent company. It’s important that we are perceived as not being party to anybody with another agenda.

Ideal Venture Fund Snapshot:

Alen Frazier

Firm name: Not Frazier & Co.

Office Site Boston or San Francisco

Carried-Interest: 20%

Industry Focus: Health care

Stage Investing: Mostly early-stage