A Primer on Early-Stage Biotech VC

By Aimee Raleigh, Principal at Atlas Enterprise, as a part of the From The Trenches function of LifeSciVC

From the skin, one may assume all biotech enterprise capital (VC) corporations are extra comparable than completely different. Nonetheless, when you look beneath the hood the myriad traits distinctive to every agency develop into extra obvious, even for corporations which will co-invest in the identical corporations every now and then. Whereas not by intent, the trade can appear opaque purely as a result of there are comparatively few buyers and little or no is publicized concerning the inside workings of enterprise. Specializing in the U.S. VC panorama, there are ~90 biotech VC corporations with property beneath administration (AUM) ≥ $1B (by way of Pitchbook) – on the finish of the day that’s not a really massive quantity, in all probability translating to the excessive tons of to low 1000’s of particular person biotech buyers (in comparison with, for instance, the tens of 1000’s of life sciences consultants within the U.S.). By this publish I hope to shed extra gentle on the trade, and particularly early-stage biotech VC since that’s my particular person bias. Under are some issues I feel useful for anybody new to the biotech VC world, together with potential investor candidates or firm founders.

There are completely different flavors of biotech VC. Biotech, life sciences, and healthcare VC are sometimes used interchangeably, however there’s a modestly sized “universe” of VC corporations which will fall inside this umbrella.

• • The primary axis on which to phase corporations is focus – usually break up into therapeutics, medical units, healthcare providers, and IT. Some corporations can be true generalists protecting many, if not all, of those classes, and others can be fairly slender in focus. Atlas Enterprise is amongst a sizeable cohort of buyers that focus completely on therapeutics investing – given my bias the rest of this dialogue will take a therapeutics investing-focused lens.
  • The second axis of differentiation is firm stage at which a VC usually invests. “Early stage” typically encompasses Seed- or Collection A-stage offers. Buyers targeted on early-stage corporations will doubtless proceed to fund corporations by means of later rounds (Collection B and past), however might not usually spend money on new alternatives past the Collection A. Later-stage corporations usually concentrate on offers which can be Collection B and past (together with what is taken into account “crossover” investing to bridge to an IPO), although relying on macro situations may also come into historically “early” Collection A offers. Stage-agnostic buyers will make investments throughout the spectrum. So why does understanding the standard stage at which a agency invests matter? Typically stage is intricately linked with valuation, maturity of the corporate and / or program(s), and time to worth inflection (and thus potential “exit” to the general public markets or to acquisition by a Pharma). Early-stage buyers are usually extra prone to play some position in firm formation or firm constructing, given they could be a number of the first cash in and will help to play a key position in informing an organization’s technique. Later-stage buyers should take an lively position, however are usually investing when extra of the group and technique has been (at the least initially) constructed out and the thesis has been partially de-risked.
  • One other axis is enterprise mannequin. Is the corporate platform- or asset-centric, or a mixture of each? Finally each profitable remedy that makes it to sufferers is a person asset, so sooner or later even platform corporations can shift to an asset focus. Some buyers are strict within the forms of corporations they spend money on (e.g., solely specializing in single-asset theses or requiring a platform to de-risk the potential that anybody asset fails). Understanding any investor preferences early-on is essential to understanding your match, both as a portfolio firm if you’re a founder or as a group member if you’re a potential candidate.
  • Fund dimension, decision-making construction and any therapeutic space– or modality-centric funding preferences are additionally necessary to know, although these could be tougher to glean throughout preliminary diligence of a agency.
  • And at last, location is to not be ignored, particularly within the context of the above. A stage-agnostic VC who could also be extra hands-off is probably going comfy with investments throughout a spread of geographies, whereas firm constructing corporations might desire to construct regionally.

Fast abstract: If you’re a possible candidate fascinated by a task in VC or an organization founder making an attempt to determine how finest to pitch to VCs, I strongly suggest beginning with a refined checklist of these corporations most related to your background, curiosity, firm, thesis, and so forth. Begin with an Excel of all of the biotech VCs you possibly can identify, and filter by focus space, stage, enterprise mannequin, and placement. A few of this data can be available on agency web sites, or else could be intuited by taking a look at lively portfolios. It’s not anticipated that you’d be capable of determine every thing, however a fast search ought to provide you with a good suggestion whether or not you (or your organization) could be a very good match. And in a primary name with an investor, don’t be shy about asking for specifics! Every agency is exclusive in its construction and tradition, which interprets to variations in funding selections and portfolio development.

Who’re the buyers that make up these VC corporations? Biotech enterprise capitalists can come from quite a lot of backgrounds, although a number of classes are most typical. For example the varied backgrounds and relative frequency, ~150 buyers throughout 15 corporations have been sampled as a consultant lower of biotech VC spanning early to later-stage corporations ( 1). Some notable findings from this evaluation are as follows:

• • Many VCs, even when they begin on the Affiliate stage, have some stage of labor expertise post-schooling. On the Affiliate stage, consulting is likely one of the extra prevalent backgrounds, with ~30% of Associates having hung out in consulting. Working expertise (whether or not in Pharma or Biotech) additionally accounts for a considerable share, 10-15% for every. ~15% of Associates might are available in with prior enterprise expertise, and a smaller ~10% might have monetary backgrounds exterior enterprise (e.g., Personal Fairness, Funding Banking). For barely extra senior roles (VP and Principal), naturally extra of those roles are crammed by candidates who’ve already hung out in VC as Associates at different corporations (~20%), or else they’ve been promoted by means of the ranks at their very own corporations. Working expertise can also be way more widespread for VPs / Principals (by ~2x), as is different monetary roles. On the accomplice stage, expertise at different VC corporations is kind of widespread (~40% of the pattern), as is working expertise both in Pharma (~30%) or Biotech (~45%), whereas shares of Companions with both consulting or different monetary backgrounds are comparable (~30%).
  • From an instructional coaching perspective, many biotech funding group professionals have some sort of superior diploma, although not at all is it a pre-requisite. PhD is the most typical educational background (50-75% of sampling, throughout seniority) adopted by MD and MBA (every 10-35%).
  • VC is usually a lifetime profession, and thus unsurprisingly tenures for buyers at particular person funds could be fairly lengthy. Within the aforementioned dataset, the typical tenure of an investor at their present agency was >2 years for Associates / Sr. Associates, ~5 years for VPs / Principals, and almost 10 years for Companions.

Fast abstract: There are a number of entry factors into VC – on the Analyst / Affiliate / Sr. Affiliate stage (commonest), on the VP / Principal stage, or on the Accomplice stage. Throughout every, varied units of expertise and background are widespread.

What does a “day within the life” seem like? It’s an incredible query that’s incessantly requested, however the unsatisfying reply is that even for a person investor at a targeted agency, two days hardly ever resemble one another. VC is a dynamic and far-ranging ecosystem and thus the subjects and forms of actions vary extensively. What’s common is the 24/7 nature of VC – excellent news and dangerous information alike don’t persist with a Mon-Fri schedule, and thus a lot of investing is analyzing data on the fly when partial datasets can be found and coming to suggestions or selections shortly. VC can come throughout as a glamorous life-style of networking, however whereas making connections is definitely one side of the position, it’s dwarfed by a lot of the laborious work that goes into the day-to-day actions.

Extra “typical” actions could be damaged into 3 classes (1) lively diligence for brand spanking new offers within the pipeline, (2) firm constructing (if relevant – see above on early-stage VC nuances), and (3) portfolio & fund administration.

1. Diligence: Throughout corporations and no matter stage, diligence will typically be a key focus for buyers. An investor is launched to a brand new firm or perhaps a idea (if an organization has not but been fashioned) and, typically in collaboration with different group members, advisors, KOLs, and so forth. should make a decision on whether or not or to not spend money on the corporate or thought. I wrote a separate piece on exemplary diligence subjects (right here), which outlines a number of the subjects one may concentrate on in an preliminary diligence.
2. Firm Constructing: Concepts for brand spanking new corporations can come from entrepreneurs, academia, or emerge from in-house ideation on a brand new know-how or product thesis. Whatever the supply for the newco, oftentimes early-stage VC outlets play a task in turning an thought right into a product and firm. Whereas completely different corporations have completely different kinds, newco creation typically includes the “customary” diligence on science or asset(s), but in addition encompasses group constructing, drug discovery funnel institution (incl. assay set-up or improvement), asset in-licensing, scientific trial design, partnering (with CRO/CDMOs, different biotech, TTOs, and so forth.), strategic components (e.g., pipeline or indication prioritization), budgeting, institution of a near- and long-term plan to attain key milestones, and pitching to different buyers. Not each VC agency will pursue firm creation, however for those who do it’s a nice alternative for buyers to roll up their sleeves and serve in interim or part-time working roles to assist new corporations obtain the following inflection.
3. Portfolio & Fund Administration: Lively portfolio firm administration is a big a part of the position, particularly for extra senior buyers. Oftentimes an investor position comes with some sort of illustration on a Board of Administrators, whether or not as a Director or Observer, and the chance to share views with firm administration. A VC agency may even carefully monitor its portfolio in order that its buyers (LPs, or Restricted Companions) keep updated on portfolio developments. Fundraising is a key exercise (particularly for Companions) and robust relationships with LPs are important for any sustainable VC agency.

Fast abstract: Whereas no two days are the identical, the power to independently and collaboratively diligence a brand new firm or thought is essential to the VC skillset. Relying on the kind of agency, firm constructing and portfolio & fund administration might also type a big a part of a person investor’s mandate.

How does one break into VC? Many extra candidates wish to break into VC than there are roles out there, so it’s necessary to contemplate the quantity of potential openings and logistic components like location when assessing the chances of touchdown a suggestion. That is all extremely illustrative, however when you assume the ~90 or so U.S. VCs with AUM >$1B (a very good proxy for a fairly sustainable agency that may doubtless rent sooner or later), you may estimate that roles usually open (1) when somebody on the agency leaves or (2) when the agency raises a brand new fund and / or will increase the variety of buyers on the group. Assuming (once more, very “directionally,”) a brand new fund is raised each 2-5 years and there may be some pure turnover particularly within the extra junior roles, one may estimate that 30-70 Affiliate (or comparable) roles develop into out there yearly for biotech VC corporations. Many of those roles can be targeted in “hubs” (Boston, SF / Bay Space, and more and more NY) and could be fairly aggressive. Under are sources and ideas for these contemplating a task in VC.

• • To seek out out about new roles, it’s necessary to remain on prime of any publicized job postings in addition to construct your community in order that you’ll hear by means of the grapevine when a agency is recruiting. Typically corporations will publish on their web site or LinkedIn for brand spanking new roles, however extra typically they depend on word-of-mouth suggestions and / or a recruiting agency to assist supply expertise. If you’re trying to keep on prime of potential job openings, I like to recommend following prioritized corporations on social media in addition to constructing your community by means of occasions, informational interviews, and so forth. to remain on prime of openings as they arrive up.
  • Given the above numbers, you’ll doubtless wish to ensure you are comfy in your present place to provide the VC job search 3-9 months, given roles develop into out there considerably sporadically and are sometimes tied to a agency’s fundraising. Be ready to attend for the best position to return up.
  • Each agency is exclusive in its personal manner – breadth of funding focus, stage of technical diligence, working norms, tradition, and so forth. Do your diligence earlier than kicking off the method to determine corporations that on paper match most together with your background, profession aspirations, pursuits, and logistical concerns. Then, whereas interviewing, ensure you are asking inquiries to assess match and amassing enter from trusted advisors or mentors on varied corporations. You solely have one shot to make an incredible first impression, so set your self up for fulfillment in your first enterprise position by doing all your homework and assessing whether or not every agency is actually a spot you’ll each add and acquire worth.
  • Associated to the above, take into consideration a ability or perspective you may have that makes you distinctive indirectly. Oftentimes buyers are searching for colleagues to (politely and judiciously) problem opinions or search for the contrarian thesis. This differentiation can take time to construct, so don’t really feel like you must rush into VC proper out of academia – the trade is small, so that you need your first position in VC to make a powerful impression.
  • Lastly – if you’re fortunate to just accept a task in VC, put together your self for a steep studying curve! VC could be very a lot an apprenticeship mannequin, so there can be so much you possibly can’t put together for forward of time. An open thoughts, gregarious perspective, and humility will carry you far.

On the finish of the day, whereas the trade could appear opaque, you’ll discover that it’s comprised of extremely motivated people who’re (at instances doggedly) obsessed with enhancing the well being prospects for sufferers in want. The chances of a product or an organization being profitable are very slim given terribly low success charges of drug discovery and improvement – it takes quite a lot of humility, dedication, ardour, and empathy to reach this enterprise. I hope this publish has provided a glimpse into the fast-paced and team-oriented nature of early-stage biotech VC, and good luck to any potential candidates!