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Genomics Investor John Hatsopoulos Gauges the Financial Climate

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At A Glance

  • Co-founder, Thermo Electron. Retired as CFO and vice chairman of the board.
  • 1953 — BS, Athens College, Athens, Greece.
  • 1959 — BA, history and mathematics, Northeastern University
  • Honorary Doctorates in business administration from Boston College and Northeastern University.

John Hatsopoulos made a fortune with his brother George as co-founders of Waltham, Mass.-based Thermo Electron, an innovatively managed firm that business gurus once regarded as a role model for its method of nurturing and profitably spinning off subsidiaries.

The company created more than 24 spinouts that were known as the “T” companies on the American stock exchange, and even had one spinout spin out its own satellite. However, in 2000, after the brothers retired, the company began a major reorganization that sought to sell off $1.5 billion worth of businesses and narrow its focus from 24 publicly traded firms that spanned four diverse industries to a single business focused on analytical instruments.

These days, Hatsopoulos, 69 and a native of Athens, Greece, mainly wears the hat of a smart-money investor, one who relishes taking a management role as well as funding early-stage technology companies such as GeneXP Biosciences, of Woburn, Mass., an 11-employee company that has taken in $1.9 million in first-round funding to commercialize Bio-GridArray — custom microarray systems in 96- and 384-well microplates offered as a system or services. The company’s scientific team includes Karen Woodward, formerly of PerkinElmer; Karen Rose, former microarray production manager at AlphaGene; and David Englert, former director of research at PE Packard.

BioArray News recently caught up with Hatsopoulos, who in 1998 donated $1 million to Northeastern University to support young scientists, to speak about early-stage investment in microarrays, and the general financial investment atmosphere these days for angel investors like him.

What does being retired mean to you?

It means that I’m working 60 hours a week.

You have been involved in many boards of directors, is that your role — as a senior advisor?

No, I’ve resigned from all of them except one. The law that Congress has passed [Sarbanes-Oxley] has not made it desirable to be on a board — you are just looking for trouble. Because I was chief financial officer at Thermo Electron, when I join a board, I become a member of the audit committee. Then, all of a sudden, you have responsibility for anything that the company does. How do I know if one of the divisions has done something wrong? No way I’m going to take that kind of responsibility.

At Thermo, you pioneered a certain way of spinning off an asset. How does that apply to how you are investing these days?

I have a dream. I would like to raise enough money that we can invest in companies, like GeneXP, and buy control of the companies, and then have them all under one umbrella and use the expertise of the board and the advisory committee to monitor, guide, and fund the companies. I want to let the employees and management have their own cash and shares, a reverse of what we did at Thermo. The advantages are tremendous.

The most difficult thing to do is to have gray-haired people manage or supervise young people with great ideas. We gray-hairs have gone around a little bit and we know a little bit, but they know the technology. The most important thing is that you can provide capital and manage the capital. When a company reaches a certain maturity, it can stand on its own two feet. We would spin them out and distribute the proceeds.

The new [umbrella] company would be a public company, so an investor could sell shares on the market. This would be a huge advantage in this economy, where everybody is petrified and pulling back from venture capital funds.

We would set up a group of people who would manage [the group] like [a] corporation and use that strength to support the companies. It’s the same idea as Thermo, except we wouldn’t be making the new technologies in [our] R&D [department], we would be investing in them at an early stage. This is an early thought of mine: I haven’t talked about it with any one outside my colleagues.

Right now, nobody is going to invest money unless companies have revenues, or they are extremely early [in development] and have low valuations.

What would your system provide?

The only way to make sure you have the loyalties of your employees is to give them a piece of the action. We were not only the first ones to do options, but we also gave our employees a chance to do their own thing, and to be responsible to shareholders. Options give a grade for employees’ work.

Why did you invest in GeneXP?

I’m not a scientist. My brother is the smart one, he has the doctorate, he taught at MIT and retired last year at 74. So, for me, the first thing is to meet the people. I didn’t understand the technology, but they [GeneXP] have such a spectacular group of people there just had to be something good there. I got very challenged and thought I should work with these people, so I invested in it personally.

What do think about investing in genomics companies?

That only area where one can expect growth over the next few years in the stock market is in biotech. Technology, capital goods, retail, the world is saturated. Asia and Africa will flood the world with cheap products, so I feel that biotech is where growth is all about and I want to be involved in instruments, medication, whatever. I think the growth over the next 20 years will be spectacular and I want to enjoy this fun.

What are the risks?

There are always risks that you will do something crazy, but overall, I think they are small.

What do you look for in an investment?

You look at two things: management and the technology. You need both. You can have the greatest idea, but if you don’t have the management, you won’t have success.

Early-stage or later, there are companies that are not yet recognized by the public: That’s where you want to invest. I do due diligence before I invest, using my friends and people that I have worked with over the years. There is some gamble involved, so you should do more than one. Then, all you have to do is hit on one. I’m an investor because a friend asked me to be one, and put a small amount of money into Europe. They made 11 investments — 10 failed. The 11th succeeded and their value is more than it was when they had all the companies.

What’s your analysis of the present funding environment for early-stage companies?

I hope it is loosening up. America has become such a financial success because of new ventures. Europe never had venture capital, or very little. We see that venture capital has managed to make colossal companies. The original venture capital investors were Venrock. Those people have helped so many companies get started — like Apple and Intel. Europe hasn’t created new ideas and ventures for years. European funds are starting to look for new ideas and ventures, and that’s what we do. That formula for success is amazing. You read about so many companies in the top 100 that didn’t exist 20 years ago. If you stop that [venture capital] investing, you [can’t develop the next] General Motors and Ford.

How many business plans do you read?

At least one every day. But, I don’t have that much money. We have invested in six or seven companies over the last couple of years.

Do you like to invest in a company that you can drive to?

I don’t think geography makes a difference. After all, we are a few hours from any city in the US, and I don’t mind flying. Nowadays, you can manage through the Internet, fax, e-mail, and telephone. You don’t need to be there.

When you actually do retire, how will you be graded? Will it be by the number of companies you created, or by the money you made?

It’s the bottom line, I am embarrassed to say. That’s the only way you get graded, unless you are a scientist.

 

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