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Much Needed Help for Starting a Biotech Venture

by Peter Dykstra, M.S. | January 22, 2019

Entrepreneurship is a challenge. HBO’s hit show Silicon Valley characterizes the struggles of starting a startup in the Bay Area by highlighting the ups and downs of a nascent software company called Pied Piper. Now imagine if Silicon Valley faux-documented the rise of a biotech venture instead. Most of the show would depict the founding team trying to acquire one or two pieces of equipment for cell culture or sequencing before their funding runs out. In the real-life Silicon Valley and Bay Area, biotech entrepreneurs fortunately enjoy a range of accelerators and incubators to avoid such an ignominious end.

Defining Terms

Incubators, accelerators, and pre-accelerators are each unique and fill a separate niche in the biotech ecosystem. Potential first-time founders might start out in a pre-accelerator as a practice run and then progress through the step-wise growth of an accelerator to build out a young company in an incubator space.

Pre-accelerators are often tied to academic institutions and can be thought of as a training ground for academic scientists interested in entering the startup world. Because conceptualizing what a non-academic career may look like for a scientific trainee can be difficult, these programs allow rapid prototyping and quick exposure to entrepreneurship. Some pre-accelerators closely affiliated with universities operate with a stand-in business idea as a part of a course or short program, while others such as the Startup 101 course at UC San Francisco’s Entrepreneurship Center take an initial idea all the way through to the pitching stage in front of investors. The Ignite program at the Stanford Graduate School of Business similarly brings together like-minded individuals for a crash-course in starting a new company.

A more formalized accelerator program is another likely entry point for a new entrepreneur. Accelerator programs like IndieBioIllumina Accelerator, or a branch of a more general organization like Y Combinator are designed to help people who lack the requisite experience or network but have a promising idea. These accelerators primarily subscribe to a cohort-based and time-limited model where a new batch of startups collectively progress through the program during each 3-6-month cycle, gaining access to lab space, capital equipment, mentorship, and exposure to venture capital. Due to the cash-strapped nature of these early stage companies, a common accelerator model is to offer an initial investment of $100,000 to $250,000 for a 6-12% equity stake in the company.

Finally, an incubator sits at the late-stage of this value ramp. Incubators like QB3JLABSMBC BioLabs, and more are designed around early-stage companies that have a demonstrated business plan and are ready to grow in talent with human capital. These facilities often operate like landlords.  Companies rent lab space and gain access to a multitude of resources which can include lab supplies, legal support, HR guidance, and more. Most importantly, these new companies are spared from spending their initial funding on highly expensive capital equipment such as PCR machines or biosafety cabinets for cell culture. Generally, incubators are not operated on a strict time-limit model and therefore can support a growing company as it develops. Another result of this incubator model is that these spaces are designed to remain full – imagine a landlord wanting tenants for an apartment complex. Lesley Stolz, PhD, Head of Johnson & Johnson’s JLABS Bay Area, describes a successful incubator as one with “lots of buzz” around new ideas as well as a thriving community among the tenants.

Why Accelerate or Incubate? What is the Value Added?

For budding entrepreneurs, the value proposition for joining an accelerator or incubator program is fairly straight-forward. Depending on where in the biotech on-ramp a company is entering, a new company can expect an upfront investment or access to capital, mentorship or help with project management, wet-lab space or shared equipment, or even something as simple as a temporary home base for their venture idea. Founder and CEO of Cairn Biosciences, Mary Ludlam, PhD, describes her experience with various programs as giving a “step function” where participation matures a young company, preparing the founders for the next wave of challenges and opportunities.

The value proposition for the accelerator or incubator is a bit more opaque at first pass.  Accelerators that do take a 6-10% equity stake will stand to benefit if the startup is successful, but by and large, the real value seems to be in keeping in touch with the cutting-edge science  of the startup scene. Chris Haskell, PhD, oversees the Bayer CoLaborator in Mission Bay, San Francisco and describes Bayer’s incubator as “a way to develop another test point to interface with new companies.” For larger corporations like BayerIllumina, and Johnson & Johnson, accelerators and incubators are a vital component to keeping touch with the pulse of the biotech ecosystem. It’s a way for an organization to understand new, fresh science and have the opportunity to capitalize on exciting science by folding it into their pipeline.

An Ecosystem for Biotechnology

The San Francisco Bay Area is undoubtedly one of the best places in the world to start a company. Venture capital is a defining feature of the region and the human capital provided by academic institutions such as Stanford, UC San Francisco, and UC Berkeley means that fresh ideas are always around the corner. It should be unsurprising, then, that the Bay Area currently plays host to a veritable array of accelerators and incubators. IndieBio is a biotech accelerator located in San Francisco’s SoMa neighborhood. Each year, two cohorts of fifteen early stage biotech companies participate in IndieBio’s four-month accelerator program. Founders receive a $250,000 investment and fully-equipped laboratories from IndieBio for an 12% equity stake. Scientific Director and Partner Jun Axup, PhD, describes IndieBio’s approach to interfacing with new founders as “presenting entrepreneurship as a valid non-academic career” to PhD students and Postdoctoral fellows. A central goal of the program is to help founders bring an idea from the bench to a product in four months. To accomplish this, Axup describes a hands-on approach to mentorship for first-time founders where IndieBio’s scientific staff provide founders with project management and scientific guidance to help meet milestones during the program. IndieBio draws from a diverse set of companies. The organization’s model as an accelerator tied to the venture firm SOSV is to push forward all types of science to a fundable point.

Other biotech accelerators, like Illumina Accelerator, focus on a specific area of biotechnology. Because of Illumina’s expertise in sequencing technologies, Illumina Accelerator takes a deep dive into developing breakthrough applications of genomic sequencing. Poorya Sabounchi, PhD, a Startup Coach at Illumina Accelerator, says “our goal is to penetrate markets that can be created around new technology as the cost of sequencing spirals down.” Sabounchi continues: “Small markets work best when an entrepreneur can identify a $10-20M market niche and can capitalize on that market share.” Alex Mok, co-founder and CEO of Mantra Bio, took his fledgling company through Illumina Accelerator and praised the collaborative support of his cohort as well as the synergy of working with an organization based on sequencing: “We applied to Illumina because we wanted to utilize sequencing instruments to build our exosome database. If you are interested in doing a lot of sequencing, Illumina is the right accelerator for you.” Illumina Accelerator offers up to $100,000 in seed funding and takes 8% equity to a select pool of companies applying the common tool of genomic sequencing to a variety of applications.

As another large biotech firm, Bayer also runs incubator spaces across the globe, known as CoLaborators. Haskell points out that the Bay Area CoLaborator is able to flourish in an area with a mandate towards developing new technology. He notes how “it is far harder to start a small biology lab than a new software company” because “infrastructure requirements are much higher”. Ludlam’s company, Cairn Biosciences, has been housed in the Bayer CoLaborator for four years. Ludlam tells the story of how she entered the incubator with just one other employee and has since grown her team to eight as the CoLaborator space expanded around her. She explains how her fledgling company “needed to have sequencing, PCR machines, equipment – we wanted to be adjacent to UCSF and QB3. Bayer has been very supportive and flexible working with us.”

Stolz describes the JLABS approach to biotech incubators as “no strings attached, no deal, no equity,” saying the organization does not want to limit who could be part of the Johnson & Johnson network. For J&J, JLABS is an informal external R&D engine with a motivation to bring new and interesting science into the company pipeline. Similarly to the Bayer CoLaborator, JLABS’s rent-based model means that companies need some amount of funding prior to arrival. However, this model also means founders can maintain the control they have over their company. Along with providing lab space and resources such as lab supplies, legal support, and human resources guidance, Stolz explains that JLABS prides itself on providing educational programming for founders, as well as mentorship and relationships with venture capital.

Geltor, Accelerated

One of Axup’s favorite stories of an IndieBio graduate is a company called Geltor. Geltor was founded by recent MD and PhD graduates based on a technology they developed that directed microbes to shunt their metabolism towards protein production rather than replication, causing massive protein yields. When Geltor’s founders arrived at IndieBio, they brought their technology but were unsure how they should best utilize it. The company wanted to start with a perhaps straight-forward application of increasing insulin production, but the mentorship IndieBio provided encouraged the founders to think “outside-the-box.” Together with their scientific mentors, the company came up with the application of gelatin production. While gelatin is normally produced from the skin and bones of factory-farmed animals, Geltor’s gelatin had less batch-to-batch variability and ethical concerns. Customers also latched onto the idea of a gelatin that could be customizable to different textures. After their pivot at IndieBio, Geltor had a great story about providing a superior (customizable) product, taking animals out of the supply chain, and possibly providing a staple ingredient of the future. The company announced $18.2 million in Series A financing led by Cultivian Sandbox Ventures in October 2018.

Advice for potential incubatees

Axup posits that many PhD students and Postdoctoral fellows in the Bay Area share a common idea where they could find a way to commercialize their research. She describes one of the goals of IndieBio as putting into place more role models so that PhD students and Postdoctoral fellows could see people who were in their position branch out and pursue entrepreneurship. Mok also notes that the path to translation in the Bay Area is “well-established and well-trodden. Many can believe the statement ‘my graduate work can be huge’.”

Life science trainees transitioning to biotech entrepreneurship are well positioned to jump into the startup world. Ludlam explains: “There are so many people out there that know this stuff. There are people who have done this before. Most people with knowledge are happy to share it, but they’re not going to share it if you don’t ask for help.” Academics with an interest in industry must have a growth mindset and become a learned extrovert in the quest for help.

Mok suggests that companies looking to apply to accelerator programs or an incubator focus on being problem-centric, not solution-centric. He elaborates: “Start with the problem and market capture. That allows people to answer the question ‘What kind of company is this going to be?’” Often the initial problem with technology companies is that they focus entirely too much on the technology. Mok recommends spending just a few slides of a larger pitch deck on the technical science and using the rest to describe the value of the company and create a clear, concise story.

Lastly, startup founders should take advantage of accelerator/pre-accelerator programs at academic institutions or similar programs that can be found online. Berkeley SkydeckLean Launchpad, and Stanford’s StartX and GSB Ignite are among many excellent entry points to the Bay Area accelerator and incubator space.

Peter Dykstra, M.S., is a Bioengineering PhD Candidate at Stanford University