Where should biotech start-ups look for funding in the venture capital desert that is becoming the new normal?
The panel The New Kids on the Biotech Block: Trends in Early-Stage Financing kicked off the 11th Annual BIO Investor Forum and focused on non-traditional early-stage investors and deal structures.
Moderated by Jeron Eaves, a senior practice executive with Campbell Alliance, the panel highlighted companies that have secured financing from creative sources, like patient advocacy groups and venture philanthropists, as well as companies that have negotiated non-dilutive financing from traditional pharmas and VCs using innovative deal strategies.
Lindy Fishburne, executive director at the Thiel Foundation’s Breakout Labs, said that the company’s revolving fund seeks to invest up to $350K in “bold, audacious” ideas at the intersection of medicine and technology. She also noted that Breakout Labs has been able to help advance the ideas of great scientists who may not have traditional fundraising experience or relationships with VCs. Breakout’s simple online grant application and contract level the playing field, keep due diligence costs down, and ensure that companies understand deal terms up front.
In contrast to Breakout Labs’ no frills approach to sourcing early innovation, Third Rock Ventures can spend up to two years conducting due diligence, said Mark Goldsmith, a Third Rock Venture partner. He cited the recent formation of Warp Drive Bio, a collaboration between Third Rock, Greylock Partners and Sanofi, as an example of pharma’s commitment to innovation and growing need to outsource it using creative means. Goldsmith added that Third Rock requires its portfolio companies to pursue dual strategies—one “reach for the stars” plan and a contingency plan in case the company finds it cannot make it to the stars. This divergent planning can help companies mitigate the unpredictability of the drug development process.
Walter Ogier, president & CEO of Acetylon Pharmaceuticals, and Robert Sarisky, chief business officer of Forma Therapeutics, provided the company perspective on creative early-stage financing schemes. Ogier mentioned that Acetylon has raised $35M in non-dilutive funds from a core group of 30+ individuals and venture philanthropists. He noted that other emerging biotechs could replicate this business model if they can attract patient groups and high-net-worth individuals committed to finding treatments for specific diseases. Sarisky added that companies need to decide on an LLC or C-corp structure early in their existence and that they should invest in top-notch lawyers and accountants to maximize the worth of their assets.
In just the past month, Google Ventures announced its plans to invest up to $1B in biotechs and the UK’s BioIndustry Association proposed a crowd-sourced innovation fund to fill the country’s biotech funding gap. All things considered, the panelists agreed that, unlike The New Kids on the Block, creative funders and financings are more than a passing fad.