CREATE THE PAPER FOR THE CASE STUDY BELOW:

Kleiner$-$Perkins and Genentech: When Venture Capital Met Science.

Established in $1976$ by Herbert Boyer, a biochemistry Professor at the University of California at San Francisco and Robert Swanson who had been a venture capitalist at the firm Kleiner$-$Perkins, the idea behind Genentech was to develop the new science of recombinant DNA into viable therapeutic products with mass market appeal, something that most scientists agreed was at least a decade away. It presented an opportunity to make one of the most significant advances in biological science since the $1950$s when James Watson and Francis Crick built on Rosalind Franklins discoveries relating to the double helix structure of DNA. It also represented a chance for the venture capital industry to influence the structure of financing in this industry $($Exhibit $1)\mathrm{.}2$ Boyer and Swanson had limited financial resources, so venture capital backing was required for experimentation and commercialization. Swanson turned to his previous employer for seed money. Tom Perkins, the co$-$founder of Kleiner$-$Perkins, agreed to buy $25$ percent of the equity for $$100,000$ to fund a pilot study with a view to investing more in the event of a successful outcome. Four years later an IPO valued Genentech at $$300$ million. In $2009$ it was fully acquired by the Swiss$-$based healthcare company, Roche, for $$47$ billion. Roche had held a majority stake in the company since $1990.$ Genentech was one of Kleiner$-$Perkins most successful investments and Boyer became one of the first star scientist multi$-$millionaires. How could the commercial development of DNA result from a strong union between ostensibly contradictory scientific and venture investment mindsets? How did Boyer, Swanson and Perkins achieve what most biotech startup firms struggled to docreate and capture value by balancing the objectives of basic and commercially viable research?Boyer, Swanson and Perkins Herbert Boyer Boyer was born and raised in Derry in western Pennsylvania. Following studies in biology and chemistry at St$.$ Vincents College in Latrobe, the University of Pittsburgh and Yale, in $1966$ he took up a faculty position at the University of California at San Francisco and became a full Professor in $1976.$ There his research focused on Escherichia coli bacteria, more familiarly known as E$.$ coli and specifically why it was so resistant to viruses. Scientists had observed that E$.$ coli either replicated by splitting in two, or by the exchange of genetic information between cells. Boyer conjectured that if different genes could be introduced into E$.$ coli cells then he could gene$-$engineer the bacteria. This idea would later set the stage for genetic engineering and the harvesting of human proteins. $4$ The first step in this process related to Boyers discovery that E$.$ coli enzymes were able to cut DNA into smaller fragments with sticky ends, a necessary precondition for DNA splicing, which had first been discovered by Stanford University scientist Paul Berg. The next step was developed by Stanley Cohen, also from Stanford, who was working on small rings of DNA called plasmids that helped to pass genes between bacteria. Boyer and Cohen met at a conference in Hawaii in $1972$ and together their joint efforts were integral to pushing the research program forwards. Boyers DNA fragments could be joined together with Cohens plasmids such that genetic material could be manipulated and reproduced with the structure of the new DNA. The upshot of their findings was the basic science underpinning the biotechnology industry$\mathrm{.}5$ Robert Swanson At the time Herbert Boyer was experimenting in his San Francisco laboratory, Robert Swanson was employed by Kleiner$-$Perkins in Silicon Valley where he began thinking about entrepreneurial ideas and pursuits, especially in relation to microbiology and the newly emerging field of gene technology. Swanson was educated at MIT in the late $1960$s and graduated with degrees in chemistry and management. Prior to his career in venture capital he worked for four years as an investment officer in New York with First National City Bank $($later Citibank$).$ Swanson met Boyer by way of an informal interview in January $1976,$ which he had arranged to inquire about the commercial opportunities of genetic engineering. Most academics in the field Swanson had previously spoken to had suggested that a marketable product was at least a decade away and Boyer was only somewhat more optimistic about applications stemming from the nascent science. Yet, he admired Swansons energy and enthusiasm and together the two decided to sketch out the outlines of a business plan for using gene engineering to produce biological products$\mathrm{.}6$ Tom Perkins Tom Perkins, the venture capitalist that first provided Boyer and Swanson with funding, was born in Oak Park Illinois in $1932.$ He graduated from MIT in $1953$ with a degree in electrical engineering and worked for Sperry Gyroscope until $1955.$ Perkins then entered Harvard Business School, graduating in $1957.$ The same year he joined Hewlett$-$Packard and then worked for Booz Allen Hamilton from $1959$ to $1960.$ Between $1960$ and $1963$ Perkins worked at Optics Technology Inc., a startup in which David Packard and William Hewlett had a personal investment interest. Perkins returned to Hewlett Packard from $1963$ to $1972,$ first as an administrative manager of HP Laboratories, second as General Manager of HPs nascent computer business reporting directly to Packard and finally as Director of Corporate Development reporting to Hewlett while Packard wasrunning the Department of Defense in Washington DC$.$ Notably, in $1965$ Perkins established his first startup, University Laboratories Inc., $($ULI$)$ in Berkeley, at the same time as he was building HPs computer business. Packard had strongly encouraged Perkins entrepreneurial ambitions. ULI held intellectual property rights on lasers Perkins had developed and it became immensely successful. ULI was acquired by Spectra Physics in $1970$ giving Perkins a net worth in seven$-$figures$\mathrm{.}7$ In $1972$ Perkins established a venture capital firm with Eugene Kleiner who had worked at Shockley Semiconductor Laboratory and was one of the traitorous eight who left to start Fairchild Semiconductor, an innovator in transistor and integrated circuit technologies$\mathrm{.}8$ By the following year Perkins and Kleiner had raised an $$8$ million fund. Their second fund, of $$15$ million, was raised in $1978$ by which time they had added two additional partners, Frank Caufield and Brook Byers. A third fund was raised in $1980$ amounting to $$55$ million and at the time of the fourth fund of $$150$ million in $1986,$ Perkins made the decision to retire. Kleiner$-$Perkins became one of the most successful venture capital firms in Silicon Valley as a consequence of investments in firms like Genentech. Perkins was Chairman of Genentech between $1976$ and $1990\mathrm{.}9$ The Early Years of Venture Capital and Biotech During the early $1970$s$,$ venture capital was a much smaller business than it is today. Venture capital commitments amounted to around $$10$ to $20$ million dollars per year and the total pool of funds was no more than a couple of hundred million dollars. The supply of funds into venture capital increased during the decade because of success stories like Genentech and also due to government reforms affecting the supply of funds into alternate assets classes. Specifically, a $1978$ reform to the Employee Retirement Income Security Act in effect permitted $10$ percent of the capital in pension funds to be invested in venture finance. By the late $1980$s commitments of pension funds to the venture industry exceeded $$4$ billion dollars each year$\mathrm{.}10$ By the mid$-1970$s Kleiner$-$Perkins was still a small concern, composed of the two founding partners plus Swanson, a secretary and a bookkeeper$\mathrm{.}11$ With limited capital from other investors available for funding startups, Kleiner$-$Perkins was frequently the sole investor in the first phase of financing rounds. Unlike many traditional venture firms, they took an active role in managing the firms in which they invested. They were also typically concerned with early$-$stage investments compared to many East Coast firms that tended to invest in later$-$stage enterprises. Biotech did not become an industry until the late $1970$s and early $1980$s when the first wave of companies, including Genentech, was established. Opportunities for venture capital investing in the related pharmaceuticals industry were non$-$existent due to the preponderance of large established firms, some of which, like Ely Lilly, could trace their origins back to the nineteenth century. Most of these had their own internal cash flows or deep pockets with which to fund research and were fully integrated operations $($Exhibit $2).$ Pharmaceutical companies made profits by using intellectual property rights to protect and license their inventions, and they also made simultaneous investments in RCREATE THE PAPER FOR THE CASE STUDY BELOW:

Kleiner$-$Perkins and Genentech: When Venture Capital Met Science.

Established in $1976$ by Herbert Boyer, a biochemistry Professor at the University of California at San Francisco and Robert Swanson who had been a venture capitalist at the firm Kleiner$-$Perkins, the idea behind Genentech was to develop the new science of recombinant DNA into viable therapeutic products with mass market appeal, something that most scientists agreed was at least a decade away. It presented an opportunity to make one of the most significant advances in biological science since the $1950$s when James Watson and Francis Crick built on Rosalind Franklins discoveries relating to the double helix structure of DNA. It also represented a chance for the venture capital industry to influence the structure of financing in this industry $($Exhibit $1)\mathrm{.}2$ Boyer and Swanson had limited financial resources, so venture capital backing was required for experimentation and commercialization. Swanson turned to his previous employer for seed money. Tom Perkins, the co$-$founder of Kleiner$-$Perkins, agreed to buy $25$ percent of the equity for $$100,000$ to fund a pilot study with a view to investing more in the event of a successful outcome. Four years later an IPO valued Genentech at $$300$ million. In $2009$ it was fully acquired by the Swiss$-$based healthcare company, Roche, for $$47$ billion. Roche had held a majority stake in the company since $1990.$ Genentech was one of Kleiner$-$Perkins most successful investments and Boyer became one of the first star scientist multi$-$millionaires. How could the commercial development of DNA result from a strong union between ostensibly contradictory scientific and venture investment mindsets? How did Boyer, Swanson and Perkins achieve what most biotech startup firms struggled to docreate and capture value by balancing the objectives of basic and commercially viable research?Boyer, Swanson and Perkins Herbert Boyer Boyer was born and raised in Derry in western Pennsylvania. Following studies in biology and chemistry at St$.$ Vincents College in Latrobe, the University of Pittsburgh and Yale, in $1966$ he took up a faculty position at the University of California at San Francisco and became a full Professor in $1976.$ There his research focused on Escherichia coli bacteria, more familiarly known as E$.$ coli and specifically why it was so resistant to viruses. Scientists had observed that E$.$ coli either replicated by splitting in two, or by the exchange of genetic information between cells. Boyer conjectured that if different genes could be introduced into E$.$ coli cells then he could gene$-$engineer the bacteria. This idea would later set the stage for genetic engineering and the harvesting of human proteins. $4$ The first step in this process related to Boyers discovery that E$.$ coli enzymes were able to cut DNA into smaller fragments with sticky ends, a necessary precondition for DNA splicing, which had first been discovered by Stanford University scientist Paul Berg. The next step was developed by Stanley Cohen, also from Stanford, who was working on small rings of DNA called plasmids that helped to pass genes between bacteria. Boyer and Cohen met at a conference in Hawaii in $1972$ and together their joint efforts were integral to pushing the research program forwards. Boyers DNA fragments could be joined together with Cohens plasmids such that genetic material could be manipulated and reproduced with the structure of the new DNA. The upshot of their findings was the basic science underpinning the biotechnology industry$\mathrm{.}5$ Robert Swanson At the time Herbert Boyer was experimenting in his San Francisco laboratory, Robert Swanson was employed by Kleiner$-$Perkins in Silicon Valley where he began thinking about entrepreneurial ideas and pursuits, especially in relation to microbiology and the newly emerging field of gene technology. Swanson was educated at MIT in the late $1960$s and graduated with degrees in chemistry and management. Prior to his career in venture capital he worked for four years as an investment officer in New York with First National City Bank $($later Citibank$).$ Swanson met Boyer by way of an informal interview in January $1976,$ which he had arranged to inquire about the commercial opportunities of genetic engineering. Most academics in the field Swanson had previously spoken to had suggested that a marketable product was at least a decade away and Boyer was only somewhat more optimistic about applications stemming from the nascent science. Yet, he admired Swansons energy and enthusiasm and together the two decided to sketch out the outlines of a business plan for using gene engineering to produce biological products$\mathrm{.}6$ Tom Perkins Tom Perkins, the venture capitalist that first provided Boyer and Swanson with funding, was born in Oak Park Illinois in $1932.$ He graduated from MIT in $1953$ with a degree in electrical engineering and worked for Sperry Gyroscope until $1955.$ Perkins then entered Harvard Business School, graduating in $1957.$ The same year he joined Hewlett$-$Packard and then worked for Booz Allen Hamilton from $1959$ to $1960.$ Between $1960$ and $1963$ Perkins worked at Optics Technology Inc., a startup in which David Packard and William Hewlett had a personal investment interest. Perkins returned to Hewlett Packard from $1963$ to $1972,$ first as an administrative manager of HP Laboratories, second as General Manager of HPs nascent computer business reporting directly to Packard and finally as Director of Corporate Development reporting to Hewlett while Packard wasrunning the Department of Defense in Washington DC$.$ Notably, in $1965$ Perkins established his first startup, University Laboratories Inc., $($ULI$)$ in Berkeley, at the same time as he was building HPs computer business. Packard had strongly encouraged Perkins entrepreneurial ambitions. ULI held intellectual property rights on lasers Perkins had developed and it became immensely successful. ULI was acquired by Spectra Physics in $1970$ giving Perkins a net worth in seven$-$figures$\mathrm{.}7$ In $1972$ Perkins established a venture capital firm with Eugene Kleiner who had worked at Shockley Semiconductor Laboratory and was one of the traitorous eight who left to start Fairchild Semiconductor, an innovator in transistor and integrated circuit technologies$\mathrm{.}8$ By the following year Perkins and Kleiner had raised an $$8$ million fund. Their second fund, of $$15$ million, was raised in $1978$ by which time they had added two additional partners, Frank Caufield and Brook Byers. A third fund was raised in $1980$ amounting to $$55$ million and at the time of the fourth fund of $$150$ million in $1986,$ Perkins made the decision to retire. Kleiner$-$Perkins became one of the most successful venture capital firms in Silicon Valley as a consequence of investments in firms like Genentech. Perkins was Chairman of Genentech between $1976$ and $1990\mathrm{.}9$ The Early Years of Venture Capital and Biotech During the early $1970$s$,$ venture capital was a much smaller business than it is today. Venture capital commitments amounted to around $$10$ to $20$ million dollars per year and the total pool of funds was no more than a couple of hundred million dollars. The supply of funds into venture capital increased during the decade because of success stories like Genentech and also due to government reforms affecting the supply of funds into alternate assets classes. Specifically, a $1978$ reform to the Employee Retirement Income Security Act in effect permitted $10$ percent of the capital in pension funds to be invested in venture finance. By the late $1980$s commitments of pension funds to the venture industry exceeded $$4$ billion dollars each year$\mathrm{.}10$ By the mid$-1970$s Kleiner$-$Perkins was still a small concern, composed of the two founding partners plus Swanson, a secretary and a bookkeeper$\mathrm{.}11$ With limited capital from other investors available for funding startups, Kleiner$-$Perkins was frequently the sole investor in the first phase of financing rounds. Unlike many traditional venture firms, they took an active role in managing the firms in which they invested. They were also typically concerned with early$-$stage investments compared to many East Coast firms that tended to invest in later$-$stage enterprises. Biotech did not become an industry until the late $1970$s and early $1980$s when the first wave of companies, including Genentech, was established. Opportunities for venture capital investing in the related pharmaceuticals industry were non$-$existent due to the preponderance of large established firms, some of which, like Ely Lilly, could trace their origins back to the nineteenth century. Most of these had their own internal cash flows or deep pockets with which to fund research and were fully integrated operations $($Exhibit $2).$ Pharmaceutical companies made profits by using intellectual property rights to protect and license their inventions, and they also made simultaneous investments in R