We’ve done a fair amount of advising academic faculty about the viability and readiness of their inventions to attract start up funding. Here are some recurring themes:
Idea vs. Business Opportunity
When should an academic with an idea about an approach or technology discuss it with potential investors? While there can be unusual exceptions, an idea is typically not commercially fundable until it has been elaborated into a product or service in a sufficiently large market that provides a solution to a problem that customers are willing to pay for. It is always worthwhile to brainstorm with commercially-minded friends and advisors to flesh out how the idea can be embodied in such products or services, but third party investors are typically in the business of funding business opportunities, not the reduction of an idea to a business opportunity.
EXAMPLE: A new technique enables fast, cheap interrogation of which among multiple protein pathways are up-regulated, from a tiny volume of tissue. This is a neat lab capability, but not a business opportunity, until developed into a concept such as, e.g., a concierge, cash-and-carry medical consulting service to recommend targeted therapy regimens for patients with or in danger of metastatic cancer. Note, however, that as a service rather than product business, such an opportunity may be better suited for angel investors than VCs (venture capitalists).
‘Me Too’ vs. Compelling, Comparative Differentiation
Insightful scientific advances are made by teams when they show that they can achieve similar results through a new or unexpected pathway or modality. But to catch the eye of potential investors, it’s not enough to say ‘we can do it too’; investors want to fund ‘we can do it better’. Sometimes, ‘we can do it too’ is a way station to ‘we can do it better’…but recognize that private investors don’t like to fund until after that transition.
EXAMPLE: A liposomal drug delivery nanosphere in pre-clinical development demonstrates the ability to deliver a concentration of paclitaxel to a tumor just like a polymer system in clinical development. Investors want to see ‘better’, not ‘me too’ – e.g. data that the new system delivers materially higher concentrations, or solves a bar to encapsulation that has kept an important class of chemotherapeutics from local in situ delivery.
Also, investors want the ‘better’ to be in comparison to the current or expected competition in the marketplace, not some ‘control’ that was yesterday’s therapy.
EXAMPLE: Data showing that a new polymer drug delivery nanoparticle has better PK and delivers drug in a higher concentration to the tumor than free drug is nice but not sufficient; investors want to know if such technical performance is better than in other drug delivery approaches on the market or further along in development.
Technical Features vs. Benefits
Scientists understandably are focused on technical features of their invention or discovery. However, customers only buy technical features insofar as they confer benefits or value. Investors focus on whether the technology or approach is ‘better’ (i.e., safer, more effective, cheaper, faster, etc.) from the perspective of the customer.
EXAMPLE: A drug delivery technology achieves an increase in peak bioavailability and extends ½ life, in each case by a factor of 2 (features), vs. moving the Kaplan-Meier survival curve to the right 45% in a validated tumor model (benefits).
EXAMPLE: A technology for sequencing genes from a blood sample boasted the ability to process 125 genes at once. However, the most relevant product candidate at the time (based on discussions with a potential partner) was a quick, accurate blood test for the 6 most common STDs. In this case, the downstream customer (patient, doctor, insurer) had zero interest in paying for an extra 119 genes to be sequenced. Thus, the technical capacity to process more than 6 genes at once conferred no benefit in the case of the contemplated product.
Depth vs. Breadth
A common piece of advice we give to academic teams is to generate more in depth data, after a point, than a greater breadth of data. This may cut against the research interests or competencies of a lab.
EXAMPLE: A lab may have a biology focus, and can elucidate incremental biological applications for a molecular target, using a generic research compound modulator (breadth), but not a medicinal chemistry competence for generating drugable NCE’s with optimized ADME-PK-tox (depth).
EXAMPLE: A lab may have medicinal chemistry expertise, and so focus on generating additional pharmacophores to generate incremental ‘hits’ against a molecular target (breadth). Generating incremental ‘hits’ from multiple pharmacophores increases options, but after a point, investors want to see ‘hits’ turned into ‘leads’, via relevant in vitro and in vivo chemical and biological data.
EXAMPLE: A drug delivery technology can deliver small molecules, large molecules and cell therapy; the academic lab is currently working on demonstrating that a 3rd generic agent can be loaded, and that the technology can also deliver gene constructs (breadth); a typical investor would sooner like to see significant extension of survival, with a specific payload that has freedom to operate in the drug delivery technology, in a generally accepted animal model, for a specified cancer that constitutes an attractive market (depth).
Packaging the Technology
Productive academics sometimes have several technologies that can be packaged in different combinations in a start-up, or a technology that can go in several different directions. There are various rules of thumb (with various exceptions) about what attracts the attention of investors. Here are several to be considered in packaging the invention(s):
- expected time to clinic ranks fundability of projects
- 2-3 years from clinic constitute the outer margins of fundability, since there has to be a value step up within the time frame of a financing round to support the next round
- tranching, whether within a round (conditioning parts of a round of funding on achieving specified milestones), or inserting e.g. a seed round before an A round, to see if platforms can generate ‘hits’, or ‘hits’ can progress to ‘leads’, is fashionable
- VCs prefer a lead program backed by a platform for generating additional leads, to either alone
- VCs prefer a focused theme, around therapeutic areas or mechanistic or platform approaches, compared to an assemblage of programs
- VCs are wary of single molecular target companies, unless the target has been validated by marketed products or attracts a number of companies with product candidates in development
Illustrative Short Slide Deck
Presentations for investors differ from presentations to scientists, students or the general public. While there can be different templates, form follows function, designed to allow investors to tick off their standard checklist of questions to rule a start up pitch in or out. The following is an example of the elements of an investor deck (click here for annotations):
- Overview (Snapshot)
- The Problem
- Current Approaches and Their Limitations
- The Solution
- Best Data
- Clinical and Regulatory Development Strategy
- Commercial Assessment
- Follow On Pipeline/Platform
- Intellectual Property
- Investment Offered
- Use of Proceeds
- Exit Strategies and Illustrative Values