Turning innovation into a successful business can be daunting. In a panel discussion at the 2023 BIO International Convention, Mintz’s Josh Fox, who is a Member in our Chambers-ranked Life Sciences practice, alongside Massachusetts Institute of Technology (MIT) professors Robert Langer, Angela Koehler, and Giovanni Traverso, examined the challenges associated with spinning out innovations from academic and research institutions, including how to build a team to run a new company and how to fund startups, particularly those that may not attract traditional venture capital easily (or at all). Here are their five key takeaways.
1. Spinning Out of Academia: “You Need to Find People that You Trust…”
Beginning with the fundamental questions of what makes a technology a good candidate to spin out of an academic institution into a commercial startup and which technologies are more appropriate for remaining in an academic lab are a good starting place. Some important considerations are:
- Having a platform technology that can be applied broadly
- The strength of the IP
- Possessing compelling animal data that serves as proof of principle
- Having powerful papers behind you
- Whether your team is the right one
- You’ve asked yourself whether your science can be pushed further in the lab, i.e., is there a lack of proof of concept in a meaningful model or have you generated a large body of data?
- Have you checked most of the boxes that are critical to a translation event? If not, it may be too early to spin out of academia.
One of the biggest challenges associated with spinning out an innovation from an academic institution is securing funding. Identifying the right team is critical to securing funding, the former of which is one of the biggest challenges, in and of itself. Understanding that challenges can evolve is also an important thing to keep in mind as you begin this journey.
2. Building the Team: “Plug in the Fridge”
Identifying the right management team is imperative to the success of the business. What should you take into account?
- There is a whole package that needs to be put together: identifying management teams that have a strong understanding of the science and individuals who actually want to start a company from scratch cannot be underestimated
- The science is not necessarily the most important factor
- Reliance on a network of scientists and venture capitalists is helpful
- Every single member of the team has to be willing to plug in and be willing to do everything that’s required for the success of the company, in other words, “plug in the fridge”
Common mistakes by founders and early-stage biotech management teams include:
- Starting a company too early
- Not de-risking the technology enough to affect its trajectory
- Not choosing the ‘best’ CEO for the position
3. Fundraising: “You Have to Kiss Many Frogs”
The fundraising environment for biotech startups is currently uncertain, but founders should not be deterred. Some tips to remember:
- Having a platform technology is helpful
- A solid management team is important
- Those biotechs looking for later rounds of financing are having a harder time doing so, however, funds are available for biotechs looking at early-stage investments, such as seed-stage financing
- There are grants – such as through the NIH, foundations, DoD - and non-traditional investors, such as insurance groups
- Evaluate if there is some kind of middle ground of working through a non-profit or collaborator to further develop the technology as far as possible
- Establish a partnership with good legal counsel
- The term ‘valley of death’ can apply – starting your company too early can be damaging. Timing is everything.
- Find an angel investor – for instance, if you’re working to treat a disease, source angels who have a personal connection to that disease
- If you’re later stage, consider entering into a deal with big pharma or accessing capital from a foreign government
- There are cycles to fundraising that can be seen when looking over decades, and acknowledging that reality is useful
4. Looking Back to Look Forward: “The Fundamentals are the Same and Will Be the Same”
During the last 50 years, there have been times when funding has been hard to bring in and those cycles go back and forth. The current market is not unique, and this is not the first or second time that times have been difficult for biotechs. Importantly, the fundamentals of what makes a biotech successful don’t change. Funding can be found.
5. Parting Advice: “Perseverance is at the Core”
For founders taking their innovation to the next phase of launching a business, remember to ask:
- Is now the right time or can you wait before going out and starting to fundraise?
- Can you de-risk?
- Have you pushed as far as you can?
- Have you reached out to your network for advice?
Perseverance is at the core of success.
Joshua Fox helps entrepreneurs build their businesses and advises them on significant transactions in the life cycle of their companies, with a particular focus on fundraising transactions and exit events. His startup and emerging company practice is nationally ranked by Chambers USA.
Robert Langer is one of nine Institute Professors at MIT. His over 220 awards include both the United States National Medal of Science and the United States National Medal of Technology and Innovation (he is one of three living individuals to have received both these honors).
Angela Koehler is an Associate Professor in the Department of Biological Engineering at MIT and an intramural member of the David H. Koch Institute for Integrative Cancer Research at MIT. She is also an Institute Member of the Broad Institute and a Founding Member of the MIT Center for Precision Cancer Medicine.
Giovanni Traverso is an Assistant Professor in the Department of Mechanical Engineering at MIT and also a gastroenterologist in the Division of Gastroenterology, Brigham and Women’s Hospital (BWH), Harvard Medical School.