I’ll see your $40 million and raise you $5 million.
Even though total venture capital funding is down, a few startup biotechnology companies are raising staggering amounts of early money from traditional venture firms and corporate pharmaceutical funds. What sets these companies apart is their focus on science that has groundbreaking potential and the extensive experience of both their management and scientific teams.
In May, San Diego-based Effector Therapeutics announced $45 million in a Series A financing on the first day that it opened the doors, and its story contains many valuable lessons for entrepreneurs.
The story begins with the sale of Anadys Pharmaceuticals to pharmaceutical giant Roche in December 2011, and the desire of now-former Anadys CEO Steve Worland to do another startup. We understand this urge since Neil suffers from a similar affliction. You want the next company to solve bigger problems, and you want to avoid the mistakes that you made in the earlier one.
In an organized way, Worland set out to learn about the most exciting science being conducted at top research institutes, and simultaneously he met with 50 venture capitalists to learn what they were paying attention to. Most of the VCs said they preferred to fund individual products and not make a large investment to build an infrastructure company, yet Worland’s dream was to start a company with potentially transformative (and not yet proven) technology. We admire Worland’s methodical approach and his aspiration to solve a big problem.
Note: He talked to the money while he went looking for the science.
Within a few months, Worland focused on a group of UC San Francisco scientists who were working on the cell’s effector mechanism. Worland believed that their research could lead to the development of a new class of small molecule drugs that could selectively regulate protein synthesis, also known as translation, and could be used to treat cancer. He particularly liked that UCSF researcher Kevan Shokat was also the co-founder of two biotechnology companies — Cellular Genomics (sold to Gilead Sciences) and Intellikine (sold to Takeda Pharmaceuticals) — an indication of an entrepreneurial spirit and an understanding of industry’s needs.
“Shokat talked about inventing drugs in a way that is uncommon in academics, a way that usually requires 10 to 20 years of industry experience,” said Worland. Worland also got to know Shokat’s colleague Davide Ruggero, and through a series of discussions, the idea for the company evolved. We have also found that most good ideas are the product of several conversations — not a one-time flash insight.
Once Worland believed the technology could be the genesis of a company, he discussed the licensing issues with the UCSF Technology Transfer Office (the agreement was finished in a few weeks), and in parallel, he talked to potential investors.
Note: To all tech transfer offices — see above. “Done in a few weeks.”
“You keep refining the story as you meet new people. It’s an evolutionary process,” said Worland, who estimated that he made 50 investor pitches. “I had to learn how to explain the story to excite the venture capitalists. Later people said to me, ‘Why didn’t you explain it to me that way the first time around?’ ”
Note: 50 pitches is normal. The more you pitch, the better and tighter and cleaner the story becomes. The feedback and questions you get are essential in making your plan better.
Rule No. 251: Pitch to the least desired investors first. Practice in Boston before opening on Broadway.
Seventeen months after selling Anadys and 14 months after meeting Shokat and Ruggero, Effector Therapeutics closed a $45 million financing round from U.S. Venture Partners, Abingworth, Novartis Venture Funds, SR One, Astellas Venture Management, Osage University Partners and Mission Bay Capital. None are based in San Diego.
The funding is enough money to last four to five years through the first clinical study — a significant milestone.
Worland chose to locate Effector in San Diego because the region “has a lot of talent (and a dearth of local capital) so if you can bring money, you get the pick of the crop in contrast with the Bay Area and Boston where it’s more competitive.” Now his focus is on hiring the right people and creating an egalitarian culture in which “we’re going to rip apart every experiment and no one can have an ego,” in contrast to the hierarchical nature of academia.
Rule No. 254: Big (talented) team, big idea, big money and small egos. A vision for success.
Neil Senturia and Barbara Bry, serial entrepreneurs who invest in early-stage technology companies, take turns in writing this weekly column about entrepreneurship in San Diego. Please email ideas to Barbara at email@example.com