by Dr. Christopher Haggarty-Weir, Ph.D, MBA, MRSB, MRSC
During the final year of my PhD, I worked part-time in venture capital, which is an industry focused on funding startups. Some firms specialize in a couple of areas whilst others go for anything that can make prospective profit. I worked at a more specialized firm that focused on greentech and biotech.
On top of a prior internship I did in technology transfer/business development with Edinburgh Innovations (where I focused on university-based medical and biotech innovations) during my experience in VC I got to learn more about the types and styles of startups. To note, I differentiate a startup from a spin-out, with the latter being a startup that emerged from a university and remains associated with said university. This article aims at briefly looking into the different types of startups one finds in the biotech industry.
My experience working in venture capital and tech transfer with different types of investors and stakeholders has highlighted that different people have different ideas about what constitutes a startup exactly. For example, my investors from China would expect a startup to have a product, sales, and a team, whereas more generally, here in Europe (and other parts of the world) none of these are required.
For example, the senior postdoc in the lab where I did my PhD has a startup that didn’t until recently have a defined product; this can be the norm in biotech. Personally, I would disagree with the definition of the Chinese investors, though would be happy to call that a mid- to late-stage startup.
I would roughly use the following definitions:
Early-stage biotech startup:
- No customers, employees, or actual product needed; however, there must be legitimate ideas for a tangible product or products based on a well-defined ‘pre-product’ and its associated IP.
- Here the pre-product could be a well-studied and understood biomacromolecule of clinical relevance and the IP can include (but not limited to) industrial secrets, patents, and expertise of key team members.
- Importantly, one must be able to at least theoretically bridge the pre-product with a product and its associated market.
- Further, an early stage startup is likely to have been in some form of existence for within ~3 years and has developed from a combination of government grants, funds from winning competitions (i.e. pitching comps), crowdfunding, potentially angel investors, and possibly small venture capital funding (if very lucky; this is quite rare and the investment is usually going to be around $500 000).
- Some may also call this the ‘seed’ stage, which occurs before the early stage technically, and I would put the demarcation at whether you have significant funding yet or not.
- Finally, it is quite normal for this stage to be cash-flow negative.
Mid-stage biotech startup:
- This is the growth phase of the company, where a well-defined market/s has been identified and the company has moved past an initial prototype for the product.
- This is the stage where there will be employees (often on short-term contracts based on what you can afford), but not necessarily end-user customers (i.e. a patient).
- Here the customer focus is on larger, more well-established companies you would be looking to either partner with, sell your IP to, or license your product to.
- Funding at this point will usually be from angel investors, venture capitalists (with the funds here increasing into the millions of dollars), and sometimes industry funding.
- The cash flow at this point would ideally be positive or neutral, though it may still be negative depending on the additional R&D expenditures required or investment in materials, etc.
- This is the point of a company where equity will be given serious consideration.
Late-stage biotech startup:
- A level of viability can be attributed to the company, and cash flows should be positive (though there can be rare exceptions to this).
- The product should now achieve a level of market penetration, and may indeed see end user sales occurring.
- This is the stage of a startup where consideration to IPOs and other investment instruments are imperative.
- Funding here may come from the sales of the product in addition to venture capital funding or leverage of IP (i.e. licensing contracts).
- In order to increase liquidity (for investor attractiveness), a company may stay at this stage for some time in order to strengthen their position (i.e. pay down certain debts, or expand a product range or the level of market penetration of the original product).
These are how I would roughly define the stages of biotech startups, but they can be relatively different depending on the type of product. For example, a potential drug for human use will have a lot more regulatory and investment requirements than say, a veterinary diagnostic. There may be significantly varied types of IP involved, and there will be a lot of grey overlapping areas between each stage. This, to me, merely reflects the exciting, dynamic, and highly risky (but highly rewarding…potentially) field that is biotechnology.
Dr. Christopher Haggarty-Weir was the founder of Haggarty-Weir Consulting and is currently a biotechnology and healthcare consultant with ttopstart, part of the PNO Group. He completed his Bachelor’s in Biomedical Science from the University of the Sunshine Coast (Australia) where he obtained minors in chemistry and medical microbiology, then did his Master’s in Molecular Biology at the University of Queensland, carrying out biochemistry and bioinformatics research in the lab of Prof. Glenn King at the Institute for Molecular Bioscience.
Dr. Haggarty-Weir then took part in a unique joint Doctoral program in Molecular Parasitology and Biophysical Chemistry at the Universities of Melbourne (Faculty of Medicine and the Walter and Eliza Hall Institute), and Edinburgh (School of Chemistry). His research was focused on malaria vaccine development with Prof. Alan Cowman, FRS, AC. During this time he also studied a mini-MBA program in Melbourne (focused on research commercialization), had a scholarship to attend the business and enterprise skills course in Dundee, and studied marketing and entrepreneurship at MIT. His has been elected a Member of both the Royal Societies of Biology and Chemistry, and in early 2020 he completed his MBA in management and finance from the University of the People in conjunction with New York University (with a final project focused on Boehringer Ingelheim’s asset swap with Sanofi).