Why Lean Lab Startups?
Today, science-based startups can take advantage of a growing ecosystem that supports the efficient capital launch and operation of these exciting companies. Alongside large venture funds incubating and launching well-funded startups with $50M+ A-rounds, “lean” science startups are funded through a variety of sources: grants, business plan competitions, pharmaceutical subsidies, and angel investors.
The burgeoning field of life science research - therapeutics in particular - has characteristics that make the acquisition of proper funding a challenge that only grows as time passes. Sales, revenue and profits are too far off in the future for many investors, and product development costs increase rapidly as projects progress towards and into clinical trials. Capital requirements can become daunting, threatening promising startups to fall into the well-documented “valley of death.”
Startups that acquire ample funding face their own unique set of challenges and opportunities. LifeScience VC, a blog run by “recovering-scientist-turned-venture-capitalist,” Bruce Booth, discusses many of these trials and tribulations. Smaller startups face some overlapping but also many different challenges in building successful science-based companies given their much thinner capital base.
This blog will discuss topics specific to life science startups - including financing, partnering, infrastructure - with a focus on how thinly funded "lean" firms can take advantage of their strengths to excel at science and business. These strengths include their small size, nimble execution, and capital efficiency — all of which can be assets in building successful companies and important products.
Emerging Technologies Lower Entry Barriers
The technology industry offers an interesting case study over the past 30 years of dramatically declining infrastructure costs, lowering barriers to entry and enabling the rapid creation of exciting new companies. Work that used to require a data room, astronomically expensive servers, and large teams of developers to create even early prototypes of software can now be performed by a few smart programmers working with cloud-based storage, rentable processing power, and advanced software development tools. Moore’s law - that processing capability doubles annually - has driven many of these advances.
Biotechnology was in a similar place 20 years ago: labs needed to be large, well-staffed and full of costly equipment. Experimental processes were slow and new techniques had to be invented from the ground up. Tasks that are simple today required massive amounts of time and manual effort.
Today, life science startups can take advantage of tremendous progress in computing power and biotechnology in many different ways. Gene sequencing is a prime example - costs have decreased even more rapidly than Moore’s law would predict.
Previously critical and challenging processes - antibody generation, humanization, protein production - are now routine, low cost, and easily outsourced. Many complex, cutting edge technologies are readily available from a kit, a CRO, or an academic lab. Core facilities have invested millions to build top-tier capabilities in cell sorting, mass spectrometry, imaging, and other areas; these facilities are readily available to startups for modest hourly fees.
The advances mentioned mean that small-scale companies can begin operations and initiate important experiments quickly and at a low cost. Although early rounds of funding may not take a startup all the way into the clinic, modest early funding can answer important questions, reproduce valuable academic data, and potentially generate a strong pre-clinical data set for presentation to acquire future funds and resources.
Does Funding Equal Destiny?
In a future post, we will discuss some of the data that illuminates how frequently angel-funded startups go on to receive venture funding down the road. It turns out that this is a relatively rare occurrence, and early funding decisions appear to play vitally important roles in later funding options. Nevertheless, there are a growing number of funding mechanisms that target the leaner side of biotech entrepreneurship.
With all this said, there a potential trap that growing companies must beware of. Early success (often in the form of preclinical/animal studies) achieved with modest funding is wonderful, validating and builds confidence, but what lies beyond is often an enormous funding problem; the aforementioned “valley of death” that comes with the cost of clinical trials. Many smaller firms tell a narrative to themselves and their early investors, that “with x, y, z - early preclinical data - we will be able to either do a venture round or get a pharma exit.” But without deep pockets, these options may be elusive while the funding “valley of death” approaches quickly. To add to the challenge, an emerging firm may also not be in a strong negotiating position with regard to a large potential partner.
Over the next several months, this blog will discuss a range of issues of interest to the underdog science startups. Periodically, we will also profile companies and entrepreneurs following the “leaner" path. If you are interested in being profiled, please contact me - Jeff@labshares.com. As always, I welcome your ideas, input, and comments!