Some thoughts on bioentrepreneurship

What is a bioentrepreneur? Most of us haveformed impressions based on people wehave met. For myself, I remember the firsttime I met a self-acknowledged entrepre-neur about twenty years ago in a tennisleague in Cleveland. In that league, only twoof my opponents consistently cheated at thegame. Since I was in the habit of asking myopponents what they did for a living, I dis-covered that one was a medical student andthe other claimed to be an entrepreneur.When I asked the entrepreneur specificallywhat he was doing at the moment, heclaimed he was “resting” between ventures. Isuspect he was actually associated with theMafia.

Since that time, I have been an entrepre-neur, and met many others. Perhaps theoverriding quality that these people share isthat they are conviced that they are de factogoing to succeed. I have had friends whohave given up high-paying jobs in large, sta-ble companies to make a fortune on theirown. Sadly, most of these people have soldtheir homes, raided their childrens’ collegefunds, and broken into piggy banks in afruitless effort to achieve their dream, whichmost of their friends said from the begin-ning was impossible. I know a venture capi-talist who sums this quality up by sayingthat most entrepreneurs are crooks, or crazy.Certainly, an irrational belief in one’s abilityto achieve a dream is common.

But if you are set on that dream, there isreally very little that can cure you of it otherthan real life experience of living it. My ownexperiences in marketing inventions, raisingmoney, and managing a company, as well asmy check list for what it takes to be an idealbioentrepreneur, should help you get a senseof whether you are cut out for this line ofwork.

Marketing your inventionIn the early 1980s, founders of biotechnolo-gy companies generally came from academ-ic backgrounds, since they were the onlyones who understood what biotechnology

was. They worked for low salaries, raisedmoney where they could, and had majorequity chunks of their foundling compa-nies.

These entrepreneurs were easy pickingsfor financial types. I well remember my firstbiotechnology business conference in 1980. Iwas sitting at a lunch table with a youngassistant professor, and sitting next to himwas a “finder” who claimed to have access tolarge sums of cash. The finder said to theyoung academic, “I’ll give you $2–3 millionto start any company based on your academ-ic work or ideas, as long as the word “gene”or “bio” appears in the title.”

While these kinds of come-ons were usedto lure the gullible, the real game plan in theearly years was for financiers to put as littlecapital into a biotechnology company aspossible, take the company public as soon aspossible, and cash out when the lock-upcame off. In those days it was not unusual tomake five to ten times one’s invested capitalin a three-year period. In my own case, theinitial investors in University Genetics(UGEN) put up $60,000 and got back$3,600,000 in exactly five years. This sort offinancial return has only been obtained inrecent years on Internet “deals.” Not surpris-ingly, many of these early, under-financedbiotechnology companies did not survive. In1983, fewer than 30% of biotechnology ini-tial public offerings were backed by venturecapital, whereas by 1992, the percentage hadrisen to over 90%. And it is mainly the ven-ture capital–backed companies that havesurvived.

During the past quarter-century acade-mia has realized its value as the source ofinnovation. It can now go head-to-headwith any financial situation you can throwat it. For example, in contrast to the early

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1980s, when professors left academia tolead biotechnology companies, they nowoften stay in their academic positions andout-license their innovations. There is vir-tually no risk to them in this process. Interms of money, I have seen several cases inwhich said professor demanded 20% ormore of the new company undilutedthrough all rounds of financing for hisinvention, although I have not yet seen aninvention funded under these circum-stances.

What’s more, many of these academicshave become equal to the best “finders” ofthe early 1980s. A few years ago, a professorapproached me with an idea for a new tech-nology that was extremely speculative. Iasked him what would happen to the com-pany if the technology failed. He replied“Oh, then we will take it public.”

Raising moneyRaising money is, of course, the big test ofthe innovator, the entrepreneur, and theprofessional manager of biotechnologycompanies. In my own case, I chose to swapa chunk of equity for the more secure situa-tion of a well-financed company. After leav-ing a tenured academic position for a start-up company financed by a $26 million R&Dfinancing led by Allen and Company, myfirst day on the job was greeted with thenews that the market had gone south andthe financing had collapsed. Welcome to theworld of business!

Like so many entrepreneurs who dowhatever is necessary to get a company offthe ground, I raced around to every wealthyindividual I could find (with my friend andmentor, Bill Miles) to raise startup money.We probably did over 200 “one-on-ones” inthree months to get going. Those who havehad no experience with meeting payrollwith less than a month’s cash on hand prob-ably don’t qualify as entrepreneurs. One ofmy happiest days was when we got UGENpublic, and I could stop feeding my familyon dog food.

Of course, it is only after you have gonepublic that you realize that, despite all yourhard work, the public does not have a clueabout what your company does. SteliosPapadopoulos of Paine Webber (New York)

BIOENTREPRENEURSHIP

Some thoughts onbioentrepreneurshipPoints to consider before quitting your day job.

Alan Walton

Alan Walton is a general partner at Oxford Ventures, 315 Post Road West,Westport, CT 06880 (awalton@oxbio.com).

The overriding quality that all entrepreneurs seem to share is that they are convinced that they are de facto going to succeed.

© 1999 Nature America Inc. • http://biotech.nature.com©

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8 NATURE BIOTECHNOLOGY VOLUME 16 SUPPLEMENT 1998

BIOENTREPRENEURSHIP

has often likened the public investment inbiotechnology to buying a lottery ticket. Forexample, I used to regularly go on tours toexplain to our stockholders what UniversityGenetics did. Despite my efforts, four yearsinto running the company, my chief techni-cal officer came into my office to announcethat one of our shareholders was on thephone. It turned out to be a little old ladywhose cat had just died. As a shareholder,she knew that we did animal breeding,embryo splitting, plant cloning, etc., and inthe sweetest voice asked if we would pleaseclone her dead cat for her, as she had beenkeeping it in the freezer.

Managing your companyWhen I first joined the venture capital com-munity, I was told by my partners that theyalways backed “management, management,management.” This is, I believe, still VCdogma. One of the hallmarks of this strate-gy is that venture capitalists bring in “man-agers” at an early stage of a company’s exis-tence. As a rule, these managers are recruit-ed for their brand name recognition, as theyare generally from big pharmaceutical com-panies. To lure them away from the phar-maceutical industry, venture capitalistsgenerally give them astronomical salaries,plush benefit packages, and do not requirethat they put their own money into thecompany.

From my experience, the irony of thisstrategy is that these “grand” managers gen-erally spend the first 12–18 months figuringout what exactly the company’s proprietarytechnology is useful for. What’s more, theVenture Capital Journal states that the aver-age high-technology company has 3.5 CEOsfrom startup to initial public offering. Onewonders, therefore, whether the key para-meter in venture capital success is in choos-ing the right CEO or whether it is the abilityto fire the CEO when things go wrong.

In actual fact, there are two separate skillsets required for a successful biotechnologycompany both of which are grouped underthe heading of “management.” The first isfinding an entrepreneur who can initiate asuccessful company. The second is finding amanager who can run a successful youngcompany. In my view, there are no morethan a half-dozen good bioentrepreneurs inthe United States and a dozen “star” man-agers of young companies. Because of thisshortage of startup bioentrepreneurs, therehas been a growing trend for VCs to be “act-ing CEOs” of startup companies. Althoughthis is not an easy job for most VCs, thereare advantages from the VC perspective.First, they get to choose and design thetechnology platform and strategy for thecompany. Second, there is much morefinancial leverage (you do not have to pay

$3-5 million for an idea). Finally, the VCfinancial backer is not faced with the awk-ward job of explaining to the foundingentrepreneur that he/she is “no longerneeded”.

The ideal bioentrepreneurIf you are still reading this, it is likely youhave been bitten by the bioentrepreneurialbug. From my experience, I have puttogether the six dominant features that Iconsider necessary for all successful bioen-trepreneurs as a final checklist againstwhich to measure yourself.1. You are a charismatic individual who artic-ulate plans well.Without charisma, it is unlikely that theentrepreneur can attract attention andfinancing. Articulating the plan of the com-pany is key, and eventually the individualmay have to stand in front of the Wall Streetcrowd. Caveat: Too much charisma can be adangerous thing!

2. You are a skillful manager.We all know of the brilliant entrepreneur/investor who builds a mediocre teambecause no-one will challenge him or her or,conversely, a brilliant team of unmanage-able people. Obviously, “people interactive”skills rank high. We have turned downinvesting in many companies because theego of the founder was overwhelming.3. You possess technical knowledge of the area.This is one of my favorite parameters.Whereas it is relatively easy to change man-agement in the company, it is not generallyeasy to change the technology base. Thus,these days the best managers generally have agood technical background and a grasp ofthe company’s technology. Having said that,there have been some very clever changes instrategy, generally involving older compa-nies that have discovered that their shareprice increases if they include “genomics” inthe title or description, or if they drop “anti-sense” or “monoclonal” from their majorthrust.4. You are energetic to the point of being “driven.”I think we all admire the “can do” personwho works 100 hours per week, jogs five

miles at lunch, and whose energy andenthusiasm are pervasive. These are clearlydesirable traits in entrepreneurs and man-agers. Sometimes, such individuals are putunder incredible pressure by investors or, atleast, imagine such pressure. And under theguise of such pressures we have seen pecu-liar things happen, including “adjustmentof scientific data” and the selling of productto empty warehouses. More than one entre-preneur/manager has ended up at a mini-mum security facility for trying too hard. 5. You possess the ability to lead.It is very difficult to define leadership skills,and we all know of different styles. Perhapsone definition of entrepreneur, that ofimpresario, is appropriate in this sense.There are, of course, many styles, rangingfrom autocratic to consensual to passive. Inpersonal interviews it is not easy to pick upleadership qualities. Of the many potentialCEOs I have interviewed, my worst mis-takes were with people with a consultingbackground: They were often impressiveduring interviews, mainly because they toldme what I wanted to hear, but they werelousy at operations.6. You have an appropriate track record.Previous success does not automaticallylead to future success, but at least it is a use-ful parameter—particularly if one hasworked with the individual before. Onething to note is that a good track record inone sector does not necessarily translateinto success in another. One of the biggestfactors concerning track record is that thesuccessful individual rarely has difficultyattracting capital.

ConclusionsSo how does one find all these marvelousfeatures in one individual? It is nearlyimpossible. Search committees often lookthrough hundreds of names and conductmany interviews, often with growing frus-tration, and eventually settle on an individ-ual who is suboptimal in order to save time.Some people have had good luck with cer-tain executive search firms—“headhunters”; I have not. Having commissionedabout 20 searches, only one worked outreally well (but took six months). In fact, inall of my best portfolio companies, theCEOs were recruited through personal con-tacts and the venture capital community.

The good news for budding entrepre-neurs is that the shortage of good CEOs foryoung biotechnology companies is leadingto higher and higher salaries and benefits.From a venture capitalist’s point of view, thisremains one of the most vexing problems ingrowing young companies. So if you havewhat it takes, by all means, live your dream.But please, don’t cheat at tennis inCleveland. ///

One wonders whether the key parameter inventure capital success is in choosing the right CEO or whether it is theability to fire the CEO when things go wrong.

© 1999 Nature America Inc. • http://biotech.nature.com©

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