The 8 Mistakes (almost) Every Biotech Startup Makes

Every startup makes mistakes. Some make many. Some are fatal. Some are not. Some are common, some are special and unique. Here are 8 of the more frequent, and how you can avoid them.

1. CEO is a Full-Time Job

It should go without saying that the leader of your startup needs to be 100% committed to the success of the business. It should also not need pointing out that the “C” in CEO stands for “Chief”. Unfortunately, far too many biotech startups either have a tenure-track university faculty member as a part-time CEO, or worse a token CEO who was previously a postdoc / grad student but still effectively answers to their old professor. Both of these situations are a recipe for disaster.

Starting up a company of any type is incredibly hard. No matter how good your idea, how novel your technology, how groundbreaking your insight, it will be indescribably hard to build it into a successful business. Anything less than 100% focused effort will lead to failure.

There are many ways to build a successful founding team, but it is essential that the CEO is fully committed to the business, and empowered to lead it effectively. Have a very uncomfortable conversation on Day 0 to decide exactly what role each founder will have, and how decisions will be made. This may well require team members taking on very different roles in the hierarchy of the company than they had previously in their academic lab; it is far better to deal with the inevitable fragile egos at this stage, rather than when you’re trying to raise a funding round and need to modify your cap table in order to close it. (Also, learn what a cap table is if you don’t already. It is the key to all your future stake in the company)

2. You Cannot Own the Majority of a Startup you Don’t Work For

Now that you’ve learned all about how a cap table works, you need to have another very awkward conversation with the founders to establish an effective ownership structure for your company. It might seem fair to simply split all the equity equally between all the founders, but this can be a real problem when raising money later on.

The majority of the equity in a startup needs to lie with the founders who will work full-time on it. This might seem harsh on founders who choose to stay in an academic lab, but a startup business cannot work when people who do not have direct daily involvement have an effective veto over strategy; sometimes what is best for the startup will be diametrically different to what the founders originally envisioned in the academic environment. The executive team must be empowered to build the business or it will fail.

There are many ways to protect minority ownership stakes (e.g. special share classes), so this is not to say that founders who do not join the company full-time should lose out completely. [There is also the fact that any IP rights that you’ve licensed from your University will separately compensate the academic inventors from their patents anyway]. In the end, it is much better to have a small part of something great, than a great part of something that is essentially worthless.

3. Don’t Wait for Funding before you Start your Business

If you are waiting for your SBIR grant to come through before you start your startup, you do not have a startup. You are building a private sector extension of an academic research lab. Sometimes, you need to do the work before someone will pay you for it.

If you believe that you have an idea that will really make a difference in the world, then the time to start working on it is now. Do all the market research, write the business plan, draw out your R&D strategy with a firm timeline and real go / no-go decision points, incorporate your company, find co-founders to fill essential roles, build the company structure, recruit a board of advisers, join a coworking space / incubator lab to at least get a real business address while you start up. Use whatever money you have to do whatever you can to move your R&D program forward. If you can’t afford lab space or equipment yet, outsource some experiments where you can. Do all of this right now.

Do whatever you can to generate value in your company. If you have savings, use them to build your startup. Borrow money if you are able to, especially if you are able to access low-interest credit. Lend your startup money. Do whatever you can to raise cash to invest in your company. If you are to be successful, investors want to see you have “skin in the game”; you have to be willing to take on risk in your startup if you ever want someone else to.

4. Industrial R&D is not Academic Research

Moving from university research to R&D in a startup is a culture shock that many are ill-prepared for. The focus of research changes from the generation of data that can convey insight in a research paper, to the creation of precise, replicable, and scalable methods for making a product or processing an assay.

This change of focus requires a change of culture — no more scribbled notes on paper towels; everything now needs to be recorded, logged, and filed efficiently — the future of your company depends on it. No more assays that “X” always does, because “X” can do them; everything needs to be replicable by anyone following the SOP. Also, everything you ever do needs to have an SOP. Your lab needs to be neater and more organized than ever before. You need to master inventory control to ensure that you use reagents effectively without waste or downtime waiting for re-orders. Any inefficiently bites into your limited startup funds and erodes your chances of success; you need to start operating at a higher level, because your livelihood depends on it.

5. Time IS Money

Your Burn Rate is your life expectancy. You have no time to waste — if you reach the end of your funds before you have enough progress to justify a new investment round, you die.

Plan out a clear, precise series of experiments to move your idea toward the next proof-of-concept milestone to justify new investment as efficiently and as quickly as possible. Everything else can wait. Everything.

6. The Tech Transfer Dept is Not your BFF

The majority of biotech startups leverage some form of university-derived intellectual property, usually in the form of one or more patent licenses, to build their value base. University tech transfer departments are therefore a very important partner for many entrepreneurs, and so it is important to have a good relationship with them as you build your startup.

Many academic spinouts however, mistakenly assume that the tech transfer department is there to assist them in all things IP. Having relied on them to file and defend the original university patent, inventors forget that tech transfer’s central job is to maximize licensing revenue to the university. Work well with your tech transfer dept., make sure they understand your needs as a startup rather than a larger company looking to license technology, and make sure you talk to qualified people outside of your university about your IP situation before you sign anything.

7. Networking is Not Optional

Go out and meet people you don’t know. A lot. Especially when you don’t feel like it. Go to startup meetups. Go to meetups for entrepreneurs in other industries / verticals. Tell people about your idea; seriously, no one is going to steal it. Most people will probably not understand the first thing about it. You’ll learn an awful lot about how to pitch your idea by just explaining it to enough people and learning all the awkward, weird, non-intuitive ways you go off-message and miss the point.

Go to industry meetups. Get to know vendors in your area. Listen to all the sales pitches you hear and learn to tell the hucksters from the genuine. Learn how to tell when someone genuinely likes you / your idea and when they’re just pretending to like you in order to sell you something.

Ask other entrepreneurs you meet about how they have dealt with challenges they’ve encountered. There are very few truly unique issues your startup will face, so learn from those who’ve already solved problems for themselves.

8. Equity is a Precious and Limited Resource

Nothing kills a growing company like the legacy of a crappy cap table from its early days. You only have 100% of your company to start with, and every chunk of equity you give away will diminish your level of control over the company permanently.

Grant equity only to people who substantially increase the value of your company, either through investment or effort. Build a vesting schedule to ensure that founders and early employees are incentivised to stay with the company as it grows. Do your homework on equity-based business accelerators and incubators before applying to them; there are many excellent programs that will substantially improve your startup’s growth, but you should check out their records, alumni, investors, and partners to ensure they are legit before handing over an ownership stake in your startup.

It is easier to get a divorce in America than to get rid of a bad business partner, so make sure before you jump into equity relationships with people!

Not an exhaustive list. Mistakes are infinite, and opinions are advisory only.

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