Top 5 Takeaways:
- Fundraising is a process that should be managed like any other.
- The decision to stay in or leave academia is a common one contemplated by academic founders—and it’s important to gauge what your individual goals are when making the decision.
- Having the right partners (and mix of skills) in the company is important.
- Operational support from your VCs is key in certain moments, especially in early and transitional stages.
- Pay attention to IP early. Different institutions and individuals have different views of what “industry standard” means, so it’s important to clarify—and to be patient when working through the slow-moving IP process.
Olivia Webb: Hello and welcome to Bio Eats World, a podcast at the intersection of bio, healthcare, and tech. I’m Olivia Webb, the editorial lead for Bio + Health at a16z. Today’s is a special episode, recorded live at a recent event we hosted, featuring Vineeta Agarwala in conversation with three scientist-founders from UCSF. This panel, which Vineeta moderated, featured:
Michelle Arkin, a professor of pharmaceutical chemistry at UCSF, chair of the Department of Pharmaceutical Chemistry, and a co-director of the Small Molecule Discovery Center at UCSF, as well as a co-founder of both Elgan Therapeutics and Ambagon Therapeutics,
in addition to Jimmie Ye, an Associate Professor of Medicine at the Institute for Human Genetics at UCSF and an affiliated investigator at Gladstone Institutes, as well as the co-founder of Dropprint Genomics and Survey Genomics.
And finally, Natalia Jura, a professor in the Department of Cell and Molecular Pharmacology, and an investigator at the Cardiovascular Research Institute at UCSF. Professor Jura is also an associate director of the Quantitative Biosciences Institute and a co-founder of Rezo Therapeutics.
The main topic of this event was how a16z partners with brilliant academics—and how those academics think about building the next transformative biotech company. Because we know it can be difficult to track who’s speaking on a panel of four, we’ll be publishing a transcript and a list of takeaways alongside this episode at our website, and linked in the show notes. For those following along on the podcast, first, you’ll hear Vineeta’s voice, then Jimmie’s, Michelle’s, and Natalia’s. Let’s get started.
When to move out of the lab
Vineeta Agarwala: Let’s dive right in. I have a series of questions that I think many of our audience members may have as you all are thinking about how to blend your academic and entrepreneurial interests, or maybe make a change or find other champions for work that you’d like to translate into medicines.
And so I’ll ask a series of questions, but then we’ll open it up and folks, please chime in with topics that are on your mind. So let’s start with [the] question of the right setting for the right science. How did you all decide when it made sense to move a piece of research or translational work out of your academic lab, out of the comfort of your academic lab, and into the industrial setting, or channel it into a startup? What does it mean to be the right place for the right science?
Jimmie Ye: I think about impact. And there’s going to be limited impact if we just publish a paper. And if we have a cool piece of technology or assay and we really feel like it’s going to be transformative for other academic researchers or companies, if we don’t want it to sit on the shelf, then you have to do something a little bit different. And so for us, we evaluate the technologies we build, and if we feel like it’s probably impactful, and we want people to use it, then we start thinking about commercialization.
Michelle Arkin: Yeah, there’s definitely a right time where, if you work on something that’s really new—so what we should be doing in academics is stuff that’s really new—and then you need to reduce it to practice enough to convince somebody what the investment thesis is. My co-founder’s been working on this target since he was a graduate student, and he just always believed it would be something important for therapeutics. But, you know, there’s finding the right chemistry, there’s finding the right team, there’s finding somebody in the ecosystem who can help us really get in front of potential investors and really turn it into a company.
So it’s not just the science, it’s also all those pieces together. And the team is so important for having that vision.
Vineeta Agarwala: All of your technologies did get their start in an academic lab setting, funded by academic grants with the talent of the academic community. So where along the timeline, when do you know it’s the right time to move out?
Natalia Jura: I think for me it’s a matter of resources. At some point when we were working on our project, it just made so much sense to start all these different things and do all these different things, which no R01 grant can pay for, or would like to pay for. So to basically get on board somebody who has the resources and helps with the vision, so that’s one thing. And another thing is to actually find the right people to do it with.
Finding the right team
Vineeta Agarwala: You mentioned the importance of finding the right team. So let’s talk about team a little bit. Maybe you all could just share a little bit about what roles and responsibilities you’ve taken on in these companies. Have you ever contemplated a leave? Was that ever something you thought would be beneficial? And who [did] you reach out to, to initially complement the expertise that you brought to the startup venture?
Jimmie Ye: The two companies we built couldn’t look any [more] different. The very first company, incubated in Y Combinator—I fully believed that my students could be the CEO and the CTO of this company, and so I was not involved at all.
And in the second—we didn’t have an executive team—is funded based on our idea. And so in the seed round, [the] very first few months has been about assembling that team.
In terms of have I contemplated leaving? Yes, I have this conversation with my wife all the time. But overall, it’s sort of like, what do I truly enjoy? And as much as I enjoy company building, there are a lot of other aspects of company building I don’t enjoy as much. But I really just enjoy being part of that idea generation engine that’s the academic world, and I just can’t really see myself ever leaving that behind.
I don’t wanna work on just one idea. I wanna work on lots of ideas.
Michelle Arkin: And for me it’s more like Jimmie, that I like to have a lot of ideas. And this is the one that I really wanted to double down on and really invest in, and I’m very involved in the company, I am on the board of directors, I meet with the team twice a week, at least.
And I know my job is to obsolesce myself, right? It’s that they should know more about the specific targets and the specific molecules than I do, and I can come in and say, okay, we developed this new technology that may be appropriate for you, or, I saw this talk. Because as academics you have a lot of exposure to the outside world, that I didn’t have [before]; I worked in biotech for nine years before I was an academic, and then you’re really focused in the lab and there’s a different level of awareness of what else is going on. So I think it’s valuable to the companies to keep the founders around for that.
Vineeta Agarwala: Maybe you could all double click a little bit in the situations where you know, you’re not running the company. What is your engagement? Michelle, I couldn’t agree more. Most venture folks would say the same. I think that actually we really do care about founder engagement and keeping founders involved so much so that, you know, when we’re doing diligence on an idea, on a company, we often ask to meet with the academic founders, specifically to poke a little bit at whether they know what’s going on at the company.
And it’s a little bit of a red flag if they really have no idea. At that point, you know, IP has been translated out, but you haven’t really tapped into the depth of the learning that went on in the academic setting. So when you’re not joining the company, what is your engagement model?
Jimmie Ye: It starts with, I’m not going to start a company if I don’t think that scientifically this is something that I’m interested in anyway. So there’s going to be an academic pursuit in my lab so that we can have a dialogue with the company about the science, and that’s what I want to focus on.
But boy, everything…like I am the first person to talk to our IP council because I know about all the papers that are out there. And I’m the person that evaluates technical talent that comes through the company. And also because UCSF won’t actually allow us to be CEOs without leaving, even though I’m not like actually in the company, I feel like I’m performing a lot of that executive function.
Michelle Arkin: Since I’m on the board, I don’t say very much when I’m in the board meetings, because I feel like I have more knowledge about the science than they do. And I think that the CEO is like, wear your board hat, you know, pretend you don’t know more than I’m telling the board because we’re focusing on this level of the picture.
So I really like that, trying to understand the different levels of the picture and different strategies. And then maybe my job on the board is to be an academic, which means we ask annoying questions like, oh, why do we have to do it that way? Well, yeah, everybody did it that way, but a lot of them failed. So, you know, just sort of keeping it fresh.
Natalia Jura: Well, I think that’s exactly our function on the board, or at least that’s how I see it. Because after all, I consider myself to have certain expertise in science. So that’s how I feel founders should be involved primarily. And that’s how I see my role. And I actually really enjoy it.
Vineeta Agarwala: Let’s talk about, you know, what went well and what didn’t. You’ve all had some hard-earned lessons. What would you want to do again, a piece of your founding experience that you thought, hey, that was great, and what might you do differently?
Natalia Jura: We started in interesting times, which was during [the] pandemic, and I think that added a little bit more chaos to all the proceedings and talking to people. Perhaps, you know, the timing was a little bit off. We didn’t follow up quickly enough with people because of things happening. So I feel like if next time we were doing it, I would like things to happen more quickly, that we would be really more responsive to things and follow up quicker and kind of regroup much faster.
Vineeta Agarwala: Yeah. Fundraising is a process that you have to manage, just like a grant application or anything.
Michelle Arkin: The one decision I was really happy that I made with Ambagon was to take a large seed, because once you have a Series A and you have a lot of money and you’re in the public eye, then there’s: how many months to an IND? How many years…? I felt that the technology, I didn’t want to short shrift the technology platform too much so we could take more money in, build up people, buy equipment, really get everything transferred from the universities and running robustly before we had to raise a series A.
Vineeta Agarwala: Are you comfortable sharing how large a seed are you talking about?
Michelle Arkin: It’s not a huge seed, eighteen million. And we actually raised the series A just around the time of the last tranche. [We] took the last tranche but didn’t really need it, but it was a little insurance policy. And also we had a CEO who was then, you know, really assertive and really saw the market and saw it was a good time to raise.
Vineeta Agarwala: Tranched, 18 million raised…
Michelle Arkin: Yeah, tranched 18 million raised, with six investors. So everybody wanted to put 3 million in and see how it was gonna go. So I would’ve raised a bigger seed for the second company.
The second thing that I would’ve done differently is have a business development, maybe a CEO, maybe a chairman of the board, but somebody who could read a contract and assess a business ask earlier on. Because then, we had some champions, but…they’re your champions and then they become the people that are trying to get the money out of you. They become the investors. And we didn’t have somebody to really ballast them, and we brought somebody in quickly, and it wasn’t necessarily a comfortable relationship with the investors, so I would’ve had that be part of the package. And I also think we would’ve raised money faster if a business person had been part of the original package.
Jimmie Ye: I think having the right partners in that initial build of the company is really important. And sometimes it’s hard to break the log jam, like you need the money to get a great CEO, or get a great CEO and then raise a lot. But regardless, I think, either you can already have an executive team that knows exactly what they’re doing or partner with first-rate VCs.
Michelle Arkin: The trend that you see in venture capital having more operational support—like I heard that [a16z has] a lot of operational support for new companies, and these incubators that are being built up—I think that can really help because they can de-risk some things. So then you could go out maybe before you’re quite ready, but it’s not something you really want to do in your lab, you end up in your own little valley of death. [And] these incubator based venture capitalist firms can help you get through.
Vineeta Agarwala: We hope so. There’s a time and place for different models, we think.
I suspect IP licensing might be on some of your minds. It’s a complex process and a range of deal terms really can result, at least in our experience. Any guidance you all would have for how to manage that process?
Natalia Jura: It took a long time. So that’s one [piece of] advice: to really be patient and pay attention to everything. A lot of mistakes can happen and a lot of typos can happen and they all delay things tremendously.
Michelle Arkin: I think also, especially when it’s early coming out of academics, there’s maybe a disagreement, a willful disagreement on both sides about how valuable the IP is. And they can be vastly different. And everybody you talk to will say, well, this is industry standard. Well, how can they both be industry standard? They’re 10 times different from each other. So finding somebody who’s independent, who can independently evaluate these things, who understands the marketplace and your specific…where this IP, the role that it plays in your company, would also be really helpful. It’s hard to find an independent person. And then also they’re expensive, so you’re already paying your lawyer, it’s already on your own time. And then to pay another lawyer to help you just feel like you have some independence.
Jimmie Ye: The only thing I’ll add is that you actually have to be kind of careful because there’s a lot of potential for conflict of interest. I’ve tried to not be involved in some of the IP negotiations because I’m a UCSF faculty member.
These agreements take time. So the earlier you start that process, the better it is.
Vineeta Agarwala: I’ll just add a couple observations on that topic. One is to really get clarity on whether the IP that you’re thinking about is more in the bucket of know-how or chemical matter. And we often encounter some haziness there, and I’m simplifying it dramatically too. And an IP lawyer would shoot me. But there are two broad categories of IP. You know, a method, a system, a process, a string of methods that yield novel insight that only you have and only you know exactly how to do, is still very different than chemical matter.
And thinking through all the twelve terms that get negotiated in every IP license, you know, downstream of which one of those buckets you’re in, I think do have implications for how investors think about the value of the IP, and the importance of each of those terms, and how your IP council will think about it, and what advice UCSF will give on it, and what UCSF might feel with respect to exclusive use of that know-how, and non-exclusive use.
So sometimes there’s a lot of ambiguity when there really shouldn’t be. And so one thing I think founders can do, you know, can help themselves by doing is just to have clarity on: is this really a piece of know-how that I’m trying to get some moat around? Or is this very specific chemical matter that just needs to go down a more standard licensing path. And then the other is really there is often a role for an independent advisor.
All right, well I think we broke the seal on audience questions. Thank you so much. That was awesome. Let’s just open it up for conversation. What is on folks’ minds?
Michelle Arkin: And so the question was, do any of us have sponsored research from our companies in our labs, and is that a conflict you can’t get around?
Since I also run the Small Molecule Discovery Center, I have a lot of tools in…so there’s recharge [centers/services], which is just a federally approved service that I can do for for-profit companies. It’s a business contract. It doesn’t use students, it doesn’t create inventions. So that’s something that companies will use for screening, for example, and we work with a lot of biotechs in that area.
Then there’s sales and service, which any of us can do, and that’s a business service. That’s not research because we’re not allowed to give away inventions. So if you’re doing something with a business contract that says we don’t have any inventions, it means we can’t create any. A crystal structure might be one, not interpreting the results or what to make next, but just solving the crystal structure might be a sales and service activity.
And then the third is sponsored research. That’s what’s gonna make it easier for the company, is if you’re not generating IP, critical IP.
Reactions to policy changes
Olivia Webb: We’ll have one more question that we’ll include in the podcast version of this event, and then we’ll have a closed room. The question is: what the venture capital perspective is on the Inflation Reduction Act, and whether other companies are reacting appropriately, given the IRA.
Vineeta Agarwala: I mean, most of the large pharma companies are reacting in, I think, an obligatory way, which is when you have an enormous amount of resources, you have to place your bets in a very specific way, given a limited pool of input technologies.
I think we think that’s quite different for startups. So I mean, I think it would be crazy for the venture community to not back new chemical biology approaches that can actually achieve something a biologic couldn’t achieve, or frankly, even achieve the same thing a biologic could achieve with brain penetrance or whatever other amazing property a small molecule might confer. So we are very leaned in to backing new small molecule approaches despite the very hypothetical, still, implications of the IRA. You know, the list is not known. The level of discount is not known. The rarity of an exception is not known. So that’s just our take on the IRA.
The discussion that it’s forced, though, which is that you can’t just be a platform biotech company coming up with creative targets and taking shots on goal without having some conversation about: hey, you know, if this works, here’s the sort of net present value I would’ve created by my best estimates. I think that’s another thing that startups should do in partnership with their investors because that’s something that every investor is now thinking about earlier. [They’re] probably not talking about [it] enough though, in the startup ecosystem, so I love the question.
Olivia Webb: Thank you for joining Bio Eats World. Bio Eats World is hosted and produced by me, Olivia Webb, with the help of the Bio + Health team at a16z and edited by Phil Hegseth. Bio Eats World is part of the a16z podcast network. If you have questions about the episode or want to suggest topics for a future episode, please email [email protected] Last but not least, if you’re enjoying Bio Eats World, please leave us a rating and review wherever you listen to podcasts.
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