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today, it came within two months of failureas it struggled to become fully operational.Charlie spearheaded financing efforts threetimes, totally recapitalizing it twice follow-ing its initial financing. The last financingprovided the company with only twomonths of operating cash, but those twomonths of cash permitted the company toattain profitability and prove that FredSmith’s dream was based on sound operat-ing concepts.

Later on, I had the chance to emulate mymentor in dealing with a private companynamed Immunetech Pharmaceuticals. Wealready had invested an amount that was wellover our comfort level while we waited forthe Food and Drug Administration(Rockville, MD) to approve an allergy thera-peutic for which a new drug application hadbeen submitted three years earlier. When thecompany’s management identified a smallrespiratory-focused marketing company thatit wanted to acquire, we gulped hard, andagreed to put up the additional financingnecessary to effect that acquisition. Theresulting company evolved into what is nowDura Pharmaceuticals (San Diego, CA),which has produced better than 50-foldreturns to our investors.

Both stories illustrate that venture financ-ing is a long-term business. There can be noexpectation of instant gratification for eitherthe founders or investors. Therefore, pickyour partners well, as both groups need to bewilling to hang in there.

Communicate often and openlyAll of our best investments have been charac-terized by outstanding communication at allorganizational levels. While other factorsmay doom an ill-fated venture, an otherwise

Having had the good fortune of beingamong the pioneering venture capitalinvestors in the biotechnology industry, themost striking thing to me about biotech star-tups—at least of the 75 or so I’ve helpedlaunch—is that all of them have had to mod-ify their original business plans in order tosurvive. Because of ever changing technical,regulatory, and financing environments,bioentrepreneurs must necessarily be moreadaptive than most of the rest of the world.Obviously, this process of modifying a busi-ness so that it fits its environment can pro-duce a high degree of stress between the sci-entific founders and their financial backers ifnot managed well. Many times the differencebetween abysmal failure and phenomenalsuccess can be traced to precisely this abili-ty—or inability—to adapt.

For this reason, any bioentrepreneurshopping for a financial partner—venturecapital or otherwise—should carefully exam-ine five key issues before agreeing to enterinto such a marriage. These can be summa-rized as the five “C’s”: commitment, commu-nication, criticism, conjecture, and competi-tion. Understanding both your own and yourfinancial partner’s capacity to deal with eachof these elements will establish the basis forsuccessfully growing your business.

Long-term commitmentThere is no single element that fractures therelationship between founder and ventureinvestor faster than the sense that the investoris only there for the quick reward.Commitment to staying the course is perhapsthe most important contribution your VCcan provide.

I was first taught this lesson by my NewCourt Securities (New York) mentor,Charlie Lea. New Court was an original ven-ture capital backer of Federal Express(Memphis, TN), the company founded onthe vision of Fred Smith. Despite the factthat this company is a tremendous success

good company will suffer significantly with-out free flowing communications.

Amgen’s (Thousand Oaks, CA) founder,George Rathmann, had a knack for promot-ing communication between groups thatordinarily did not talk. In the early days atAmgen, George would have his scientists dis-play posters at their lab benches so they couldbe prepared to deliver ad hoc presentationson their activities to the business types whowandered through the labs. This turned outto be a highly effective method for bondingscientists and business people together overthe company’s technical direction. As a result,George developed a reputation among scien-tists as a businessman, and among business-people as a scientist.

This same principle can be applied verti-cally within companies with great success.We’ve found that often the best way to findout where the creativity exists within a tal-ented organization is to present the problemto as many people as possible, and then seewhat emerges. Not uncommonly, the prob-lem may be solved by a person or group thatnormally wouldn’t have been asked thequestion.

This is especially true when news isn’tvery good. It has been our experience that thepeople who work for biotechnology compa-nies are highly intelligent to begin with, anddon’t need a lot of spin control on the infor-mation that flows their way. They like toknow everything that’s going on and developa much greater commitment to a companythat is straightforward in delivering informa-tion about its ups and downs.

This same philosophy holds true for thecommunication between a company’s offi-cers and its investors—venture or public, asthe case may be. There is no faster way to losethe confidence of one’s investors than toattempt to trivialize problems.

Open communication can be one of thegreatest assets a partnership can have.Whether it is between management andinvestors or management and employees, itcreates a culture of trust and support that willcarry you through the crises you willundoubtedly experience. Communication isone of the few things that is habit formingand is not dangerous to your health.

Five “C’s” of successful startupsMaintaining the balance of commitment, communication, criticism, conjecture, and competition is the basis for bioentrepreneurial success.

James C. Blair

James C. Blair is a general partner at theventure capital firm of Domain Associates,One Palmer Square, Princeton NJ 08542(blair@domainvc.com).

Because of changingtechnical, regulatory, andfinancing environments,bioentrepreneurs must be more adaptive than the rest of the world.

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Critique your strengths andweaknessesMost scientific groups do a reasonably goodjob of explaining the benefits of their particu-lar approach. But very few of these groupshave thought out alternative methods ofapplying their strengths, or to put it anotherway, the implications of their weaknesses.Bioentrepreneurs should embrace prospectiveinvestors who spend a fair amount of timeprobing and defining the weakness in a specif-ic technical approach. Often, these early exam-inations are the key to long-term success.

This was the case when my firm was doingits initial evaluation of a startup investmentin Trimeris (Research Triangle Park, NC)—acompany built around Dani Bolognesi’sresearch on HIV at Duke Medical School(Durham, NC). At the outset, there seemedno compelling reason to start what had to bethe fiftieth AIDS company. It wasn’t until wewere much further into the discussions thatDani was able to emphasize the broad applic-ability of this approach to the development ofother antivirals. Trimeris now has whatappears to us to be a highly promising AIDSdrug in the clinic, as well as an exciting plat-form for further drug discovery: A potentialweakness was turned into a strength.

Another weakness of most biotech star-tups is their belief that their scientific capa-bilities are somehow vastly superior to thoseof the rest of the world. I’ve always believedthat this “Not Invented Here” mentality hasno place in a commercially focused scientificorganization. The best rebuttals to thisnotion were demonstrated by Amgen’s earlydecisions to collaborate with University ofCincinnati scientists on the EPO gene, andlater with Memorial Sloan Kettering scien-tists on G-CSF. Contrary to some opinionsthat these collaborations reflected weak sci-ence at Amgen, these decisions were directlyresponsible for Amgen’s market leadershipposition today. Fortune is the result of themarriage of preparedness and opportunity.In Amgen’s case, fortune evolved directlyfrom a group of self-confident scientists whowere prepared to accurately appraise theirstrengths and needs.

Work with people who will challenge yourthinking and question your assumptions.Attaining scientific leadership in a specificarea is one thing; sustaining industry-wideleadership in a therapeutic area requires totalintellectual honesty.

Eliminate conjecture: Perform the“killer” experiments earlyThere are many lessons I have learned thehard way in my years as a venture capitalinvestor, and most of them I only needed tolearn once. The one that seems to resurfacemost often concerns early validation of criti-cal scientific assumptions. The reason for this

is clear. When the bioentrepreneur leaves hisor her job at an academic or clinical institu-tion to start a new venture, the last thing theywant to do is determine that the scientifichurdles before them in commercializing theirtechnology are insurmountable. So after theyare funded, too much time is spent hiringfull-time staff, building new lab space, andputting in place other elements of infrastruc-ture before the critical “killer” experimentsare done.

Establishing a “virtual company”designed to attack these gut questions earlyon is one way around this. Since all of theearly money is spent on answering the toughquestions rather than building infrastruc-ture, nobody gets more than a nicked ego ifthe key answers don’t come out the wayeveryone hoped. Most venture firms active inlife science investing now have excellent incu-bation facilities for nonlaboratory work, andmost universities and clinical research centers

are happy to establish cooperative researcharrangements. Though it may sound self-serving, we believe that if a technology does-n’t work, it’s better for everyone to find thisout at a cost of $2 million rather than at a costof $20 million.

Sometimes, however, dealing with the“killer” question may not be a scientific issue.For example, it could also be the ability tolicense a key patent or to secure a volumemanufacturing source of starting materials.In these cases too, the money should be spentto answer the questions before building theinfrastructure.

The best policy is always to ask the tough-est questions you can about what you aredoing, and then embrace a process which willget you the answers.

Respect your competitorsContrary to most bioentrepreneurs’ gut reac-tions, it is a good thing for your companywhen your competitors are doing well—unless, of course, their success comes at yourexpense. If the world thinks your competitorsare on the wrong track, they sure can’t thinkmuch of what you are doing! If your competi-

tor has done something well, learn from it.Perhaps one of the best (or worst) examplesof this occurred when the two champions ofantisense technology—Genta (San Diego,CA) and Isis (Carlsbad, CA)—simultaneous-ly went on the road to effect their initial pub-lic offerings. Each company was less thancomplimentary when asked questions aboutthe other’s technology. This left prospectiveinvestors confused about the real value of thetechnology and each company’s respectiveposition in the field.

It is equally important to emphasize thepitfalls of being a follower. In the early days ofthe life science industry, the conventionalwisdom was that those companies concen-trating on agricultural products, diagnostics,or industrial chemicals had the best chancesfor success because regulatory battles forproduct approval would be less severe inthose areas. A major consulting study fromArthur D. Little confirmed this wisdom.

Most of the recombinant companieswhich had been formed had a fishing licensefor all of these ponds, and conversations at anumber of board of directors meetings Iattended centered on where the fish seemedto be biting. The measure of success seemedto be who was getting which corporate nib-bles in which areas. When companies such asAmgen, Centocor (Malvern, PA), andGenetics Institute (Cambridge, MA) startedto narrow their focus and concentrate onhuman therapeutics, this was perceived asrisky, because it was counter to the acceptedview. In retrospect, you would be hardpressed to remember many of the leadingcompanies of that period who chose not tofocus on therapeutics, despite their clear suc-cesses at the time. Genex developed what isnow Searle’s leading sweetener product, butfailed as a company. Cetus was the earlychampion of industrial chemicals, but waslater merged with Chiron (Emeryville, CA)to develop treatments for cancer andimmune system disorders.

The real lesson to be learned here is thatmost scientifically strong companies will findtheir competitive niche if they can bothrespect the achievements of their competi-tors, and yet not attempt to follow them.

ConclusionsBioentrepreneurs today have the greatadvantage of being able to follow a trailblazed during the past quarter century. To besure, this is a path fraught with stress.However, it is possible to convert that stressinto a positive source of energy within adeveloping biotechnology business if one isever vigilant in maintaining the five “C’s” asthe platform from which to adapt. Using thisplatform to choose a venture firm is the firststep to building a partnership that will lastand succeed. ///

Contrary to mostbioentrepreneurs’ gutreactions, it is a good thing for your companywhen your competitors are doing well—unless, of course, their successcomes at your expense.

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