JNCASR Science Start-ups from R&D InstitutionsLaunching the Venture •A training program to equip...

transcript

JNCASR

Science Start-ups from R&D Institutions

Kaushik Gala

8 August 2016

3https://pbs.twimg.com/media/CojoqykW8AEcCqG.jpg

4http://tech.economictimes.indiatimes.com/news/technology/india-and-chinas-

chalk-and-cheese-approach-to-science/53202884

Science & Technology in India

As much as 2/3rd of R&D spend in India is by the Government, amounting to ~ INR 30,000 crore (CSIR, DAE, DRDO, ICMR, DoS, ICAR, DBT, DST, …) across 25,000+ scientists, each year.

Need for Technology Commercialization

Market Needs

• Affordable, high quality medical devices, drugs, equipment

• Affordable, reliable, clean energy & water

• World-class infrastructure (advanced materials, engineering)

• Strategic independence (defense, space, aerospace)

Industry Needs

• Scientific & engineering expertise, IP, knowhow to drive profitable growth

• Early-stage risk capital• Import substitution to reduce

supply chain and exchange rate risks

• ‘Make in India’ with ability to compete globally

R&D Institutions

Process Technology

Product Technology

IP Rights

Scientists’ Time

Infrastructure

Global Industry

Entrepreneurs

Technology Transfer

’Directed’ R&D

Spinoffs / JVs

Modes of Technology Commercialization

IncubatorsAngels

VC/PE funds

BizDevgroups @ Labs

NRDC, CSIR-Tech,

BCIL, …

Global Best Practices in Creating Science Startups

Startups = Max Value Creation, Capture

Institution Market Cap of Spinoffs

University of British Columbia, Canada

C$ 6+ billion

Isis Innovations, Oxford University, UK

£3+ billion

Cambridge Enterprise, University of Cambridge, UK

£20+ billion

Stanford University, US US$50+ billion

UniQuest, University of Queensland, Australia

A$1+ billion

95% of Value = Portfolio of Equity Stakes

Imperial Innovations (UK)

A £600M+ Tech Commercialization Company

• 2014: Portfolio company Circassia raised £200M via IPO

• 2014: Raised £150M

• 2013: Raised £30M EU loan for healthcare investments

• 2011: Raised £140M; expands pipeline to Oxford, Cambridge

• 2006: Listed on LSE-AIM; raised £26M

• 2005: Became a Private Company, Signed 15-year pipeline agreement with ICL; Raised £20M

• 1986: Founded as Tech Transfer Office, Imperial College

Mind The Gap

11https://t.co/LnKsQzAhVf

• Deshpande PoC Center, Mass. Institute of Technology

– Ignition & Innovation Grants, $50K-$250K

• 80 projects, 18 spin-offs

• Institute for Optical Sciences, University of Toronto

– ‘Champion of Innovation’ grants, C$50K-C$125K

• “PoC funding to enable Business-in-a-Box program”

• Cambridge Enterprise, University of Cambridge

– PoC funding up to £25,000

• “fill gap between tech. creation & demonstration of commercial worth”

• Von Liebig Center, Univ. of California San Diego

– PoC funding ($15K - $75K)

• 70+ projects, 16 spin-offshttp://www.kauffman.org/uploadedFiles/POC_Centers_01242008.pdf

Kauffman FoundationWhite Paper (Jan 2008)

“a PoC Center must be located at an institution that:

1) produces innovative and marketable technology,

2) is not adverse to collaboration with external networks and groups, and

3) has technology transfer offices that are willing to assist in the commercialization process.”

Proof-of-Concept Funds

13http://research.unc.edu/offices/otd/

“Carolina Express License”• A standard license agreement aimed exclusively at UNC startups and

intended to increase the number of new companies started and technologies licensed rather than maximizing financial gain.

• The License offers the same terms to all UNC startups and, while optional, offers the best possible deal available from the University w.r.t royalties, etc.

“Launching the Venture”• A training program to equip and inspire scientist-entrepreneurial teams

launch new commercial and social ventures. • Combines lectures, workshops, guest speakers and hands-on expert

coaching as part of an intensive applied curriculum

UNC: Quantity, Speed, Immersion

License or Spinoff/Startup?

4 Pillars of Science Startups

A High Impact/Value R&D Spinoff

Power Law of R&D Commercialization

# Technologies →

Default = License!

(Life|Material|Engg)Commercialization

Not quite the same as software|web|mobile.

Value of Technology Over Time

19http://www.mckinsey.com/insights/operations/the_path_to_improved_returns_in_materials_commercialization

Cost of Technology over Time

20http://arxiv.org/abs/1502.05274

New Material: Ease of Use, Sales

21http://fredlybrand.com/2009/11/29/framework-for-materials-science-innovation-promoting-musso/

Commercialization of Materials

22http://esd.mit.edu/students/esdphd/dissertations/musso_christopher.pdf

Enabler phase:1. Materials let people do things they couldn’t do before,2. Applications were relatively simple ➔ Quick adoption3. Applications were relatively new ➔ Clear USP

Commercialization of Chemicals

23http://www.mckinsey.com/insights/energy_resources_materials/chemical_innovation_an_investment_for_the_ages

Commercialization of Engg IP

24http://www.permasense.com/

25https://steveblank.com/2013/08/19/reinventing-life-science-startups-evidence-based-entrepreneurship/

Commercialization of NCEs/NBEs

Commercialization of Devices

Laparoscopic instrument –

LicensedOut!

Fecal Incontinence bag - FDA Approval!

AIIMS Stanford India Bio Design

27http://techcrunch.com/2016/03/21/the-major-pitfall-for-digital-health-startups/

https://steveblank.com/2013/08/20/reinventing-life-science-startups-medical-devices-and-digital-health/

CE Mark

Commercialization of Digital Health

Arsenal Medical

28http://arsenalmedical.com/

“only work with materials that had already been used in an approved medical device in the human body, and there was already FDA information and safety information about that”.

“Leverage existing materials and use new process technologies –use new ways of creating composites out of materials, and avoid the risk of scaling new molecules or new chemistry”.

Early partnerships + Govt Grants + VC $ > VC $$$

Lessons from Imperial Innovations + India Lab BDs, NRDC, I2India, CTPL, IIF, etc.

• Market → Lab is more powerful than Lab →Market– Deep understanding of market segments, customers, business case

• Labs = Technologies + Capabilities– Expertise & Knowhow > Ideas, Papers, Patents

• Access to Entrepreneurs, Domain Experts is Key– Startups & MSMEs complementary to R&D labs

• Innovation required in Industry:Lab Engagements– E.g. Options to license, Equity + Royalty models, Limited exclusivity

Startup vs. Science Startup

Software Science

Agile, iterative product development

Linear, stage-gate R&D

Capital efficient Capital intensive

B2C + Network effects Track record, B2B/B2Grelationships

Minimal regulation FDA, insurers, physicians, hopsitals, …

Variety of revenue models Licensing →M&A

Tough to defend Monopoly (science, patent, people, brand, …)

Deflationary pricing Premium pricing

1. Scientist(s)

2. Student(s)

3. Lab Director

4. Lab Business Development

5. Governing Council / Board / Investors

• Prestige?

• Money?

• Promotion?

• Satisfaction?

• Expertise? 31

Personal Ambitions

# Technologies →

Startup? Are You Sure?

Creating a Science Startup

1. Scientist or Lab pitches

spinoff idea to Lab BD

2. Lab BD qualifies spinoff

3. Scientist submits

business plan for Lab Director’s

approval

4. Scientist gets Lab Director approval for

startup

5. Scientist + Entrepreneur

execute shareholder

agreement as startup

promoters

6. Spinoff executes Tech

Transfer agreement with

Lab (cash+equity)

7. Spinoff finds government grants, seed investor(s), incubator

Entrepreneur(s)

Scientist-Promote

rShareholding

Scientist-Promoter

Entrepreneur(s)

Investor

Scientist-Promoter

Entrepreneur(s)

Identify & Involve all Stakeholders

Scientists (as Promoters of

Spinoff)

Lab (in exchange for IP+Knowhow

license)

Entrepreneur (as Promoter of

Spinoff)

Incubator (for incubation,

Proof-of-Concept funding)

Investor

Startup Shareholders

1. Lab-led spinoffs

– Exploit knowhow, infrastructure, IP rights, brand, recurring revenue (e.g. certification services) and/or customer access (e.g. defense).

2. Scientist-led spinoffs

– Scientist(s) acts as promoter, consultant and/or non-executive director and commercializes IP and knowhow.

3. Entrepreneur-led spinoffs/startups/MSMEs

– Entrepreneurs (via new/existing ventures) leverage R&D resources to build profitable, high-growth companies.

3 Types of ‘Spinoffs’

Monetizing a Science Startup

Value of a Science Startup

• Dividends

• Cash Flow

• Profits/Earnings

• Revenues/Sales

• Users

• Team, CXOs

• Intangible assets: Brand, IP/Knowhow

• Tangible assets: Infrastructure, Cash reserves

Business Development

Systematic way to rapidly create, and realize, value of your science startup.

Biz-Dev Continuum

Complexity

Sales Agent

Reseller, Distributor

LicensorOEM

Systems Integrator

Alliance Partner

CustomerStrategic Investor

Acquirer

Create Value

Realize Value

Biz-Dev in B2B/B2G Context

Sales Agent

Reseller, Distributor

LicensorOEM

Systems Integrator

Alliance Partner

CustomerStrategic Investor

Acquirer

Build & Manage Relationships.

Scientists convince; Marketers persuade.

http://sethgodin.typepad.com/seths_blog/2012/11/persuade-vs-convince.html42

Figure out Whom to Influence

http://www.amazon.com/Managing-Channels-Distribution-Marketing-Executives/dp/0814431798/43

How Do They Fit In?

https://www.safaribooksonline.com/library/view/disciplined-entrepreneurship-24/9781118692288/21_chap12.html

Understand B2B Buying

Politics

• CXOs versus Managers versus Users

• Promotion or Penalty?

• Org Culture: Lalas, Babus, Silos, 2nd gen ???

Precedent

• In-house alternatives (‘NIH’)

• Legacy technology, incumbents

Process

• Budget timelines, committees, approvals

• Business case / RoI / Pay-back

Pricing

• Purchasing Dept: Discounts, tenders, ..

• Payment terms, milestones

• PoC / Prototype / Pilot

Pricing Continuum

₹1K ₹10K ₹1L ₹10L ₹1Cr ₹10Cr ₹100Cr

Wearable

Instrument

Therapy

Vaccine

Molecule

(Examples from Life Sciences)

Surf a Wave & Partner!

47https://lifescivc.com/2016/06/io-strategic-supernova-cancer-today/

Curadev - Roche

“A healthy venture creation process begins with the endgame in mind: how do you build a company around science that people will want – either investors or pharma (or both)”.

Capital Efficiency + Injection

Convert CapEx to OpEx, KFE

Risk capital at PoC, seed stage

Business Development

Active customer discovery

Channel & biz-dev partners

Startups, SMEs vs. Spinoffs

R&D + Capital in existing SMEs

Risk appetite, business sense

India → Global →India

Make in India, scale outside

E.g. SaaS, biotech startups

Scaling a Science Startup

Hiring a BD Team

No good CXO joins a startup till its

3rd year and 2nd round of funding.

Jugaad BD/Sales Team

• First ‘n’ sales: CEO

• Next ‘n’ sales: CEO + ‘internal’ hire

• Next ‘n’ sales: CEO + ‘junior/mid-level’ …

Match it to the length of your Sales Cycle.

Ex-BigCo VP of Sales? No! CEO = VP, Sales / BD.

Funding a Science StartupRisk vs. Reward

VC-funded Biotech Startups

Startup Investors

Mitra Biotech IIF, KITVEN, Tata Capital, Accel

vLife Sciences (Novalead) Tata Capital, Kotak

Invictus Oncology Ratan Tata, Sabre, Navam, Aarin

CuraDev ICICI, Sabre?

Vyome BioSciences Navam, Sabre, Kalaari, Aarin, Romulus

Consure Medical IIF, Accel

Vitas Pharma IAN

Connexios Nadathur Holdings

Seagull BioSolutions BMG, ICICI

Shantani Proteome Analytics DBT, IIF, Blume

BugWorks IAN

Theramyt Novobiologics Aarin, Accel, IDG

Intas Bio Tata Capital

Strand Life Sciences UTI Ventures, WestBridge, Sequoia, Medibic, Burrill/Biomark

Note: Some of the above have also received TDB/NSTEDB seed fund & DBT grants.

80+ Medtech (funded) Startups

53http://xeler8.com/blog/2016/07/08/medical-devices-startups-adding-affordability-to-the-lives/

New (LifeSci/Healthcare) VC funds

• Endiya Partners

• Unitus

• HealthQuad

• Bharat Fund

• Villgro – Menterra

• Axilor

Why India Science Venture Fund?

• Indian VCs focus on:– IT products & services, BFSI, E-commerce, B2C ventures (65%+*)

• Less capital intensive than science/engineering ventures

– Strong, unfulfilled demand from science/engineering ventures in INR 60 lakh – 6 crore (US$100K - US$1M) range • Valley of Death funding

• Pure Investment vs. Company Building– Early-stage VCs focus on creation of large portfolio versus

concentrated investing combined with building businesses

• Publicly-funded R&D →Maximum Wealth Creation via Spinoffs– Global successes are in life sciences & healthcare!

55* India Venture Capital Report- 2012, Venture Intelligence

VC Portfolio Math

56http://techcrunch.com/2014/05/24/deciphering-the-economics-of-venture-capital/

0-1X 3-5X 10-1000X

Venture Capital Economics

• Target 18%+ IRR over 8 years (= 4X RoI - fees)

• 10 investments: 5 bust + 2 B/E + 2 4X + 1 30X

• 100 crore fund (10 * 10 crore)

Average exit of 80+ crore (10, 10, 40, 40, 300)

Biggest exit of 300+ crore

Target valuation of 1200+ crore @ 25% stake

Revenue of 200+ crore @ exit

57http://santeventures.com/wp-content/uploads/Why-Venture-Doesnt-Scale-Sante-Ventures.pdf

4X in 4 years = 30X in 10 years

58$ $$$$

Funding = Double-edged sword

59Credit: Maneesh Bhandari, CIIE Pune, Bharat Innovation Fund

Money has the Same Color? No!

• Customers

• Strategic partners

• Self/Family/Friends

• Government grants

• Professional angels

• Venture Capitalists (VCs)

• Rookie angels/VCs

• Real estate developers

The 3Cs That Matter

Control

Capital

Counsel

What Are The Odds?

< 2% startups get multiple

VC investments

< 5% of VC-funded

startups get big (10X –

1000X) exits

Your odds of raising VC &

getting big exit < 1 in 1000

Time to large exits ~ 7 – 12 years!

Why These Odds?

Large / Very fast growing

global market

Star team / Domain

expertise / Past

successes

Appetite of (Indian) investors

Huge buyer/IPO multiples

Time to large exits ~ 7 – 12 years!

Science = Too Difficult!

64http://www.nasdaq.com/article/energy-storage-the-valley-of-death-and-the-elephant-hunters-cm52715

Science vs. IT: Cognitive Minefield

• Availability bias

– Recent ‘successes’ – Ola, Flipkart, …

• Bandwagon effect

– Entrepreneurs, angels, VCs, …

• Stereotyping

– All biotech is expensive | risky | long-term

• Ignoring base rates

Investment Readiness LevelTherapeutics

http://steveblank.com/2014/02/25/is-this-startup-ready-for-investment/66

Fund-raising: It’s A (Strategic) Sale!

Investment Pitch

• Story

Emails & Calls

• Referrals

Meetings

• Get the next one!

Term Sheet

• What matters most

Due Diligence

• Prepare or perish

Cheque

• Only the beginning!

Every sale has five basic obstacles: no need/desire, no money, no

hurry, no power, no trust.

Don’t Get Rejected

• Sector, industry, market (qualify the investor!)

• Investment strategy, thesis

• Typical range

• Lead / Co-investor

• Investment Period (Final Close)

• Typical Time to Term sheet / DD

• Partner / Associate

• Past deals, tenure, reputation

• Referrals, relationships!

• Sci/Tech credibility, BoD, BoA, …

Term Sheet, DD, SHA

• Confidentiality (tech, b-plan, …)

• Cap Table

• Installments →Milestones

• Board seat(s), special rights

• Anti-dilution, liquidation Preference

• Exit Clause

Ref: www.venturehacks.com 70

Pitching to VCs: Do vs. Don’t

Do Don’t

Build relationships Cold call/email

Tell a story Read templated slides

Talk business Talk science (only)

Show traction (PoC/prototype,customers)

Show invention (lab data, innovation awards, patent filings)

Hunt in pairs Take your nephew/neighbor

Work backwards from ‘exit’ Expect ‘them’ to sell

Have a Plan ‘B’ Get desperate

A Better Option for Science Startups?

• Angels

– Industry/domain-specific e.g. biopharma, …

• Venturing arms of Indian corporates

– Gharda, Tata, …

• Indian arms of MNCs

– Dupont, Siemens, Solvay, …

• Family Businesses/SMEs

– Distributors/importers, System integrators

Thank you.

Kaushik Gala

JNCASR Science Start-ups from R&D InstitutionsLaunching the Venture •A training program to equip...

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