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The Black Hole

Building on the accelerator model – identifying operating needs


This post was written with Sven Karlsson, CFA, an energy and technology venture investor with the Massachusetts Clean Energy Center, and the co-founder and chief business officer for Platelet Biogenesis.

Business accelerators have become fashionable, and for good reason. They offer aspiring entrepreneurs access to expert mentors, marketing and media resources, funding opportunities, and office space. In part 6 of this multi-part article series we identify the operating needs of biotech startups that existing and future business accelerators will need to address to better serve Life Science entrepreneurs. The goal is to help academic research institutions learn what works and what doesn’t as they begin to construct incubator programs of their own.

To read the previous articles in this series please visit the links below:


A common hurdle academic founders face during the “pre-money” stage is supporting their operating needs (specifically lab space, employee salaries, research costs) long enough to perform the necessary validation studies needed to secure institutional funding. Even after a successful seed financing round, few biotech start-ups are able to attract sufficient private investment to spin out of the academic lab entirely. This financing gap early in the life cycle of a new company has come to be affectionately referred to as the “valley of death.”

Figure was adapted from Wikipedia to more accurately reflect star-up financing for biotech ventures.

Helping the scientist-founders secure their first round of serious funding should be the primary goal of every parent academic institution and is typically the best solution to addressing the company’s operating needs. This is how intellectual property (IP)-holding academic institutions “exit” employee-founded biotech start-ups and must remain the focus of all institutional efforts in this space.

The easiest way for scientist-founders to make their companies more attractive for investment is for technology transfer departments at IP-holding academic institutions to negotiate longer and more flexible fee structures, timelines and milestones into sponsored research agreements and intellectual property licenses. This can be a win-win-win strategy, since improving a start-up’s chances of securing independent financing also drastically improves the academic institution’s likelihood to profit from the license agreement (i.e., milestone and royalty payments which are tied directly to the future success of the company), and for the public to ultimately reap the benefits of major scientific advances (initially supported by their taxpayer dollars).

To facilitate a better tech-transfer process, academic institutions need to institute standard licensing agreements that involve minimal upfront cash payments from the licensee. There are several reasons this is advantageous to all parties involved. First, cash is extremely expensive for a young start-up, yet relatively cheap for a large established university. Transferring cash at this stage from a high-growth start-up with limited liquidity to a cash-rich academic institution makes no sense. Second, the University will receive more equity and royalties to compensate for a lack of a cash payment. Not only should these assets be more valuable over the long term, they also help align the interests of the start-up and university going forward. Finally, a standardized set of terms avoids internal political pressure on tech-transfer offices to give “special deals” to all-star professors (the type of founder least likely to need a special deal). By streamlining and standardizing the tech-transfer process, universities can dramatically increase the value of their patent portfolios by creating more successful companies.

Even after obtaining a license agreement for their IP, fundraising takes time, and more often than not (particularly for early-stage discoveries), a scientist-founder must demonstrate significant proof-of-concept approaching preclinical validation to be able to close their first institutional financing round. Momentum is important. Since licensing agreements, developing a commercialization strategy, building an investor network, pitching, and ultimately closing a financing deal can take time (often between one and two years for successful biotech ventures), the easiest solution is for the scientist-founder to continue to develop the technology in academic research labs with subsidies from the investment partner until such time that they can raise sufficient funds to spin out of the academic lab entirely. Our following post will address how academic institutions can leverage existing and future business accelerators to address biotech start-ups’ operating needs and better serve Life Science entrepreneurs.

Jonathan Thon
Jonathan Thon is a serial entrepreneur and founding CEO of STRM.BIO. Before STRM.BIO Dr. Thon founded Stellular Bio where he served as CEO and chief scientific officer. Before Stellular Bio, Dr. Thon was an assistant professor at Harvard Medical School.
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