73
JNCASR Science Start-ups from R&D Institutions Kaushik Gala 8 August 2016
JNCASR
Science Start-ups from R&D Institutions
Kaushik Gala
8 August 2016
2
4http://tech.economictimes.indiatimes.com/news/technology/india-and-chinas-
chalk-and-cheese-approach-to-science/53202884
Science & Technology in India
5
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
6
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
7
R&D Institutions
Process Technology
Product Technology
IP Rights
Scientists’ Time
Infrastructure
Brand
Global Industry
MNCs
MSMEs
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
8
Startups = Max Value Creation, Capture
9
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)
10
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
• 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.”
12
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?
14
4 Pillars of Science Startups
15
Mar
ket
Team
Tech
no
logy
Fun
din
g
A High Impact/Value R&D Spinoff
Power Law of R&D Commercialization
16
# Technologies →
Val
ue
/ Im
pac
t o
f T
ech
no
logy
→
Power Law of R&D Commercialization
17
# Technologies →
Val
ue
/ Im
pac
t o
f T
ech
no
logy
→
Default = License!
(Life|Material|Engg)Commercialization
Not quite the same as software|web|mobile.
18
Value of Technology Over Time
19http://www.mckinsey.com/insights/operations/the_path_to_improved_returns_in_materials_commercialization
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
25https://steveblank.com/2013/08/19/reinventing-life-science-startups-evidence-based-entrepreneurship/
Commercialization of NCEs/NBEs
Commercialization of Devices
26
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
29
Startup vs. Science Startup
30
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
Power Law of R&D Commercialization
32
# Technologies →
Val
ue
/ Im
pac
t o
f T
ech
no
logy
→
Startup? Are You Sure?
Creating a Science Startup
33
1. Scientist or Lab pitches
spinoff idea to Lab BD
2. Lab BD qualifies spinoff
idea
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
Lab
Scientist-Promoter
Entrepreneur(s)
Investor
Scientist-Promoter
Entrepreneur(s)
Lab
34
Identify & Involve all Stakeholders
35
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.
36
3 Types of ‘Spinoffs’
Monetizing a Science Startup
37
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
38
Business Development
Systematic way to rapidly create, and realize, value of your science startup.
39
Biz-Dev Continuum
40
Complexity
Sales Agent
Reseller, Distributor
LicensorOEM
Systems Integrator
Alliance Partner
CustomerStrategic Investor
Acquirer
Create Value
Realize Value
Biz-Dev in B2B/B2G Context
41
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
44
Understand B2B Buying
45
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
46
₹1K ₹10K ₹1L ₹10L ₹1Cr ₹10Cr ₹100Cr
Wearable
Lens
Stent
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
48
Hiring a BD Team
No good CXO joins a startup till its
3rd year and 2nd round of funding.
49
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.
50
Funding a Science StartupRisk vs. Reward
51
VC-funded Biotech Startups
52
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
54
• 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
60
The 3Cs That Matter
61
Control
Capital
Counsel
What Are The Odds?
62
< 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?
63
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
65
Investment Readiness LevelTherapeutics
http://steveblank.com/2014/02/25/is-this-startup-ready-for-investment/66
Fund-raising: It’s A (Strategic) Sale!
67
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.
68
Don’t Get Rejected
69
Need
• Sector, industry, market (qualify the investor!)
• Investment strategy, thesis
Money
• Typical range
• Lead / Co-investor
Hurry
• Investment Period (Final Close)
• Typical Time to Term sheet / DD
Power
• Partner / Associate
• Past deals, tenure, reputation
Trust
• 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
71
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
72
Thank you.
Kaushik Gala
