Mariana Matus was working on a Ph.D. in sewage. A grad student at MIT, she was sifting through wastewater — from a building, a neighborhood, a city — for bits of viruses. The data could then be used to analyze the health of everyone who’d flushed. Pretty relevant information in 2020, right?
Matus thought so, too. Even before she had her degree, she went hunting for investors to turn the idea into a company. The pitch was that her team could help fight the COVID-19 pandemic by using wastewater surveillance, giving public health officials, or even you and me, a bottoms-down heads-up on whether people were sick.
The venture capitalists she approached were perplexed. Why was a student in public health — an academic, service-oriented discipline that strives to help people as a social good — asking Silicon Valley for money? “One of the key questions from investors was if we meant to create a nonprofit,” Matus says. “They’d say: ‘Are you sure? Did you mean to create a C-corp and a high-growth startup?’ They didn’t understand that there’s this space of public health, that there are people whose job is to look at data and use it to create a program or intervention.”
But that’s exactly what Matus was pitching: a venture-backed startup explicitly aimed at responding to the next pandemic — and, in the process, delivering an impressive return on investment. “We are population health monitoring as a service,” she says. “It’s ongoing. There’s a recurring, sustainable aspect to the revenue.” In October 2021, Matus and her partner got $20 million in Series A funding to launch Biobot; today the company has 130 employees, a $125 million valuation, and a contract with the Centers for Disease Control and Prevention.
Broadly speaking, the US response to COVID-19 sucked — not the thankless, unceasing labor of first responders and healthcare workers, but the chaotic and often contradictory efforts of the nation’s public-health machine. Even after decades of warning and preparation, over a million Americans died, businesses failed, and schools shut down. Everybody felt the hit in one way or another. If the past three years represent the best the government can do, then pandemic response is precisely the kind of activity that venture capitalists like to describe as “ripe for disruption.”
Private capital has been eyeing public health for years. But after COVID hit, the money rushed in for real. In 2019, venture deals with a pandemic preparedness component totaled $4.8 billion, according to the research group PitchBook. In 2021, they soared to $13.8 billion. This time, Silicon Valley is confident that the profit motive will supercharge public health. All they need is the right business model — and some government handouts. But the bigger question is: Can tech startups do a better job than the government of safeguarding us against the next global outbreak? And even if they can, what price will we pay for their invention?
The panic-neglect cycle
Back in 2006, after a global outbreak of avian flu, the famed venture-capital firm Kleiner Perkins decided to get into the pandemic business. It devoted $200 million to a Pandemic and Bio Defense Fund, designed to invest in small, innovative tech companies that could save the world from deadly disease outbreaks. The firm brought on Thomas Monath, a former head of virology at the CDC, and invested in companies working on swine flu, influenza, Ebola, and home testing kits. The operating theory, Monath tells me, was that “there were plenty of dual-use applications that could contribute to pandemic preparedness but also commercial success, and you could leverage funding from public sources to help build the platforms that lead to products.”
Translation: You could make money off of tools designed to fight pandemics, and the government would help you do it.
It was a good idea on paper, but it didn’t work. The fund tried to find companies whose products could turn a profit in the “off years” between big outbreaks, but it mostly ended up with single-use drugs whose only real customers were likely to be governments facing a full-blown public-health crisis. “Some of the investments made in the heat of battle weren’t really likely to be big commercial successes,” Monath tells me. “It just imploded by its own weight and lack of return.” The bets Kleiner made, as he elegantly phrases it, “didn’t result in lucrative liquidity events.”
Several founders and investors told me that the failure of Kleiner’s fund made Silicon Valley wary of investing in pandemic preparedness. “I don’t see a lot of interest on the part of investors in pure pandemic plays,” Monath says. “There are a few kind of more socially-impactful-minded folks out there, but even the richest of them all still wants to make more money.” Venture capital fell into the same trap that plagues the government’s approach to pandemics: a robust response when a respiratory disease sweeps the planet, followed by years of indifference once the crisis has passed. It even has a name: the panic-neglect cycle.
But the Kleiner fund did have one major outcome. The partners who led it, Brook Byers and Beth Seidenberg, lobbied the feds to create an agency to hand out grants to early-stage biotech innovations. Coming up with drugs and other therapies to fight pandemics is really expensive, so Kleiner helped persuade the government to use taxpayer money to underwrite the costs of the kind of work that the firm wanted to invest in. The result was BARDA, the Biomedical Advanced Research and Development Authority, modeled on the famed mad-science agency DARPA.
Venture investors love that kind of thing. Government money — a carrot-type reward for entering a market they otherwise wouldn’t — is known as “de-risking.” And unlike private capital, government money doesn’t buy equity in the company. It is, in the language of the game, nondilutive. Investors “like the idea that companies they might invest in can access nondilutive revenue as ancillary support for their program,” Monath says. “The growth in the ability to get those kind of funds, I think, has incentivized some venture-capital folks.”
This is a pretty standard way for the feds to get the technologies they need to support their policies. In-Q-Tel, a government-backed venture firm, does it all the time for stuff deployed by intelligence agencies. But funders like BARDA aren’t long-term customers — they’re designed to support companies in the early stages of development. Nevertheless, with the government assuming a big share of the risk in return for none of the profits, VCs were more likely to place bets on pandemic preparedness.
Public health and private industry
When COVID hit, Charity Dean was the assistant director of the California Department of Public Health. Amid all the failures and craziness that surrounded COVID testing before vaccines became available, Dean — a lead character in Michael Lewis’ pandemic book, “The Premonition” — helped set up and run California’s testing task force, which became a national model.
The problem, as she saw it back then, wasn’t limited to getting tests approved and pushed out to people. It was how the results of those tests would get analyzed and turned into action. “We need the PCR tests to have real-time data on the rate of spread in communities,” she told me when I spoke with her in April 2020. “Quite frankly, we are building plans assuming there will be widespread serological testing, even though it isn’t here yet.”
Two months later, Dean decided to do it herself. She quit her government job and debuted a venture-backed startup, The Public Health Company, to “protect enterprise assets through biorisk software.” PHC sells a dashboard designed to integrate more than 580 datasets, including social media, search trends, wastewater surveillance, pathogen genomics, and “human behavior indicators.” After a career in public health, Dean was now in business selling pandemic-oriented software. It’s still health — but it’s not exactly public.
“I was surprised when I engaged with the venture-capital community. I was surprised to learn the alignment,” Dean tells me when I talk to her again, in February 2023. “I had thought I would be a public servant all my life.”
It turned out, she says, that the things VCs wanted were what she was hoping to build, too — they just used different language to describe them. “In 2019 I would have described it as public health, protecting the community, being accountable to taxpayers,” Dean says. “Today I would describe it as asset protection for business continuity, where economic security is tightly linked with health security.”
Startups like the ones launched by Dean and Matus are seeking to apply what Silicon Valley does best to the threat of pandemics: compiling and analyzing massive datasets to make better predictions about an outbreak. It’s the promise and potential of Big Tech versus the perils of Big Germ. But from a VC standpoint, the question is: What’s the business model? Pandemics may not be rare, but they are unpredictable — which means so are returns. City and state health departments have checkbooks too small and budgets too squishy to be reliable customers. Medicines and protective equipment can molder in a warehouse for years without being needed. And the work itself is time-consuming and costly, with no guarantee of a payoff. So how do you make money between pandemics?
Robert Nelsen, a managing director at ARCH Venture Partners pursuing pandemic investments, is bullish on the potential for big revenue over the long term. The key, he says, is “to make things better, faster, and cheaper” than the government or academic labs can. Stuff like vaccines that last longer, or that are delivered via transdermal patches rather than injections, or that work on lots of diseases instead of just the pandemic of the moment.
“A universal pill that kills viruses would be a big deal,” Nelsen says. “If you cure a lot of people, you’re going to make money. If you have a different way of making something, different science, different delivery, then you can think about different business models. Maybe it can be more equitable, maybe it can be more easily distributed, maybe it can be lower cost. So we’re interested in those kinds of things.”
Some pandemic-related startups, like Biobot, are content to target government as their primary customer. When I suggest to Matus that big universities might want to use her wastewater data to identify which dorms were starting to pop with meningitis or norovirus, she smiles and nods in a way that suggests people smarter and richer than me have already run that notion by her. “There’s definitely applications for our data and platform outside government, and we want to go there, but in its time,” she says. “And we will only partner with investors that believe that the government business is a massive one.”
But many startups are looking beyond government to generate an even larger and steadier stream of revenue. At The Public Health Company, Dean wants to use data to enable businesses to protect their assets from all kinds of health and climate risks. That could certainly create a reliable and potentially lucrative customer base. But would giving that forecasting capability to transnational corporations actually save lives? Or would it only protect profits?
Back in 2019, Charity Dean was a hotshot public-health official trying desperately to get anyone to care about pandemic planning. So I ask her what that person would think of the VC-driven Charity Dean of 2023.
Past-Charity, she assures me, would be fine with present-Charity. “I’ve been dreaming about this for a decade,” she says. “I just assumed someone else was building it. But here’s where I was naive. If Charity Dean-2019 walked into my office today, she would not understand that the chief security officers at enterprise are the local health officer. They own all the risk and no one’s coming to save them. I didn’t know that — and they didn’t know that, either.”
That’s what it takes to believe that commerce can fix the panic-neglect cycle: faith that governments will pay top dollar for your product during the panic peaks and businesses will be customers during the neglect valleys. “If it doesn’t, in the end, become a massive network delivering high value for all players, then it has failed,” Dean says. “That’s very much aligned with the incentive of our investors. The Charity Dean of 2019 would not have understood that in the way I do today.”
The market failure
Public health officials and researchers acknowledge that venture capital, if well regulated, is capable of producing innovations that could help prevent or respond to a pandemic. “I’m quite positive about this, at least in concept,” says Sandro Galea, the dean of Boston University’s School of Public Health. “What’s made the public-private partnership for vaccines effective, frankly, is that it capitalized on the mechanisms of the private sector, but they were funded by the public purse.”
Sometimes it works. Moderna, maker of one of the mRNA-based vaccines against COVID, got $10 billion of taxpayer money. Palantir, a pedigreed Silicon Valley company that has contracted with the Department of Homeland Security and the Pentagon, provided analytics services to the CDC throughout the pandemic. Last year, the firm got a $443 million contract for five more years.
But the fact is, many old hands in public health are leery of private enterprise. They remember getting burned during the Obama years by software companies that promised to create shareable electronic medical records and easy healthcare signups. And they believe that public health is about more than gadgets and software. The kinds of things that earn a profit often cater to an elite clientele, while the kinds of things that improve the health of the public aren’t for sale. “In political-science jargon, you have concentrated losers and distributed winners,” says Thomas Frieden, who directed the CDC for almost a decade. In other words, it’s a classic market failure. “That’s one of the reasons we need public health in the first place,” he says.
Frieden recalls how, after the influenza outbreak of 2009, CDC identified a huge need to combat any respiratory pandemic: more ventilators. So the agency contracted with a company to design and build a new, robust ventilator, cheap enough to go into rotation in hospitals nationwide.
“It worked,” Frieden tells me. “I vividly remember, they brought it into my conference room, adjacent to my office.”
So if it worked a decade ago, why was there such a life-threatening shortage of ventilators in 2020? “One of the big ventilator companies buys it and kills it,” Frieden says. “They didn’t want it to undercut their market.”
That’s the real risk of relying on the marketplace to protect public health. Market priorities aren’t health priorities. For every well-meaning former public health official like Dean who is trying to make things better through the venture ecosystem, there are more tech types advocating nonsense like hydroxychloroquine. And Silicon Valley isn’t exactly rushing to take on thorny stuff like school ventilation. While he was working on getting new ventilators, Frieden also begged the private sector to make a durable, reusable mask for healthcare workers, but no one stepped up. No market in it.
As Frieden tells it, the most critical failures in the government’s response to the coronavirus weren’t anything that venture investments could actually help with. They were things like communication breakdowns, a creaky system for safely testing and approving new drugs, and a lack of consensus around societal priorities. Venture-funded innovations don’t solve those problems. They just treat the underfunded, malfunctioning public-health system as damaged and attempt to route around it.
In the end, almost every pandemic-related product created by Silicon Valley will ultimately require the government as a primary customer. Say a VC funds an innovation that costs only $1,000 a person and needs replacing only every five years. “Unless you have government procurement, it’s not going to get bought,” Frieden says. “That’s $300 billion to cover the US. You don’t have that money. The market isn’t there.” And if the government loses interest in funding pandemic preparedness, as it has so often in the past, VCs will lose access to the taxpayer money they’re counting on to de-risk their investments.
Three years after the pandemic devastated the world, we’re already losing interest in preparing ourselves for the next one. Last month the vaccine maker Moderna reported a loss for 2023, and a falling demand for its shots. As emergency funding for COVID dries up, pandemic-related startups are in a race against time. In aiming to disrupt the panic-neglect cycle, venture capitalists hope to cash in on the panic. But they may find themselves unable to monetize the neglect.
Adam Rogers is a senior correspondent at Insider.