Tony KulesaOver the last decade, there has been an incredible surge in technologies and discoveries in the life sciences, enabling a new generation of companies to grow faster and larger than ever before. Investors are responding, and a record amount of capital is now available to biotech startups. Yet, company creation has lagged.
Ideas, technology, and investment capital are no longer the scarcest resources; the limiting reagent is founders.
We can change that.
The discoveries of recombinant DNA and gene synthesis transformed biologists into engineers, as they finally gained “write access” to the code that underlies biological systems. Brave visionaries like Bob Swanson and Herb Boyer quickly realized the applications and launched Genentech, birthing the biotechnology industry. The fifty years since have been a compounding loop of tool development, and we can now engineer every level of the system — DNA, RNA, protein, cells, tissues, and organisms.
Beyond recombinant DNA, consider CRISPR, base editing, and prime editing. And ASOs, RNA-editing, RNA-targeted small molecules, and mRNA medicines. And protein degraders, and molecular glues. And cell therapies, microbiome therapeutics, organoids, and xenotransplantation. Recombinant DNA led to the formation of Genentech. These new technologies will create similarly immense opportunities. Indeed, the companies created in the last decade are growing larger and faster than ever before.
Investors are taking note.
The amount of venture capital dedicated to biotech has risen nearly five-fold from just $3.6B in 2012 to $16.8B in 2020.
(Figure 1, as reported by Silicon Valley Bank). 2020 saw a record number of IPOs (84), and we are already on track to break the record for 2021.
Venture capital funding is outstripping the number of companies available to invest in.
All data is normalized to the value in 2012. Data was sourced from Silicon Valley Bank Healthcare Investments and Exits 2021 Annual Report and Pitchbook. First round financings includes both Seed and Series A rounds annotated as “1st Round” (though the data for both show similar trends).
However, 2018 is the last year that the founding of new companies tracks the growth in venture capital (Figure 1, data from Pitchbook). Since then it has flattened or even declined. Without more companies to invest in, more and more capital is aggregating in each company, and we are now in a world where a $100M+ Series A is becoming the norm.
If this does not alarm you, it should. Biotechnology is a powerful lever on many of the most important problems in the 21st century. We face an aging population and rising healthcare costs, already almost 20% of GDP. We must prepare and prevent the next pandemic. We must transition to living sustainably, and reinvent the way we produce food, materials, and chemicals. We must build technologies to remove carbon from our atmosphere. More startups means more shots on goal at solving these challenges, exemplified by the entrepreneurs that sprung into action to create surveillance tools, testing, therapeutics, and vaccines during the Covid-19 pandemic.
We need more biotech startups.
And that means we need more biotech founders.
Returning back to biotech’s origin in the 1970’s, another iconic company paralleled Genentech’s founding: Apple Computer Company. Despite their twin birth, the role of founders in today’s tech and biotech startup ecosystems couldn’t look more different.
Tech valorizes the founder. Apple’s Steve Jobs and Woz exemplify the mythos that permeates almost every other iconic tech company — Microsoft, Amazon, Google, Facebook, et cetera. Compared with professional executives, the tech community has learned that founders have the ability to strategize on longer time scales, have earned more trust from stakeholders to make hard decisions, and have the best understanding of the minutia and culture of their businesses.
Biotech’s culture is built from a different template: Genentech was created by Bob Swanson, a venture capitalist, and Herb Boyer, a professor co-founder that remained on the UCSF faculty.
Following Genentech’s example, biotech is dominated by a model where venture capital firms create companies themselves, in partnership with academics. The firms cultivate the most exciting new science from top academic labs, conceptualize a commercial opportunity, and recruit an experienced management team to execute the vision. Proponents argue that it isolates the technical risk, and reduces the commercial and management risk as much as possible.
Meanwhile, the problems we face in the 21st century still loom, and the pace of company creation isn’t growing fast enough to meet them. A culture that requires every executive team to have done it before inherently limits the rate we can address these challenges.
We need a new way:
the founder-led biotech
Is biotech really that different from other areas of deep tech like space, defense, or climate tech, where founder-led startups are the norm? We are finding that with the right support around them, founders in biotech can deliver outsized successes.
In the past 12 months, Ginkgo Bioworks, Recursion Pharmaceuticals, AbCellera, Finch Therapeutics, SQZ Biotech — all founded and led by technical founders fresh from their academic roots — have gone public. Hot on their heels, founder-led startups at the Series A and beyond like Asimov, Biobot Analytics, Cellino, Dyno Therapeutics, GRO Biosciences, PathAI, Strand Therapeutics, Vedanta, 1910 Genetics, and many others, have raised hundreds of millions of venture capital to work on some of the most innovative frontiers in the industry. The founders of these companies are hungry and creative scientists that realized the impact of their work before others did, and now they are leading the charge to bring their innovations to the world.
The success of this bow wave of companies is catalyzing more investor interest in the founder-led model. Investors in these early successes are doubling down on their support for founders, and others that sat on the sidelines are now getting in the game. They are drawing on the models in tech for supporting founders with a platform for critical business needs like recruiting and business development, and creating platforms specialized to biotech. The rest of the service ecosystem is responding as well. For example, lab space that is rentable month-to-month is becoming available in most research hub cities.
Academic culture is also changing to encourage scientists-turned-founders. A decade ago, when I was doing my graduate work at MIT, it was uncommon in many academic circles to talk of commercialization. Maybe even taboo. This might explain why the dominant model for scientists was to partner with a venture capital firm while remaining in academia, rather than to leave and found the company independently. At that time, I felt lucky to be part of a small cadre building MIT Biotech Group, an organization we created to unite with other students that shared entrepreneurial interests. Now student groups centered on bioentrepreneurship like those at MIT, Harvard, and Stanford have become some of the most popular of any at their institutions. Beyond institutional bounds, the new student-led educational organization Nucleate has already led to the formation of 29 companies.
Biotech’s future is arriving at an ever faster pace. In just the past two months, we have seen 3D protein structure prediction cracked, a mirror image polymerase that produces L-DNA, a petascale reconstruction of part of the human cerebral cortex (that you can view in browser!), and the discovery of a new, giant extrachromosomal DNA element.
But this future lies in supporting the founders who will lead us there. It’s time to unleash their potential.
Acknowledgements: Thanks to Sarah Hodges, Jaye Goldstein, Josh Moser, Michael Retchin, Alexey Guzey, Jake Becraft, and Alex Parks for helpful discussions and reading drafts of this essay.