Biotechnology and health care venture capitalists from around the country are gathering in Washington, D.C., this week to hear presentations of over 90 privately held biotech firms at the BioVenture Forum. Organized by the Biotechnology Industry Organization (BIO), this event provides us a unique opportunity to see first-hand the new developments in the biotech industry and to talk to some of the biggest venture capital players in the business.

For some insight on what investors will be looking for, we talked to Bryan Roberts of Venrock Associates. Venrock Associates is one of the heavy hitters in the biotech venture capital game. The company was an early investor in such biotech success stories as IDECPharmaceuticals (Nasdaq: IDPH), Millennium Pharmaceuticals(Nasdaq: MLNM), and Gilead Sciences(Nasdaq: GILD), and Centocor, which was acquired a couple of years ago by Johnson & Johnson(NYSE: JNJ). (To learn more about Millennium, check out its recent  profile in The Motley Fool Select.)

TMF: You'll be in town this week for the BIO Venture conference. Before we talk about what will be happening at the conference, can you just tell me a little about Venrock and what you guys do?

Bryan Roberts:  Sure. Venrock was founded in 1969 as the private equity investment arm of the Rockefeller family. It has broadened out significantly since then but has really stayed true to its mission of early stage, technology-based venture investing. That's been our core focus for 30 years. The industries we focus on have changed as various industries and sectors go in and out of growth stages.

Now the firm has grown to three offices in Cambridge (Ma.), New York, and Menlo Park, and we are focused primarily in three areas: healthcare and life sciences, telecommunications, and software/Internet.

TMF: Can you tell us what you will be looking for here at the BIO conference?

BR: I am really looking for a variety of things. Certainly one is new investments, to the extent there are new early stage companies presenting, which I believe there are. I'll also be looking at the technologies to see what might be complimentary to current investments we have, so that I might help current investments with potentially productive collaborations and partnerships. Finally, I also look at competitive companies to continue my intelligence about what is out there.

TMF: There are about 90 companies that will be presenting at the conference and each has 10 minutes or so to tell their story. In that 10 minutes, what are the key themes that you want to hear?

BR: Because I focus on early-stage investing, the things that I really look at are people and the idea. Is this a really good group of people who are pursuing an idea that I think can be a substantial and sustainable business? If those two things are true, then I become relatively industry segment agnostic. There's been a lot of talk this year about whether tools and technology plays or product plays are more in favor. My perspective is that, because any investment I make is three or four or five years from any kind of entrance on the public markets or maturity, I need to really focus my attention on the basics of building a really good business. I can't worry about what's in vogue today, because it will almost assuredly not be in vogue in four or five years.

TMF: Let's talk about the people part of the equation first. What are things you are looking for? Is it academic pedigree, previous track record with startups, or other factors?  How do you evaluate the quality of the people involved?

BR: I would say that the things that I look for most are demonstrated excellence in whatever you have done. The second thing is an indication of entrepreneurial ability. For example, someone could have been a senior executive at IBM(NYSE: IBM), so they will have clearly have some modicum of demonstrated excellence, but might not have an entrepreneurial bone in their body. Whether that excellence comes in academics, or whether they've worked in a startup before, it's important but a secondary factor. I will say that I continually learn the lesson that people who have done this before, who have commercialized technology and grown a company, are much more efficient at doing it the next time than people who haven't.

TMF: In terms of developing the idea, what do you like to see, understanding that you are looking at these companies in very early stages?

BR: I don't need proof that something works, but I need a believable story with enough evidence that one can infer that it will work. There are generally two hurdles when you commercialize technology. The first is whether you can you get it to work, and the second is the question of whether you can get it to work robustly, efficiently, and to scale on a commercial setting versus an academic or garage setting.

You want to have some idea that there is a proof of principle, but having reduced it to industrial practice isn't necessary at the early stage. 

TMF: Venrock has a very impressive track record in biotech investing. In venture capital, I understand that there is something of a Babe Ruth school of investing in that for every home run there are going to be some strikeouts. How many misses does it take to get a hit, and how do you approach the venture capital game from a portfolio management standpoint?

BR: I think that there is an interesting dynamic in healthcare investing. There are the occasional 10 to 20X return companies: Millennium, Illumina(Nasdaq: ILMN), companies like that. But by and large in much of healthcare investing, because of the capital required and the time required, there is a muted return profile than there is in IT [information technology] venture capital investing. By that I mean that you are less likely to make 10X, but you are also less likely to lose all your money. Instead of 10X, you are much more likely to see 3 to 5X. So you want to set the 3 to 5X as your baseline, but when you make your investments, concentrate on those that have the potential to be 10X or 20X, because those are the ones that are going to be really interesting.

TMF: How many new investments do you make in a typical year?

BR: Our group at Venrock is just three people. There's myself, there's Tony Evnin, who has been in the business for 30 years who is one of the luminaries in the biotech VC field, and a gentleman named Pat Latterell, who has done a lot of medical device work but does some biotech as well. As a team, last year we made on the order of eight to ten investments, and we may hit that this year or we may do only six to eight.  But we make high single digits in new investments each year, and we do follow-on rounds in many of our companies every year as well.

TMF: When you are doing only eight to ten a year, I suppose you need to take a meaningful bite when you do make an investment?

BR: Our approach is that we love to get 20% ownership in the first round of investing, and after that it's a fight to keep that level in the following rounds, but by and large you get diluted from there.

TMF: After that first round, when you've got your ownership stake in a company that is struggling to develop its technology and get products to the market, what does your role become at that point?

BR: I think Venrock has been  very active historically and we generally sit on the board of our companies. We end up being a jack-of-all-trades helper to our companies. That ranges from providing strategic advice to recruiting to introductions to potential partners, whether they might be the smaller companies that present at a BIO Forum or senior managers of pharmaceutical companies. 

TMF: Tell me a little about the BIO Venture Forum. What's unique about it? 

BR: Sure. This is the first BIO Venture forum they are holding. I personally think that for both early stage investors and the companies that this is going to be a very interesting event. You know that there are a number of investment banking conferences each year, but those are much more weighted towards an audience that is looking for later stage companies and public companies. At those events, I'm somewhat limited to competitive diligence and making contacts for potential partnerships, but I'm typically not going to find new investments for Venrock there. There have been a couple of venture capital conferences on the West Coast, but I'm not aware of as many on the East Coast.

The opportunity for us to get to know some new companies combined with the time of year, with people coming off the summer break and getting geared back up makes me personally think it's going to be a very interesting conference.