A Primer on Early-Stage Biotech VC

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

From the surface, one would possibly assume all biotech enterprise capital (VC) corporations are extra related than completely different. Nonetheless, when you look beneath the hood the myriad traits distinctive to every agency turn out to be extra obvious, even for corporations which will co-invest in the identical corporations every now and then. Whereas not by intent, the business 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 (through Pitchbook) – on the finish of the day that’s not a really massive quantity, in all probability translating to the excessive a whole bunch 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 means of this put up I hope to shed extra mild on the business, and particularly early-stage biotech VC since that’s my particular person bias. Beneath 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 section corporations is focus – usually break up into therapeutics, medical units, healthcare companies, and IT. Some corporations shall be true generalists overlaying many, if not all, of those classes, and others shall be fairly slim in focus. Atlas Enterprise is amongst a sizeable cohort of buyers that focus solely 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” usually encompasses Seed- or Sequence A-stage offers. Buyers targeted on early-stage corporations will probably proceed to fund corporations by way of later rounds (Sequence B and past), however might not usually spend money on new alternatives past the Sequence A. Later-stage corporations usually concentrate on offers which are Sequence 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” Sequence A offers. Stage-agnostic buyers will make investments throughout the spectrum. So why does figuring out the everyday 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 more likely to play some position in firm formation or firm constructing, given they could be a number of the first cash in and might 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 staff and technique has been (a minimum of 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 kinds of corporations they spend money on (e.g., solely specializing in single-asset theses or requiring a platform to de-risk the potential that anyone 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 staff member if you’re a potential candidate.
  • Fund measurement, 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 eventually, 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 snug with investments throughout a spread of geographies, whereas firm constructing corporations might want to construct domestically.

Fast abstract: If you’re a possible candidate excited by a task in VC or an organization founder attempting to determine how greatest to pitch to VCs, I strongly suggest beginning with a refined record of these corporations most related to your background, curiosity, firm, thesis, and many others. Begin with an Excel of all of the biotech VCs you possibly can title, and filter by focus space, stage, enterprise mannequin, and placement. A few of this data shall 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 to work out the whole lot, however a fast search ought to offer you a good suggestion whether or not you (or your organization) may 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 building.

Who’re the buyers that make up these VC corporations? Biotech enterprise capitalists can come from a wide range of backgrounds, although a number of classes are most typical. As an instance the varied backgrounds and relative frequency, ~150 buyers throughout 15 corporations had been sampled as a consultant reduce 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 without doubt one of the extra prevalent backgrounds, with ~30% of Associates having frolicked 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 frolicked in VC as Associates at different corporations (~20%), or else they’ve been promoted by way of the ranks at their very own corporations. Working expertise can be far more widespread for VPs / Principals (by ~2x), as is different monetary roles. On the companion 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 related (~30%).
  • From an instructional coaching perspective, many biotech funding staff professionals have some kind of superior diploma, although under no circumstances is it a pre-requisite. PhD is the most typical tutorial background (50-75% of sampling, throughout seniority) adopted by MD and MBA (every 10-35%).
  • VC could be 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 practically 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 Associate stage. Throughout every, varied units of expertise and background are widespread.

What does a “day within the life” seem like? It’s an amazing query that’s ceaselessly requested, however the unsatisfying reply is that even for a person investor at a targeted agency, two days not often resemble one another. VC is a dynamic and far-ranging ecosystem and thus the matters and kinds 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 way of life of networking, however whereas making connections is definitely one side of the position, it’s dwarfed by a lot of the onerous work that goes into the day-to-day actions.

Extra “typical” actions could be damaged into 3 classes (1) lively diligence for brand 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 usually 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 shaped) and, usually in collaboration with different staff members, advisors, KOLs, and many others. should decide on whether or not or to not spend money on the corporate or concept. I wrote a separate piece on exemplary diligence matters (right here), which outlines a number of the matters one would possibly concentrate on in an preliminary diligence.
2. Firm Constructing: Concepts for brand 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 concept right into a product and firm. Whereas completely different corporations have completely different types, newco creation usually entails the “normal” diligence on science or asset(s), but in addition encompasses staff 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 many others.), strategic components (e.g., pipeline or indication prioritization), budgeting, institution of a near- and long-term plan to realize 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: Energetic portfolio firm administration is a big a part of the position, particularly for extra senior buyers. Oftentimes an investor position comes with some kind 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 will even intently observe 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 essential 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 concept is essential to the VC skillset. Relying on the kind of agency, firm constructing and portfolio & fund administration may additionally type a big a part of a person investor’s mandate.

How does one break into VC? Many extra candidates need to break into VC than there are roles obtainable, so it’s necessary to contemplate the quantity of potential openings and logistic components like location when assessing the chances of touchdown a proposal. That is all extremely illustrative, however in the event you assume the ~90 or so U.S. VCs with AUM >$1B (a very good proxy for a fairly sustainable agency that can probably rent sooner or later), you would possibly 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 staff. 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 would possibly estimate that 30-70 Affiliate (or related) roles turn out to be obtainable yearly for biotech VC corporations. Many of those roles shall be targeted in “hubs” (Boston, SF / Bay Space, and more and more NY) and could be fairly aggressive. Beneath are sources and ideas for these contemplating a task in VC.

• • To search 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 way of the grapevine when a agency is recruiting. Typically corporations will put up on their web site or LinkedIn for brand new roles, however extra usually 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 way of occasions, informational interviews, and many others. to remain on prime of openings as they arrive up.
  • Given the above numbers, you’ll probably need to be sure you are snug in your present place to offer the VC job search 3-9 months, given roles turn out to be obtainable considerably sporadically and are sometimes tied to a agency’s fundraising. Be ready to attend for the appropriate position to return up.
  • Each agency is exclusive in its personal means – breadth of funding focus, stage of technical diligence, working norms, tradition, and many others. Do your diligence earlier than kicking off the method to establish corporations that on paper match most along with your background, profession aspirations, pursuits, and logistical concerns. Then, whereas interviewing, be sure you are asking inquiries to assess match and accumulating enter from trusted advisors or mentors on varied corporations. You solely have one shot to make an amazing first impression, so set your self up for achievement 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 talent or perspective you’ve got that makes you distinctive in a roundabout way. Oftentimes buyers are on the lookout 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 want to rush into VC proper out of academia – the business is small, so that you need your first position in VC to make a robust 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 shall 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 business could seem opaque, you can find that it’s comprised of extremely motivated people who’re (at instances doggedly) enthusiastic about enhancing the well being prospects for sufferers in want. The percentages 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 achieve this enterprise. I hope this put up has supplied a glimpse into the fast-paced and team-oriented nature of early-stage biotech VC, and good luck to any potential candidates!