This post originally appeared in the MassChallenge blog here. This is a re-post with slight adaptation and additional considerations for the biotech industry.

A quick spoiler alert up front: the answer to that question is a highly unsatisfactory: It depends.

It’s a question that’s exceedingly dependent on all the factors that make your startup unique.  I can only somewhat competently speak from the vantage point of our own startup.  Our venture is Sample6 Technologies (we were still Novophage when we competed in MC2010) and we’re working hard on bringing making the global food supply chain safer.  This is achieved by innovation in microbial food safety diagnostics, so we’re an industrial biotech diagnostics company.  Taking a page from the playbook of the recent lean initiatives, notably Eric Ries’ great book and many other thought leaders, we try to run our R&D, OPS and other functions as capital and time efficient as possible.

But let me back up, we participated in the 2010 MassChallenge competition, making it to the finals.  Since then we’ve moved down the street into the Innovation District, via the UMass Venture Development Center and renamed ourselves Sample6 Technologies.  We recently were awarded a Massachusetts Life Sciences Center Accelerator Loan Award.  A competitive program that’s run by the state funded $1B Life Sciences Initiative (www.masslifesciences.com).  Despite this being a competitive process, it’s not free money (unlike MassChallenge), but the terms are very generous.

For us, the question to apply for it or not was really not a question.  At that point in time, we’ve had already decided that we did want to top up our liquidity base, so to speak.  Don’t get me wrong, we raised a Series A in mid-2011 and kept our burn low.  But this goes to a truism that I’ve heard many times and have taken to heart: “Take liquidity when you can get it (and take the appropriate amount). ”  Only you can determine though what the appropriate amount is, but as a hint, if you’re thinking about it, it’s not zero.

You do need to look very carefully at what the terms are, because you can end up not extending your runway as much as you think depending on the provisions.  It pays to have financial folks run through the model and then slot that into your operating plan to find the true runway extension, preferably with a few different additional financing event layered on top.  The reason that that last part is important is at least in my opinion, venture debt really is best used as a bridge to the next round of equity financing.

This brings me to the additional considerations for the biotech industry. Specifically as the biotech industry is changing it’s funding models towards a bi-modal distribution of capital, debt can be a valuable and at times crucial bridge to achieve crucial milestones. This by the way is not to be understood as the pure extension of runway (we need more time), but should also be thought of as the increase in resources to open up parallel routes of innovation. This topic in particular will be covered in another topic, but back to the matter at hand. If you are a leanly funded startup, e.g. have not raised a $40MM “A round”, then odds are you are substantially below $10MM (anyone who has some great data to share there I’d love to see it). So what do you do? You know it’s going to take some time and certainly a lot of resources to get to that B-worthy milestone. And if we as bioscientists are honest with ourselves, especially late at night when the latest results run didn’t pan out as hoped, most all early stage biotech development takes longer, and you do not have enough resources and runway. It is exactly here that debt will crucially extend you runway, and might save your companies life.

Debt investors appreciate clarity of purpose and a tangible goal for the milestone proof points. Good proof point:”Our yield is X and it should be X+10% from where it is and we have good indication that our multiple  approaches can get us there.” Bad proof point:”Our yield is X and we need to increase is 10X …”

So in summary, for an early stage company, it’s good to use venture debt to increase your runway.  The considerations are that you think you can cross the finish line and hit substantial milestones, which in turn should positively impact your next equity raise.

A recent comprehensive review of Federal support for R&D, Innovation Canada: A Call to Action was published in October 2011 with recommendations to improve support for innovative Canadian companies and facilitate their growth into large, competitive global businesses. The findings indicated that investment in post-secondary research as a percentage of GDP was greater in Canada (0.7%) than other G7 countries (2010 figures); in contrast, private sector investment in R&D in Canada lags behind G7 nations, with the gap between the US and Canada growing as investment increases in the US and decreases in Canada. The April 2012 Federal budget, which committed $1.1B over five years for direct R&D support, with an additional $500M available for risk-capital, was the government’s first response to enable better translation and commercialization of post-secondary R&D investments to produce new products, processes and services that stimulate economic growth and generate high-value jobs.

A bullet point summary of the programs supported in this strategy is provided below with brief commentary on the implications for Canadian-based early-stage start-ups.

Support for risk capital

• $400M for early-stage risk capital funds
• $100M to the Business Development Bank of Canada (BDC)

Venture capital for biotech companies is virtually non-existant in Canada. Any stimulus to support early-stage capital is welcome and important to limit the migration of Canada’s best companies south.

Industrial Research Assistance Program (IRAP)

• Support through IRAP will double with an additional $110M allocated annually from 2012-13
• “concierge service” to help SMEs to effectively access Federal innovation programs

NRC-IRAP is an essential early source of funding and other support for early-stage companies. This resource can support R&D and is an important validation of the company and its technology for follow-on investors.

Western Innovation Program

• new program offering financial aid to SMEs in Western Canada
• managed by Western Economic Diversification Canada
• consistent with existing programs in other regions
•         Business and Regional Growth program in Quebec
•         Business Development Program in Atlantic Canada
•         Southern Ontario Development Program
• no funding level indicated

This is a new source of money for companies in the West. Western Economic Diversification traditionally supports infrastructure in academic institutions and not-for-profit organizations, which provide much needed access to services for start-ups. Examples of organizations supported include the Centre for Drug Research and Development (CDRD), Alberta Centre for Advanced MNT Products (ACAMP) and the British Columbia Pre-Clinical Research Consortium. It would be interesting to hear the thoughts of those who have accessed the existing programs in Quebec, Atlantic Canada and Southern Ontario.

Industrial Research and Development Internship Program

• $14M over two years
• graduate students undertake research with private companies
• administered by MITACS

The MITACS Accelerate provides early-stage companies access to graduate students, their professors and university infrastructure to support R&D programs. To be eligible, it is important for companies to have their own facilities, which can be a problem for nascent start-ups still operating in the labs where the technology was initially developed. 

Business-Led Networks of Centres of Excellence

• $12M annually to make the NCE program permanent

The Quebec Consortium of Drug Discovery (CQDM) is an example of a Business-Led Networks of Centres of Excellence, which specializes in facilitating the commercialization of academic/private sector early-stage drug discovery innovations. These centres often provide start-ups access to infrastructure, equipment and expertise.

Canadian Innovation Commercialization Program (CICP)

• an additional $95M will be made available for 3 years from 2013-14, and $40M annually thereafter
• the Canadian government purchases innovative products and services through the CICP program
• the government acts as an early customer and validates the technology

This is a great source of early revenue and customer feedback for a start-up. Those unfamiliar with government procurement procedures should allow plenty of time to understand and navigate the process. MERX is the on-line portal for applications and provides details on seminars that potential applicants can attend to better understand the opportunities and process. 

The National Research Council (NRC)

• $67M in 2012-13
• focus on business-driven, industry-relevant applied research

The NRC research facilities relevant to biotech are numerous and include nanotechnology and biotechnology centres. These centres provide start-ups with access to infrastructure and expertise, and the possibility to be located near the NRC R&D facilities, for example, the Industrial Partnership Facility at NRC-BRI in Montréal.

Scientific Research and Experimental Development (SR&ED) Tax Incentive Program

• program provided > $3.6B tax assistance in 2011
• Federal government proposes to “streamline and improve” SR&ED
• savings incurred will be directly invested into direct programs to support innovation
• current eligible expenses are salaries, materials, overhead and capital expenditures
• capital expenditure will be removed from SR&ED-eligible expenditures from 2014
• from January 1, 2014 the proxy overhead will be reduced from 65% to 55% of direct labour costs
• the eligible SR&ED expenses that can be claimed from arm’s length contract payments will be restricted to 80% of the total cost to remove the application of the tax credits to the profit portion of the contract
• general SR&ED investment tax credit rate will be reduced from 20% to 15% on January 1, 2014
• further investments will be made in the administration of the tax credit to make it less complex and “more predictable”

The SR&ED program is a great incentive to establish a high technology company in Canada. In addition to Federal Tax credits, the provinces have their own incentives to R&D investment by the private sector. The proposed changes to SR&ED limit eligible expenses and it remains to be seen, whether the other initiatives in the budget will buffer this change. For early-stage companies, which are capital constrained and often operate using a capital-efficient model, the removal of capital expenditures from the tax credit is less likely to have an impact on their SR&ED credits.

Post-Secondary and Private Sector Research Collaborations

• from 2012-13, $37M per year will be invested in CIHR, NSERC and SSHRC to support industry-academic research partnership initiatives

Programs such as CIHR Proof-of-Principle program and NSERC Idea-to-Innovation program offer a great source of funding to move a promising technology from the academic lab to a start-up company.

Genomics Research 

• $60M to Genome Canada to support a new applied research competition in human health and sustain the existing Science and Technology Centres until 2014-15

Genome Canada supports genomics research and centres that can provide essential services and expertise for start-ups. The Large-Scale Applied Research Project competition provides a foundation for companies to collaborate with academic centres to develop genomics-based commercial products

Canada Foundation for Innovation

• $500M over 5 years for the acquisition of advanced research infrastructure

The Canada Foundation for Innovation (CFI) is an important source of government funding for universities, hospitals and research institutions to upgrade essential equipment and access the latest innovative products to support cutting-edge R&D. Universities are a great resource for early-stage start-ups to access and leverage infrastructure in a cost-efficient manner. Any initiative that enables the best technology to be present in Canadian academic institutions is provides a competitive advantage for start-ups and established biotech companies.

The support for CFI, MITACS, Genome Canada, the Centres of Excellence program and the research councils provide access to infrastructure, equipment and expertise that are an essential component for validating nascent technology and starting a company  using the leverage start-up model.

As a co-founder of an early-stage start-up in Vancouver established using the leverage model, the additional funding to NRC-IRAP and the CICP program, as well as the introduction of the Western Innovation Program are the highlights. The revised criteria for the SR&ED – lowering of the eligible overhead from 65% to 50%, and the reduction of the general tax credit to 15% – are regrettable.

How will these changes impact your business? And does this budget make Canada a more, or less attractive place to start a biotech company?

You can join the conversation by commenting below.

Selected articles, books, & podcasts for April 14, 2012.

Biotech Startups & Other Startup Content:

• Steve Blank’s “The Startup Owner’s Manual” (here)
• Virtues of differing biotech worldviews (here)
• Third Rock’s Mark Levin: ‘Ultra-Super Positive’ on biotech (here)
• The NSF Innovation Corps (here)
• 100 life science twitterers worth following (here)
• Investing in biotech isn’t just for investors anymore (here)
• Billions in new venture cash targeted at early-stage biotech efforts (here)
• Never negotiate piecemeal (here)
• Quick hack for speeding up term sheets and other negotiations (here)

Selected Articles in Science and Industry:

• Heterogeneity of mutations in tumors (here)
• Targeted nanomedicine to enter cancer clinical studies (here)
• The challenges of tackling fibrosis Industry (here)
• GE ramps up investment in personalized medicine (here)
• Burrill’s Biotech 2012 Report (here)

Audio and Podcasts:

• Understanding the shifting patent landscape (here)

Mendelspod Series on Sequencing tech (you’ll need to register but it’s free):

• Sequencing overview w/ Shawn Baker, BlueSEQ (here)
• Ion Sequencing w/ Paul Billings, Life Tech (here)
• RS Sequencer w/ Hugh Martin, PacBio (here)
• Sequencing & Genomic Medicine w/ Cliff Reid, Complete Genomics (here)
• Last Gen Sequencing w/ Stefan Roever, Genia Tech (here)
• Positional Sequencing w/ Barrett Bready, NABSys (here)

Easy Installation and Updating. First, your product needs to be installed and updated without much effort. A short installation allows beta testers to start using the product soon after the initial visit from the service personnel, minimizing the effort needed by yourself and your customer. This becomes especially important as the number of test sites increase and when user feedback is integrated into product updates. The ability to easily install and update the equipment not only reduces the burden placed on the startup, but also increases the experience of the test site.

Rapid Repair. Secondly, the ability to quickly repair a down instrument is critical. Pilot builds of the product are typically provided to beta sites, where the manufacturing processes are not well refined. As such the likelihood of recalibration and/or part replacement is high and plans should be in place for quick and cost effective servicing. The use of a design reliability program is recommended. Reliability programs are a specialty of engineering and can take a long time to fully implement, however by following certain guidelines the effort is greatly reduced (e.g. minimization of moving mechanical parts, chemical compatibility of components, current-limited electronics, etc.). Making an effort to think about reliability up-front reduces the amount of time spent repairing your system at the customer’s site. Best of all, a reliable system gives early adopters a good impression of the system that can be leveraged to for good word-of-mouth to later customers.

Capture Use Data. Lastly, if possible, the equipment should capture user behavior and usage patterns. Naturally, the product’s operation (what it does) during its “up” moments is hugely important to early-adopters, so its functionality has to be something that entices the user to change their ways. To the designer, information on how the user uses the product can help refine future iterations of the design, or give marketing efforts a focal direction. User information, formatted for good statistical analysis, can allow the product designers to more fully allocate resources towards product improvement. A comprehensive, accessible source of user data that cannot be altered by the user can provide this data. Many systems implement this data source as a log or analytical summary, but some up-front design is required to fit a specific system or application.

In summary, to pass the Value Hypothesis test in the research market requires that your product achieves significant product differentiation. To successfully test this using an MVP approach, some amount of ‘non-functional’ design can be very useful when soliciting user feedback in a real-world environment.

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Bringing such technologies to market is the role of many biotechnology startups.  Often, these firms are penetrating markets with significant technical differentiation but limited capital resources. In a series of posts we consider the challenges faced by these companies as they bring products through the varying stages of commercialization.  A recent post discussed the use of Minimum Viable Products (MVP) in biotech.   Here we focus on the use of a MVP in the first key stage of commercialization: setting up Beta-Sites to test the Value Hypothesis.

Testing the Value Hypothesis:

The Value Hypothesis simply states that your users obtain significant value from your product when they use it (see: lean startup reference).  For a breakthrough product to provide value, it must demonstrate capabilities that otherwise cannot be obtained (achieves magnitudes better sensitivity, accuracy, cost savings, usability, etc.).  Such technologies are usually developed with a specific advantage in mind, however until your instrument or tool is in the hands of a user it is unlikely you’ve considered the full benefit or burden of your value proposition.   It could be the case that your system is superior in the metric advertised, but is inferior in aspects critical to your user (throughput, speed, workflow changes, etc.).  By getting your technology into the hands of users quickly, you allow yourself the opportunity to modify your product as needed (read: pivot).  The use of beta-sites is a useful way to understand the full scope of your customer’s needs.  The following outlines some considerations that should be taken into account to ensure your beta-testing is a success.

Request Payment to Ensure Your Technology Will Be Used

Only work with those users who are as serious about your technology as you are.  Early adopters should be excited enough about your offering that they are willing to use it at its earliest stages and they are willing to pay for this early access.  Look hard for these customers and avoid those that are only interested at zero investment.  Paid beta-sites will have ownership in the success of the program and are more likely to stay with your technology through the bumps and bruises.  Importantly, if you cannot find any customers who are willing to pay for early access, you will likely have a hard time finding customers willing to ever pay at all.

Test the Core Value Proposition You’ve developed your technology with a key benefit in mind.  However, your users may prioritize your feature set differently and you should clearly identify the real and perceived value your users place on the technology.  For instance, maybe instead of the improved sensitivity of your system, it’s that it avoids tedious tasks within with the user’s work flow.  By understanding your user’s perceived value proposition, further development and marketing materials can be guided accordingly.

Identify Real and Perceived Competition & Substitution Products. Every product has competition.  It is tremendously important to understand who your user thinks that is.  Who do they initially compare your product to?  Often this is not a direct competitor but a substitute approach (for example, using label-free antibody-based detection of proteins instead of mass spectrometry).  By having a deep understanding of your user’s perspective, you will be able to anticipate challenges posed by future customers.

Determine what is required for your product to be fully integrated into your customer’s work flow.  Adopting a new technology or process is a lot to ask of your customer.  He or she is taking a significant risk by using your untested innovation and their need for pragmatism will likely match your inherent optimism.  With your user, dig deep into the requirements needed to have your equipment be in the critical path of their success.   What data package should be compiled?  What level of reliability is required?  What upstream and downstream processes need to be changed?  And so on.

Discover new potential uses of your technology.  An important bonus of providing smart people with new innovative tools is that they come up with exciting new applications of your technology.  Be acutely aware of any potential new applications introduced by the user – this could be your next big thing!

In summary, initiating beta-test sites is important tool in understanding the value proposition your product offers your customers.  With some foresight into the objectives of the program, you can extract significant learning from this process.  In a follow up post, we will discuss some of the engineering considerations that will help ensure your program is a success.

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Increasing Growth in World-Wide Patent Filings. Source: http://www.wipo.int/ipstats/en/wipi/figures.html

Two reports published by the World Intellectual Property Office (WIPO) demonstrate that patent filing is back on the rise and is of increasing value to stakeholders. This is interesting news for biotech startups and other companies who’s value is often determined by their cutting edge intellectual property.

Each year, WIPO publishes an extensive report detailing patent filing trends based on a survey of more than 80 countries to collect currently unpublished data. In December 2011, WIPO published their latest data on macro-level trends observed in 2010. This year’s report entitled “World Intellectual Property Indicators” shows that patent flings have increased 7% worldwide after seeing a 4% decline in 2009. Filings in China and the US account for 4/5 of the growth, consistent with the rapid change in Chinese activity in recent years. While PCT applications (International patent applications) declined for the first time in 2009 by 4.8%, there was a 5.7% increase in 2010. This increase is driven by filings from China, Japan and the Republic of Korea, collectively accounting for 94% of growth.

In a complementing report “The Changing Face of Innovation” WIPO takes a broader perspective to discuss the role of IP in global innovation and economic development. Here WIPO explores the relationships between IP and the translation and accessibility of knowledge, as a measure of firm and international collaboration, and its increasing value to firms. Of note, WIPO shows that cross border licensing trade has increased from 28 billion of international licensing and royalty fees in 1990 to 180 billion in 2009.

These reports are filled with valuable and interesting data on patent filing trends cut geographically, by residency and by very high level technology segments and are a fantastic resource for quick access to high level data. This year’s report on “World Intellectual Property Indicators” also includes a special section that examines some of the underlying characteristics to the “surge” in patent activity seen between 1995 and 2008 such as influence of geography, R&D spend and complexity of technology.

These trends demonstrate the increasing value placed on intellectual property and the significant amount of monies spent. For biotechnology startups, revenues are often a figment of projections and company value dominated by the quality of the intellectual property. The increasing global adoption of IP bodes well for biotech startups, particularly those that are developing innovative technologies and products.

The full report segmented into chapters, data tables and the special report can be found at WIPO:

• World Intellectual Property Indicators: (link, pdf)
• The Changing Face of Innovation: (link, pdf)

BiotechStart was created in the fall of 2011 to encourage the discussion of new startup models for the biotech world, as well as to disseminate startup-centric information. Furthermore, we aim to connect entrepreneurs, potential entrepreneurs, mentors, mentees and everyone active in the biotech community. We have received a very positive reception from the community and intend to grow the site into a valuable resource for young biotech startups moving forward. Through this post, we would like to give more insight into the vision of BiotechStart, to introduce you to our team, and to point you to great content of the past year.

Vision

The overarching goal of BiotechStart is to enable more biology-based technologies to be translated from idea to commercialization. While biotechnology has the potential to change the world of healthcare, agriculture and other industries, the challenges associated with bringing biotechnological advances to market remain daunting.

BiotechStart aims to help mitigate these risks and provide options for existing startups as well as for startups that are still just a glint in the eye of the entrepreneur! We are providing a forum for stakeholders to discuss solutions and approaches for bringing biotechnologies to market in the face of significant technical, financing, regulatory, and other risks.

Team

BiotechStart was created by entrepreneurs for entrepreneurs. The core founding team consists of:

James Taylor, Ph.D.
Co-Founder, CEO
Precision NanoSystems

Michael Koeris, Ph.D.
Co-Founder, President & COO
Novophage

Euan Ramsay, Ph.D.
Co-Founder, COO
Precision NanoSystems

We are passionate about biotechnology startups and are building BiotechStart to facilitate the dissemination of information, helpful tips and tools and the passion for starting companies! Our aim is to include everyone who’s passionate about biotech and have a vibrant and free exchange of idea generation and content through the posts and discussions.

If you are interested in participating, want to share your ideas, helping nucleate the next big thing or simply think you could add content and posts, please let us know.

Useful content from 2011

You’re a Grad Student Wanting to Start Your Own Biotech Business – Now What?: link
PhD to Business – Lessons Learned: link

Minimum Viable Products in Biotech and Other Research Orientated Industries: link
The Leverage Startup: link
Non-Dilutive Financing for the Leverage Startup – Part 1: link

Crowdfunding for Technology Startups: link
Implications of Financing you Biotechnology Startup: link

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The small business innovation research (SBIR) program is a US federal initiative to provide small business with funds to complete proof-of-concept work, leading towards commercialization.  SBIR funds come from federal agencies with extramural research budgets greater than $100M. Greater than 50% of the awards go to companies with fewer than 25 people and 33% of the awards go to firms with less than 10 employees (SBIR website and more here).  Funds can be awarded for projects deemed to be in Phase I (prototype phase) or Phase II (development phase).  Depending on the granting organization, the amounts vary between $100K – $200K for Phase I and $300K – $750K for Phase 2, with the amounts varying from year to year.  In addition to the award, the possibility exists for matching funds to be awarded, with the aim of encouraging companies to attract external investment.  To participate in the program, the company has to be headquartered in the US and be 50.1% owned by US citizens.

Benefits

The SBIR program is highly desirable for small businesses as defined by the administration since it is a source of non-dilutive funds that was envisioned to be used to support expoloratory work.  Often such funds are used to de-risk technical challenges and demonstrate that a technology can be a viable product.  Because the funds are non-dilutive, they can be used to increase the value of a firm, allowing the entrepreneur to later raise investor dollars while maintaining a larger share and control of the company than may otherwise be possible (link to a related post). As such, small businesses have competed for the money since the early 1980s and the SBIR program is competitive as is evident through the statistics from FY 2009 (only 18.2% of the approximately 24,000 applications received an award).  Changes in the latest legislation now allow venture capital backed firms to participate in the program.

Challenges

Although the SBIR program is very appealing, it’s not free money, meaning specifically the reporting and alignment of work can, and sometimes does constitute a drain on scarce resources, particularly manpower.  Therefore entrepreneurs should carefully consider the implications of the funds before applying for the awards.

On work alignment specifically, these grants are designed to support the specific body of work outlined in the proposal, meaning they are less flexible to support the quick pivots that startups so often have to execute.  That is not to say a SBIR is a rigid framework without any chance for deviation from it.  There are ways to adjust the scope of work, but it’s not well communicated what processes could or should be used for it.  In reality, it’s up tp the program manager to accept the change in scope and it’s on the grantee to communicate that clearly.  This lack of flexibility makes sense from the government’s perspective, because it ensures greater accountability, allows for project management and simplifies post-work evaluation.

From a lean startup’s perspective this can be a challenge, particularly if technical or market indicators suggest you should pivot from your original proposal. Combined with the delays between initial proposal and project commencement, such inflexibility can pose a significant challenge.  Consider the following, not-unusual, scenario.  You write an SBIR proposal with a set of objectives (A, B and C) and submit.  About four months later you get a request to clarify your proposal asking you do D and E as well remove C.  You’re now left with objectives A, B, D and E, of which D and E are hopefully still be aligned with your original goal and attempt of work.  You get a positive response, which bodes very well for you.  You’re excited!  Then another few months pass before you get the funds (we’re now in t + 7 months).  Ok not too bad you think, however you don’t get all the funds at once.  For Phase I a 2/3– 1/3 split is enacted, meaning you receive 66% of the funds upon the beginning of the project, and 33% upon submission of the report post completion.  Depending on the status of the participating small business with regards to having received a Phase I b extension either a final report or an interim report is required at the end of Phase I.  The reporting is limited to 15 pages of results and discussion.  For a full breakdown of the reporting requirements check out each agencies website, e.g. for the NSF.  For Phase II, the payout of funds is similar though gated by the milestones set out in the project plan and reporting is significantly broader in scope, and schedules at 6-month intervals (6, 12, and 18; 24 and 30 upon Phase II b extension).

What does that mean for a startup?  It means you are required to plan work in detail and with high-fidelity 7+ months ahead of starting a project.  This is very tough to do for any startup, no matter how well planned and linear you think your development is going to be. As most entrepreneurs know and have experienced, startups are most often chaotic, with business plan discovery taking more importance than business plan execution (e.g. lean startup).

Future Outlook

An interesting development has taken shape in the wake the Startup America initiative that was kicked off the great fanfare.  It’s a plan by the administration to do two things: a) merge the Small Business Administration into a larger organization, and b) to lend up to $1 billion to VC funds in order to facilitate greater investment into startups.  The latter part of this plan has the potential to be implemented in the spring of 2012 (Link).

Summary

The SBIR program provides useful funds for not quite-early-stage-anymore companies and projects.  However, there is no such thing as free money and entrepreneurs are well advised to consider all the implications and challenges of planning and running an SBIR funded project on their own timeline and critical path.

This post was originally posted on the Nature Biotech Trade Secrets blog and Persistent Change. 

The folks at Nature Biotech asked us authors for a description of how we’ve navigated our careers from bench to business.  My story is still a work in progress, but as a recent Ph.D. I do have some lessons learned of things you can do to prepare yourself for a career beyond research and into entrepreneurism.  First here’s a brief bio to give insight into my perspectives and biases:

I completed an Engineering Physics undergraduate degree at the University of British Columbia, with a focus on wireless and photonics.   During this time, I worked at my first startups as an engineer, which ultimately sewed the entrepreneurial seeds.   Following, I decided to pivot and apply my engineering skills to health and completed a Ph.D. in Genetics at the Institute for Systems Biology (ISB).  My decision to conduct a Ph.D. was driven by my interest in the commercialization of advanced technologies and the ISB was a fantastically entrepreneurial organization to pursue this goal.  Concurrent with my Ph.D., I was fortunate to work as a venture capital fellow at the ISB-affiliated venture capital firm, the Accelerator Corp.  This was a tremendously valuable experience and during my three year tenure, the Accelerator team started 7 biotech companies.  After my Ph.D., I started looking for my next startup opportunity and met my co-founding team while working at an innovative technology transfer group, the Centre for Drug Research and Development.  Approximately, 1.5 years ago I jumped ship to be a co-founder and CEO of Precision NanoSystems, where we are developing technology at the convergence of drug delivery, nanotechnology and genomics.

During my tenure as a Ph.D. student I often contemplated how to best use the degree to achieve my business goals and as you are likely realizing, the path from bench to business is not always clear.  Here are some lessons I learned during my degree that may be helpful for those wanting to pursue an entrepreneurial or business career:

Experience more than you Ph.D. offers.

Graduate or postgraduate studies are designed as a scientific training ground for a career as a scientist or professor.  The knowledge gained is narrow and the skills learned are specific.  For anyone serious about transitioning off the bench, you will need to actively pursue additional experiences and skills outside of your research work.  There are many ways to do this during your degree, and I found that volunteering at an organization in an area of interest is one of the best ways to get your feet wet.  My time at the Accelerator Corp. (which I initiated through a volunteer position) was one of the best experiences of my Ph.D. There I learned a tremendous amount about biotech, startups, and venture capital.  I was very fortunate to have a Ph.D. supervisor supportive of my entrepreneurial interests and was able to dedicate half of a day to a full day a week to the experience (in addition to most of my evenings and weekends).  If you are less fortunate, you may receive push-back from your supervisor, who may not recommend taking the time away from your thesis or papers.  However I strongly disagree.  Ph.D. and Post-doc work is highly repetitive and obtaining orthogonal experiences will greatly enrich your time as a student.  Further, your supervisor will benefit from his or her student’s success, be it in academia or industry, and should be supportive of those that demonstrate such ambitions.

Do not be wedded to a given technology. 

During a Ph.D. or Post-Doc you spend a tremendous amount of time on a specific topic.  At the outset you may feel completely invested in your corner of the technology world and that you should pursue a career involving that technology. However, this can be very limiting and greatly reduce your opportunities for success.  Technology trends change constantly and what you picked 6 years prior may not be your best opportunity moving forward.  Once you publish your papers or submit your thesis, take this unique transition period to adjust what technologies or business area you want to spend the next 5-10 years.  Compare each potential area of interest as though you are making an investment (your career), and be prepared to defend your choice to your future self a few years out.

Want a job, create a company. 

Lastly, the best way to gather vast business, management, and leadership skills is to start your own venture.  Being a first time entrepreneur is akin to drinking from a firehose and this time will greatly accelerate your experience and perspectives on our industry. Starting a company may seem like a daunting endeavor, but considering the potential career upside, it is actually a pretty reasonable proposition. Even if you fail, you will learn a tremendous amount, meet a community of like-minded folks, and become comfortable with taking career altering risks.  I suggest spending at least an extra 6 months at your institution to find an idea with legs and try to get it off the ground. Don’t do any bench work at this time, but use the period to find and test the commercial viability of potential new ventures.  Be bold – talk to your tech transfer office to see if any technology is looking for a founder, ask professors to fund you from existing grants while you examine the commercial viability of a technology, join entrepreneur communities, attend founder speed-dating events, etc. And if you’re your venture doesn’t fly, this time is a drop in a bucket compared with the 6 years just spent padding your academic CV.

(image attribution: DNA Art Online via flickr)

As someone who went back to grad school with a specific idea in mind, namely to focus my research on an outcome that enables me to start a (successful) biotech business, I found it surprisingly (or maybe unsurprisingly) hard to do.  Naturally research is a difficult process at best and trying to expressly focus on a marketable outcome adds another dimension of difficulty, throw in the adviser’s wishes for certain directions and it becomes near impossible to achieve. For full disclosure, it wasn’t my primary research that lead to the formation of a startup. It was a collaboration on which I helped the main inventor, and that’s another extremely important point in the narrative, you got to be opportunistic and agnostic to technology. 

But the purpose of this piece is not what to do research on or how to do it, but rather how to analyze a scientific discovery from a business point of view to decide IF one wants to move forwards towards commercialization. This process consists of many checkpoints and milestones, and never really ends; not even when the product is available to the market, e.g. for a therapeutic, when it passes FDA approval – even then there is post-approval vigilance, so everyone should be cognizant of the long view that people take.

I want to give an overview of the early stages of this process I have been going through so far, both from the scientific side as well as from the business side.

Most people (and I include myself) think that everyone who has an idea to start their own business first needs to write a business plan. I strongly disagree with that notion, especially as it applies to scientists and engineers. Having done the research and worked hard for it, everyone owes it to himself or herself to evaluate their chances honestly and not charge ahead on it blindly. Answer the following questions (in no particular order and not exhaustive by any means).

• Can you describe the opportunity your product represents in 30 s or less (or at all)? If you cannot, you need to spend some time defining it.
• What are the features and how do they translate to benefits? One key aspect of commercializing your technology is as much a mental step as anything. It’s how you think about your technology’s features. Engineers and scientists love features (it’s got great resolution, specificity, robustness etc..) and that’s well and good, but customers do not buy features, they buy benefits!
• What type of intellectual property protection do you have, i.e. did you apply for any patents, are you able to at all? If you have no IP protection, things are a lot more difficult.
• Who’s on the venture with you? Make no mistake you need experience in business more than anything. A common mistake is the overconfident inventor/entrepreneur who wants to go it alone.
• What’s the market – the two most common mistakes to assume are “billion dollar market and we capture 1%”; be more specific.
• What financing do you need right now? Describe the stage of development where you are currently at, i.e. did you do a proof-of-concept (for my example in vitro or in vivo). Do you seek Angel investments, government grants (SBIR/STTR) or venture capital (for later stages).
• Once you have a product, you need to know who your customers are, specifically who are the early adopters and how are you going from the small percentage of early adopters to mass adoption, i.e. marketing and distribution.

Again these questions are just there to get you thinking about the kinds of answers you need to find during the process of commercialization. In the beginning I said there are many checkpoints and milestones during this process and it is crucial to critically evaluate the chances of success for your technology. Coming up with a commercialization plan makes writing a business plan a lot easier and gives the business plan a different weight as it is based on a firm analysis of the strengths and weaknesses of the technology.

If you want quick feedback on your technology, there are most likely business plan competitions at your respective institution that carry prize money – but more importantly give you access to a network of experiences entrepreneurs, C-level executives, IP lawyers and advisory board members, which carries as great of a significance than the $30-100K in seed money that first prize usually gets. Another great resource for aspiring entrepreneurs is the Kauffman foundation (www.kauffman.org), which offers free tools (as well as for-pay tools) for evaluating the business opportunity.

Lastly, it’s is extremely important to recognize the resources at the school/institute you are currently doing work at. Ever since the Bayh-Doyle act in the mid-eighties, technology transfer offices and offices of technology development have worked hard to help commercialize the universities intellectual property. Go and email these offices, they are great first step resources.