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Very Early Stage Technology Investing

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What “great team” Really Means (Part I, Bioscience)

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Early stage technology investors always talk about the importance of a great team, how they invest in teams.  For a seed stage investor it is unlikely the ideal team will appear at the beginning, especially if you outside the major centers of concentrated tech talent.  Even there, the best team members are scarce and the pretenders are plentiful.  In the last five years our funds have invested in more than 30 seed stage companies, none of which started with a perfect team.  Some were great technologies, especially in bioscience, with a part-time CEO and little else.  Others were lone founders looking for a bookend.  In each case the first step is adding another leg to the stool.  I know that describes a two-legged stool, but the seed stage is the wobbly stage.  Since bioscience, software and consumer digital companies are so different, and go through different stages, let’s take each one on its own.  This post covers Bioscience, where I am, admittedly, an amateur.  I confess to applying my software/digital investment mindset to this category, but so far we’ve done okay.

For bioscience there is often no founder in the digital sense, as many technologies emerge from research institutions or researchers with neither the inclination nor experience to drive the company.  The CEO needs to carry the vision of the company, know the science and be able to handle the parallel challenges of regulatory, reimbursement, capital raising and g0-to-market strategy.  This is a rare individual, but companies that only have care-takers in the early stages serialize too many existential tasks, take too long to meet milestones, and spend too much time after each milestone thinking about how to get the next one done.  That is not a capital efficient path to market, and it also doesn’t uncover fatal flaws in the business fast enough.  The methodical pace that is accepted by the investors and other stakeholders in bioscience is sometimes surprising.  This is why the graves you dig to bury bioscience investments are much deeper!

A lot of bioscience companies go through an upfront period that is analogous to baking.  I think there is too much time spent gazing through the oven window.  And I also find that it is difficult to find seed-stage bioscience CEO candidates with the experience and desire to own the fund-raising process.  We have great examples in our portfolio of the opposite – Jim Burns from AssureRx, Joseph Gardner from Aekbia and Joel Ivers from NDT – but its also true that many of the care-takers that can manage the science/validation part of the problem can’t raise the money.  These CEO’s have owned their financing process, which is really the definition of a CEO in my opinion.  It’s more important than having a good idea.

So, either you find a Jim, Joe or Joe (maybe they all have names that start with J, so look for Jacks, Jennies, Janes as well), or you manage the company through to market entry with the caretaker.  If that is the path, you need a great board to keep the company moving, build the business development/market entry plan and make sure there is capital in the pipeline for each milestone.

Whether the company plans to sell or license an asset, or actually build distribution and go to market, three key areas require great team members. These team members may be advisors, members or consultants for the company focused on licensing, but they are essential.  For the company going directly to market, they are mandatory hires, and the earlier the better.  Bioscience companies must have a viable regulatory strategy at investment, and the company must stay current and adaptive to the regulatory environment.  Nothing informs our bioscience investment thesis more than the regulatory path of the company.   These companies must also find a reimbursement strategy early and test it constantly against the market.  The important of CMMS and commercial payers is the second thing that we consider in bioscience investments.  This world is dynamic and under great stress.  There are opportunities created by this stress, but there is also the chance that a great product will be crushed under the weight of a changing reimbursement regime.  Unfortunately these two areas, regulatory and reimbursement, can be binary.  If it goes against you, your dead in the water.  Again, the team needs to include current, proactive and creative talent in these roles.

Once these areas are addressed, the company begins to look more like a software or consumer digital company.  Great sales leader/transactional talent, great operations, experienced growth stage CFO.  All of those seats are critical.  More on those positions in Part II.