Case Closed: Taking the Mystery Out of Start-Ups and Venture Capital Funding

Medical innovation often gets its start incubated inside a start-up company that receives needed financing from venture capitalists. The fifth Symposium Series session, held at Simches on February 28th, focused on how to leverage venture capital financing to translate and commercialize medical research inside of a start-up company. The event featured two sessions: a fireside chat with a prominent venture capital investor from Polaris and a distinguished panel of investors and entrepreneurs, including top researchers from MGH and BWH. Both panels discussed the challenges and best practices for forming successful start-up companies out of Partners hospitals.

The fireside chat featured Amir Nashat, PhD, venture partner at Polaris, which was moderated by Roger Kitterman, Vice-President of the Partners Innovation Fund. The discussion covered many topics related to start-ups and forming new companies, early-stage research investment, and the criteria that venture capitalists consider when making investments.

When asked how venture capitalists make decisions to invest in a start-up company, Amir answered, “People say yes for emotional reasons, and they say no for logical reasons. I tend to like an idea that sounds crazy when I first hear it…I get more curious about it, and that’s how you win me over.” He continued, saying, “The main thing you need to understand is what makes the person across the table from you tick, and what they like to see [in a VC deal].  If you don’t understand what the investor wants, you’ll have a difficult time connecting with them.”

Amir expanded on the significance he places on the person sitting in front of him versus the merits of the technology being presented. “Entrepreneurs pitching an investment need to be really passionate, and really care, about what they do. I think the articulation of why they’re doing what they’re doing is really important. There needs to be a real stubbornness around the end goal.” Things are going to change throughout the life of the company and the pathways that need to be taken. The purpose of why you’re doing what you’re doing has to come through clearly. “Everything else,” he said, “is second to that.”

 

First panel from left to right: Roger Kitterman and Amir Nashat, PhD.

The second panel focused on the perspectives of key investors and entrepreneurial researchers from MGH and BWH and included: Meredith Fisher, PhD (Partner, Partners Innovation Fund) as a moderator, Barbara Fox, PhD (CEO, Tilos Therapeutics) as an entrepreneur, Roger Kitterman, (VP, Partners Innovation Fund), Darshana Zaveri (Partner, Catalyst Health Ventures), Steven Greenberg, MD (BWH Neurologist), and Douglas Raines, MD (MGH Anesthesioloigst).

Panel two from left to right: Meredith Fisher, PhD, Barbara Fox, PhD, Roger Kitterman, Darshana Zaveri, Steven Greenberg, MD, and Doug Raines, MD.

When asked about the role of being a founder in a company, Dr. Greenberg replied, “I never really treated it in any other way than as another academic project. I put all my effort into trying to come up with the idea … the best possible scientific idea, and not worry so much about its commercialization.  I try to get every step right, scientifically, and hope that it will turn out for the best.”

Dr. Fox, who is CEO of Tilos, elaborated on the role of company founder versus chief executive. “The role of founder needs to shift over time. At the beginning it’s all your idea, there’s an enormous amount of ownership of the idea. But, you have to keep an open mind that there’s a universe of stuff out there that you don’t know, and if you don’t bring in people that know it, your company will not be successful.”

When pressed about the different types of venture capital available to researchers, Darshana Zaveri responded, “There was a time when institutional venture capital was the only source of capital available to entrepreneurs, but nowadays there are all these different pools of funds available.  There are Angels and Angel investor groups.  Sometimes family offices – wealthy families that fund investments run by a family member or a professional organization – will write checks.” She then discussed the role of micro-VCs being relevant for technology or healthcare IT, where the overall capital requirements of the company are lower in comparison to biopharma and drug development. “There are several venture capital funds that are small-sized funds, between $30 million – $50 million, that tend to write smaller checks to companies of between $2 million and $3 million.  But, there are many of those funds out there.”

When it comes to assembling a management team that investors are willing to back, Dr. Greenberg shared his experiences. “My strengths as an academic scientist were about identifying a [drug] target and how it may be used, but it was not in how to make and develop drugs.” Referring to his business partner with drug development experience, he elaborated. “I think early on we had very frank discussions about what we each wanted and expected.  We discussed these issues and came to an agreement right away.” That initial discussion allowed both of them to define roles and responsibilities for each of them, including how much they planned to invest in the science, rent lab space, incorporate the business – all on their own – and in anticipation of receiving venture capital funding, which they ultimately received.

It was a packed house at the MGH with great audience questions

 

Dr. Raines had a different experience to share. “It’s important to recognize that venture capitalists offer much more than money. They offer expertise, commercialization experience, networking, and ultimately, connections to an entrepreneur CEO who can take your company to the next level. I was still running a lab and doing clinical work when my wife told me I couldn’t quit my job [to run the company]. So I offered this entrepreneur equity in the company in exchange for taking on the role of CEO.” Once the team was in place, they incorporated the business, worked out licensing strategies, and started making pitches to additional venture capital investors. Ultimately, the new company received funding from a number of investors.

When asked about the challenges of taking research out of academia and into industry, Dr. Fox offered the following guidance. “You are really asking completely different questions – from the academic versus industry perspective. Most academic scientists are trying to understand how something can work.  You’re setting up experimental systems to demonstrate that a mechanism can be operative. In industry there’s two things that are fundamentally different.  One, just because it’s interesting and new doesn’t mean it addresses an unmet medical need.  And second, it’s estimated that 50% of research coming out of academia can’t be consistently replicated in an industry setting.” Continuing, she said, “You need to ask yourself that if it can work [in the laboratory], how well will it work when you move it to a company. There’s fundamentally a different set of questions that you need to address up-front to answer those questions.  Otherwise, it can cause big problems for you later on.”

 

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For more information about the Symposium Series, or to contact Partners HealthCare Innovation click here.