Kleiner-Perkins and Genentech: When Venture Capital Met Science Harvard Case Solution & Analysis


Kleiner Perkins and Genentech were an amazing and rare success story in the industry of biotechnology. Genentech was a totally different and new idea at that time, but still hundreds of billions of dollars of venture capital were invested in it because of its potential to become successful in the future. Though, in the beginning there was no evidence that the idea might work, but later on it proved itself as a master plan and had generated a huge return on its investments. This was the first time when venture capital investment was made in a scientific research without the expected transformational effect, however, the success was not because of the combination of science and venture capital but it was basically because of the innovation and entrepreneurship.

Genentech was established in 1976 by Herbert Boyer, a Biochemistry professor at the University of California at San Francisco and Robert Swanson, a venture capitalist at the firm Kleiner-Perkins. The idea behind the Genentech was to develop the new science of recombinant DNA into viable therapeutic products with mass market appeal. This was an opportunity to discover something new in the Biological science since the 1950s when James Watson and Francis Crick discovered the helix Structure of DNA. Genentech was a platform where a number of star scientists worked together and finally on August 21st, 1978 they had produced the world’s first genetically engineered form of Human Insulin. This discovery had changed the fate of the scientists of the Genentech and this innovation was their first commercial product. In 1980 the company’s first day stock at IPO was $35 million and was increased from $35 a share to $88.

1.      Describe the context of the time and how much was known or unknown about the gene splicing project.

Until late 70s and early 80s, Biotech was not an industry and there were very few people who were aware about this branch of technology. At that time Venture capital was also a very small business and the commitments were amounted to around $10 to $20 million per year and the overall industry worth was not more than a couple of hundreds of dollars. The investors were only investing in those businesses that had potential to give a significant return on their investment. The culture of investment in pharmaceutical companies was also negligible because most of the valuable and successful firms had their own internal cash flows and personalized R&D departments.

Researches on Biotech were only conducted in institutes, universities and non-for-profit organizations by scientists as part of their research work and they were usually processing their research on the amounts allocated in the form of government grants. The focus of scientists was only on those researches that were funded by grants and the output of the research was disseminated through peer review publications and few patents were ever filed. On the other hand, Pharmaceutical companies were investing in research and were protecting their findings through intellectual property rights via licensing and patents. The interaction between proprietary and open science was very low.

In this regard, the research system on Biotech was very backward and slow because of the lack of available resources. The helix structure of DNA was first discovered in the 1950s by James Watson and Francis Crick. DNA splicing was well known that had first been discovered by Stanford University Scientist Paul Berg. Another scientist from Stanford University Stanley Cohen, who had developed small rings of DNA called plasmids which helped the genes to pass between bacteria.  There were a number of scientists who were performing different researches on different components of DNA. At the time when Boyer was holding up a faculty position at the University of California at San Francisco, his research was focused on Escherichia Coli bacteria popularly known as E. Coli and his research required to go through the different stages of DNA splitting. The two discoveries regarding DNA splicing had helped greatly in the research of Boyer and the outcomes of his research were assumed as the basis of a new industry which would be called Biotechnology.

Though, the splicing of DNA was known and much of the structure and functions of DNA were discovered by different scientists, but there was no concept of gene splicing that was the idea of Boyer and it was not possible for him to manipulate and reproduced the structure of DNA. Many scientists perceived that recombinant DNA was at least a decade away and it was really difficult to get funding for such a research. Boyer focused on a thing totally different and useless for scientists because every scientist had a mindset to develop or discover something that requires low time and easy access to resources/grants...............................

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