By Lorie Konish
WSJ Blogs – After seeing a rehearsal for a new musical in La Jolla, Calif., in October 2004, venture capitalist Kevin Kinsella came away with one conclusion: He had to invest in it.
“I’ve never invested in a Broadway show, but I know in my gut this is going to kill ’em, as they say in theater,” Kinsella recalled saying following that performance that kept him on the edge of his seat.
It turned out Kinsella’s instincts were right. The musical was called “Jersey Boys,” which has become one of the biggest smash hits Broadway has seen in years.
Kinsella drew from his own experience in making the personal investment. Not only is he a founder of early-stage life sciences and technology venture capital firm Avalon Ventures, he’s also been attending theater productions since he was eight years old, due to the influence of his father, Broadway actor Walter Kinsella.
As with his venture capital investments, Kinsella said, he trusted his gut on the initial investment decision, which earned early validation from audiences when the show’s run at the La Jolla Playhouse was extended three times. After debuting on Broadway in November 2005, “Jersey Boys” recouped its investment in just seven months. The show, which tells the real-life story of Frankie Valli and The Four Seasons, also won four 2006 Tony Awards, including Best Musical.
Kinsella and his wife, Tamara, heard the first investment pitch from the show’s executive producer, Michael David, in 2004. Kinsella said the pitch was different from the ones he was used to in the venture capital world.
“One of the things [David] told us was, ‘Well, I have to be honest and say that I’ve been producing musicals on Broadway for 30 years, and I’ve never had a big hit. We’ve had some good shows, we’ve won a boatload of Tonys, and so on, but in terms of making my investors extraordinary returns, that just hasn’t happened,'” Kinsella said.
“That was very compelling to me, because in my business, people are always telling you, ‘Oh, this is a sure win. You can’t miss. You get ten times your money back next year,’ and all of this BS…you just want to go take a shower after hearing it.”
Kinsella and his wife signed on as producers, first putting up a six-figure investment while the show was playing in La Jolla and subsequently stepping in when a Japan-based investor reneged on a seven-figure investment months prior to the Broadway debut. The Kinsellas became the largest investors in the show, and they also took an interest in the cast recording CD, which has gone gold and is on its way to going platinum, Kinsella said.
So what are the common threads between quality theater and venture investments? Good ideas, talent, leaders, financial backers and luck, Kinsella said.
For its part, Avalon has several current portfolio investments poised for success, which Kinsella calls “venture therapy.” One of those investments, Zynga Inc., provides Internet games that enable users to play against friends using social networking pages. Avalon invested $4 million to $5 million in Zynga from its $150 million eighth fund that closed last year.
“The nice thing about the current fund is that we have had no J-curve effect, primarily because of Zynga,” with the firm taking write-ups on that investment after new investors have placed higher valuations on that company, Kinsella said.
Other current “venture therapy” investments from previous funds include Sirion Therapeutics Inc., which merged with Avalon portfolio company Sytera Inc. three years ago and recently posted “spectacular” Phase II results for a daily pill for dry macular degeneration. Another investment, Amira Pharmaceuticals Inc., is meeting its milestones with limited capital needed, Kinsella said.
Meanwhile, Kinsella continues to receive hundreds of pitches for potential new theater investments. The decision for him comes down to whether he has the same visceral reaction as he did to “Jersey Boys.”
“Being able to look around and see the enraptured faces of your happy customers who are ecstatic and cheering and jumping to their feet, who ever gets that kind of experience?” Kinsella said of the show, which he and his wife have seen 87 times. “Being able to look at your customers and see what an experience they’re getting, there’s nothing like it. There’s no greater high.”