Success Diaries - 23andMe
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23andMe is a company that pioneering genetic testing for the masses. It’s unique mission statement stemmed from a core belief that personal healthcare data should be accessible and owned by individuals. In our case study, we discuss key lessons and insights that startups can derive from 23andMe’s journey – 1. Persistence and resilience can be more important that talent and network 2. Create your moat before thinking about monetization 3. Monetization always follows scale, solve for scale first 4. Delay profitability for bigger growth potential 5. Be driven by a larger purpose, mission
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Success Diaries - 23andMe
- 1. Success Diaries Democratising access to personal healthcare data
- 2. 23&Me in numbers (Users) 2 Copyright Kalaari Capital 2021 Size of 23&Me’s human genome database 10.7M Published research papers +180 10K Pre-2015 logged in during 2020 60% Customers receive meaningful medical data 80% Genotyped customers consented to research 8.5M Research surveys collected daily 30K
- 3. The founders 3 Copyright Kalaari Capital 2021 • Yale grad, spent 10 years in healthcare investing and research • Realized healthcare was broken, mis- alignment of incentives in the system (too much focus on monetizing illnesses instead of offering preventative solutions) • Knew that the only way to disrupt is to build something from the outside • Pulled together a team of biology researchers to co-found 23&Me Biology advancement in genetic research At the time of social networks, Web 2.0 X Do something radical in biology research = Anne Wojcicki Linda Avery, Paul Cusenza Were brainstorming DTC genetic tests at the time and Anne joined them as a co-founder
- 4. 4 Copyright Kalaari Capital 2021 The Vision, Mission To help people access, understand, and benefit from the human genome Today, the size and scale of 23andMe’s data enables rapid novel discoveries Largest dataset of genetic data in the world, governments and pharma companies have spent millions $ collecting data
- 5. 23andMe Business Model 5 Copyright Kalaari Capital 2021
- 6. 23andMe’s ancestry service is only the tip of the iceberg 6 Copyright Kalaari Capital 2021 A mass entry point into building a revolutionary database
- 7. 23 and Me Journey 7 Copyright Kalaari Capital 2021 2008 – Series B $27M 2012 – Grant $2M NIH (Provider of drug discovery services) 2015 Series E $194M • Fidelity • Illumina Ventures • Xfund • MPM Capital • WuXi Healthcare Ventures 2007 – Series A • Google • NEA • Mohr Davidow Ventures • Genentech 2012 Series D $57M 2017-20 Series F $362M • Sequoia • Altimeter • Wallenburg Foundation • Casdin Capital • Orrick 2010 – Series C $31M • JJDC • MPM Capital 2013 FDA Roadblock Basic Health, Ancestry Expanded to Drug Discovery Digital Health + Therapeutics 2008 – DNA Kit • Time invention of the year 2018 JV – GSK $300M For drug discovery 2020 1st cancer drug discovery 2M to 10M user growth Began competing w/ Ancestry.com
- 8. 23 and Me SPAC in March 2021 8 Copyright Kalaari Capital 2021 $3.5B Valuation +$500M cash available for product development post SPAC merger
- 9. 23&Me in numbers (Financials) 9 Copyright Kalaari Capital 2021 Market Cap $4B 10K Gross Margins 50% In Cash $500M EV/ Revenue Multiple 19x
- 10. 23andMe’s Data Moat 10 Copyright Kalaari Capital 2021 10K Drug R&D in pharma companies is a lot like VC… Imagine a world where someone could help identify and speed up the process of finding unicorns • <12% rate of success • $2B development • 10 year process 23 and Me Scale • 2X probability of success • ~4 year process Currently, developing 30+ target therapeutics in Oncology, Immunology, Cardiovascular, Metabolic Disease, Neurology First time a pure data-mining company that has enough genetic research done to recreate real medicine
- 11. 23 and Me Journey 12 Copyright Kalaari Capital 2021 2008 – Series B $27M 2012 – Grant $2M NIH (Provider of drug discovery services) 2015 Series E $194M • Fidelity • Illumina Ventures • Xfund • MPM Capital • WuXi Healthcare Ventures 2007 – Series A • Google • NEA • Mohr Davidow Ventures • Genentech 2012 Series D $57M 2017-20 Series F $362M • Sequoia • Altimeter • Wallenburg Foundation • Casdin Capital • Orrick 2010 – Series C $31M • JJDC • MPM Capital 2013 FDA shuts down 23&ME Basic Health, Ancestry Expanded to Drug Discovery Digital Health + Therapeutics 2008 – DNA Kit • Time invention of the year 2018 JV – GSK $300M For drug discovery 2M to 10M user growth Began competing w/ Ancestry.com 🦄
- 12. 23 and Me Journey 13 Copyright Kalaari Capital 2021 2008 – Series B $27M 2012 – Grant $2M NIH (Provider of drug discovery services) 2015 Series E $194M • Fidelity • Illumina Ventures • Xfund • MPM Capital • WuXi Healthcare Ventures 2007 – Series A • Google • NEA • Mohr Davidow Ventures • Genentech 2012 Series D $57M 2017-20 Series F $362M • Sequoia • Altimeter • Wallenburg Foundation • Casdin Capital • Orrick 2010 – Series C $31M • JJDC • MPM Capital 2013 FDA Roadblock Basic Health, Ancestry Expanded to Drug Discovery Digital Health + Therapeutics 2008 – DNA Kit • Time invention of the year 2018 JV – GSK $300M For drug discovery 2M to 10M user growth Began competing w/ Ancestry.com • Launched at home DNA kit: There were a couple tests on the market when 23andMe launched its first DNA kit, a $999 swab that tested for 90 traits ranging from blindness to baldness in 2007. • First of its kind: But the company put direct-to- consumer genetics on the map, with the help of a publicity-driven tech-world hype machine. TIME named 23andMe’s test the 2008 invention of the year. • Product Launch Hype: Executives invited celebrities like Naomi Campbell highly photographed “spit parties,” and heartwarming 23andMe ads documented people connecting with long-lost relatives. Spit Party Launch @ Fashion Week 2008
- 13. Drivers of 23andMe’s success 14 Persistence Understand the user Scientific values Long-term vision 1 2 4 3 Overnight successes are a decade in the making. Without consistency of vision, it is difficult to carve out a clear path to success, align company values, and make lasting change. Long-term vision It is crucial for healthcare companies, especially those treating or clinically diagnosing individuals, to be grounded in ethics and have a strong scientific foundation. Scientific Values Early, during product-launch days, 23andMe realized the importance of creating awareness in a nascent, upcoming market like genetic testing. They went the extra-mile to figure out what would drive mass adoption. Understand the User Persistence Copyright Kalaari Capital 2021 Graphs of all successful companies seldom point upwards consistently. The best founders persist despite the downs. 23andMe’s journey has been rocky but the outcome, unexpected and impactful.
- 14. 23 and Me Journey – Learnings 15 Copyright Kalaari Capital 2021 2008 – Series B $27M 2012 – Grant $2M NIH (Provider of drug discovery services) 2015 Series E $194M • Fidelity • Illumina Ventures • Xfund • MPM Capital • WuXi Healthcare Ventures 2007 – Series A • Google • NEA • Mohr Davidow Ventures • Genentech 2012 Series D $57M 2017-20 Series F $362M • Sequoia • Altimeter • Wallenburg Foundation • Casdin Capital • Orrick 2010 – Series C $31M • JJDC • MPM Capital 2013 FDA Roadblock Basic Health, Ancestry Expanded to Drug Discovery Digital Health + Therapeutics 2008 – DNA Kit • Time invention of the year 2018 JV – GSK $300M For drug discovery 2M to 10M user growth Began competing w/ Ancestry.com The Trough of Sorrow • 1,000 kits the day they launched, trickled down to 10 kits or less a day • What the founder calls ‘the trough of sorrow’ – a phenomenon you see every time you launch a company or release new products What’s important? 1. For leaders, Not wallowing on today, but thinking about the vision and plan a few years down the road 2. Not let immediate success or failure distract you from the longer term goal 3. Receiving feedback from users How 23 & Me solved for the trough of sorrow: Awareness Iterative User Research Ancestry Lesson #1 Persistence
- 15. 23 and Me Journey 16 Copyright Kalaari Capital 2021 2008 – Series B $27M 2012 – Grant $2M NIH (Provider of drug discovery services) 2015 Series E $194M • Fidelity • Illumina Ventures • Xfund • MPM Capital • WuXi Healthcare Ventures 2007 – Series A • Google • NEA • Mohr Davidow Ventures • Genentech 2012 Series D $57M 2017-20 Series F $362M • Sequoia • Altimeter • Wallenburg Foundation • Casdin Capital • Orrick 2010 – Series C $31M • JJDC • MPM Capital 2013 FDA Roadblock Basic Health, Ancestry Expanded to Drug Discovery Digital Health + Therapeutics 2008 – DNA Kit • Time invention of the year 2018 JV – GSK $300M For drug discovery 2M to 10M user growth Began competing w/ Ancestry.com
- 16. 23 and Me Journey – Learnings 17 Copyright Kalaari Capital 2021 2008 – Series B $27M 2012 – Grant $2M NIH (Provider of drug discovery services) 2015 Series E $194M • Fidelity • Illumina Ventures • Xfund • MPM Capital • WuXi Healthcare Ventures 2007 – Series A • Google • NEA • Mohr Davidow Ventures • Genentech 2012 Series D $57M 2017-20 Series F $362M • Sequoia • Altimeter • Wallenburg Foundation • Casdin Capital • Orrick 2010 – Series C $31M • JJDC • MPM Capital 2013 FDA Roadblock Basic Health, Ancestry Expanded to Drug Discovery Digital Health + Therapeutics 2008 – DNA Kit • Time invention of the year 2018 JV – GSK $300M For drug discovery 2M to 10M user growth Began competing w/ Ancestry.com Within 5 years, 23andMe’s swab cost just $99, could test for over 200 traits, and had been used by 100,000 customers. • Ancestry.com, now 23andMe’s biggest rival, had existed as a family history research service since the 90s. The company launched its own test in 2012, converting its 20-year-old audience into test customers and riding 23andMe’s DNA testing trend, along with a new class of startup rivals. • 23andMe became famous for family history reveals, but Wojcicki always had ambitions in healthcare. Lesson #2 Understand the user
- 17. 23andMe on marketing 18 Copyright Kalaari Capital 2021 $5.1B Solving for user adoption in a complex, nascent market – “making it incredibly simple for your average joe to understand enough about genetics to intrigue him/her to buy a kit” Family meets for the first time
- 18. Regulation as an advantage for disrupters 19 Copyright Kalaari Capital 2021 Dotcom disruptors like AirBnB and Uber exploit the potential for regulatory arbitrage offered by the ambiguous novelty of their market function – is Uber a taxi firm or a software business? Lessons from regulated industries show that disruptors can topple the incumbents in these industries by first innovating outside of the reach of regulators. On 23andMe and regulation in 2008 • “It's simply your information” • ’23andMe's services are not medical ... they are educational. Knowing when to go public Had the firm been public at the time when FDA shut down its health reports in November 2013, its share price would have plummeted and Anne Wojcicki would likely have come under intense pressure to resign as CEO Today, 23andMe is approved by the FDA as a medical device for health diagnostics
- 19. Silicon Valley is from Mars, FDA is from Venus 20 Copyright Kalaari Capital 2021 Elizabeth Holmes Co-founder and CEO Anne Wojcicki Co-founder and CEO Approached by FDA in 2015 Approached by FDA in 2013 Heavily funded Silicon Valley diagnostics startups VCs criticized for media hype, lack of due diligence Similar missions, not approved by FDA at the time Pace of innovation > slow regulatory process Lesson #3 Scientific values “When you try new things, you will make mistakes … The best thing you can do is to understand how you quickly recover.” Turned regulation into a moat for the company
- 20. 23 and Me Journey – Learnings 21 Copyright Kalaari Capital 2021 2008 – Series B $27M 2012 – Grant $2M NIH (Provider of drug discovery services) 2015 Series E $194M • Fidelity • Illumina Ventures • Xfund • MPM Capital • WuXi Healthcare Ventures 2007 – Series A • Google • NEA • Mohr Davidow Ventures • Genentech 2012 Series D $57M 2017-20 Series F $362M • Sequoia • Altimeter • Wallenburg Foundation • Casdin Capital • Orrick 2010 – Series C $31M • JJDC • MPM Capital 2013 FDA Roadblock Basic Health, Ancestry Expanded to Drug Discovery Digital Health + Therapeutics 2008 – DNA Kit • Time invention of the year 2018 JV – GSK $300M For drug discovery 2M to 10M user growth Began competing w/ Ancestry.com Consistency of vision, clear long-term goals drives 23andMe “Our goal is to allow individuals to gain deeper insights into their ancestry, genealogy and inherited traits and, ultimately, the option to work together to advance the overall understanding of the human genome.” – Anne W. in 2007 after Series A press release Series A documents Vs. SPAC merger documents 23andMe was committed to disruption from the start. Improved access, affordability, awareness, research in genetics like no organization. Today, it promises delivering tangible actionable insights, therapeutics, cures personalized based on your data in the next decade. Lesson #4: Long-term vision
- 21. What do you do when you’re disrupting a nascent market 22 Copyright Kalaari Capital 2021 Create your moat before thinking about monetization “It’s really too early to specify how we might monetize and derive value from the information we’re aggregating. We’ve thought about a lot of different ways to monetize it, but we’re not ready to talk about them” – 2007 Monetization always follows scale, solve for scale first “The most important thing right now is scale,” says Page. “Once we get that, then the business model will follow” - 2013 Consumer tests 1. 2. Research Grants Data for Pharma Drug Discovery Delaying profitability for bigger growth potential Currently, 23andMe has negative profit margins, in 2019 23andMe 3.
- 22. 23andMe on raising funds 23 Copyright Kalaari Capital 2021 $5.1B Co-founder on VC funding: Never grovel for fundraising. It’s like dating—you don’t want to be begging them to like you. You need to find someone who is a natural match and genuinely believes in what you’re doing, not someone who’s just thinking about the exit strategy. You need a real partner who will advise you and support you. If you let yourself get excited about the money, you’re more likely to accept terms you don’t want. One of the things I’m proud of at 23andMe is that we have a very clean legal structure. We thought carefully about our values early on; we knew what was important to us and we made sure we’d be able to stick to that vision. Our partnerships work well because they aren’t balanced toward the VCs or toward the founders. They’re just fair. 23andMe VCs on Co-founder: Anne is like a broken-record, she has been saying the same thing for the past decade, and that’s why it works. “We’re not just looking to get a venture-capital return. We set out with this company to revolutionize health care.” – 23andMe
- 23. Key Takeaways – Relevance in the Indian Context 24 Copyright Kalaari Capital 2021 1. Data mining for healthcare India is a DAU machine but ARPUs are poor Can that be different for healthcare through consumer tech? Can companies source large data to pharma, insurance, researchers 2. Personalization of healthcare through DTC, Digital Health 3. Regulatory barriers in healthcare Low, easier to tackle (both a blessing and curse for healthcare companies) Implies need to be more rigorous for global expansion, easier access to data moat If personalization of health is going to takeoff, India will need its own solution (given environment, genome, lifestyles) Clubhouse DAUs
- 24. Key Takeaways – Investing 25 Copyright Kalaari Capital 2021 1. Founders driven by a larger purpose, mission 2. Persistence, resilience is more important than talent, network 3. In highly regulated spaces (clinically focused healthcare), investments can be 0 or 1 Regime of hope à Regime of truth (Early stage investing to growth and going public) 4. Early indicators of success may not be correlated with how a product does at launch
- 25. What’s next? 26 Copyright Kalaari Capital 2021 Consumer Therapeutics