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Guest Blog: How to Partner with Ag Biotech Corporate Investors

By Dragana Mendel

 

I was very pleased to attend the recent Ag Biotech Entrepreneurial Showcase at the North Carolina Biotechnology Center.

I was particularly intrigued by the panel on corporate venture investing (Technology Scouting: How to Partner with Large Companies in Animal Health and Crop Biotech), because I wanted to learn the investing styles of the panelists.

As a consultant, I advise entrepreneurs to do the due diligence on potential investors before reaching out, because not all money is created equal. Once an entrepreneur accepts outside funding, that fund manager becomes her or his boss, so it is critically important that entrepreneurs and investors share values. Even though fundraising is a very difficult and frequently fruitless effort for all startups, I would still advise startup executives to turn down a letter of intent if they feel that investment fund managers do not share their vision for the company.

From that perspective, attendees at this Showcase event had a rare opportunity to learn about the work styles and value systems of the investors on the panel. Here's what we heard.

Corporate venture vs. venture capital

The moderator, Chris Otey, Ph.D., Senior Director, Life Science, Alexandria Ventures, skillfully encouraged discussion around questions that all life science entrepreneurs may have about corporate venturing. He first asked the panel to differentiate corporate venturing from traditional venture capital.

Yes, both invest money into startups, but corporations bring so much more to the table in addition to the financial infusion. To wit:

  • Large corporations have already established sales and marketing channels worldwide;
  • They bring project management discipline to the technology commercialization process;
  • They offer a significantly better lab and test environment;
  • They bring teams of people experienced in working with regulatory bodies.

No venture capital fund can match this level of staffing and industry expertise, so it’s usually easier to reach the market with the help of the strategic partner. That being said, getting support from a corporate venture arm is not easy, because typically the technology has to fit into the corporate strategy and product portfolio.

This is particularly the case with Dow AgroSciences, according to Hanping Guan, Ph.D., New Technology Leader at Dow. He said that technology being pitched to him has to fit nicely into Dow’s strategic plan or existing portfolio of products.

On the other hand, Syngenta Ventures, according to Patrice Sellès, Ph.D., Head, Biotechnology Technology Acquisition, is more open to investing in technologies that are outside the company’s portfolio if the evaluators see significant upside. Even though Syngenta is more flexible than Dow with its investments, that doesn’t mean that the fundraising process will be easy or fast. If the technology being pitched is outside the scope of staff expertise, the entrepreneur will have to spend more time educating investors about the market potential and unique competitive advantage of the technology.

The path from bench to bucks

Because most ag tech and ag biotech technologies are born in academic labs, it is interesting to know what kind of relationship corporate venture managers have with major research universities.

Most of them do, but the quality and depth of relationship varies from company to company. Dow AgroSciences supports graduate students at top universities; it funds research and Ph.D. thesis work because the company wants strong, well-educated people to graduate and apply for jobs with Dow. Its university relationship team focuses on employee pipeline, not technology commercialization, because they feel most technologies coming out of university settings is too early-stage for company investment.

Syngenta, again, has a different point of view, and it’s willing to take on more risk. Sellès stressed numerous times that Syngenta has a very well-defined process for working with university researchers, which should be followed and respected. He noted that one of the channels where scientists can get feedback on their work is through Syngenta’s Thoughtseeders website that publishes topics of research interest for Syngenta, so people can submit their proposals and wait for the feedback on non-confidential basis.

Sellès said he gets frustrated when entrepreneurs get impatient with a large corporate organization’s perceived slow response time and try to “get creative” by jumping seniority levels and talking directly to senior executives -- sometimes even the CEO. When then happens, the process starts to crumble as pressure from senior executives builds, which is unnecessary according to Patrice.

From my point of view, if you can get the ear of Syngenta’s CEO and he believes in your pitch, the more power to you, mr. or ms. entrepreneur!

Bill Trout, Ph.D., senior research scientist with Elanco Animal Health, is not a big fan of people circumventing the process either. He said he’s very clear that he is the focal point of contact for all technologies related to animal health. In his job, he evaluates and tests the technology itself, but four out of five times, he never even starts the process because the parties cannot agree on the content of a Confidential Disclosure Agreement (CDA). Hence, his biggest frustration is with paperwork and entrepreneurs’ inflated expectations.

Everyone on the panel agreed that finalizing the CDA document is very time-consuming process that can be done faster if the scientist comes to the investor with an open mind and willingness to negotiate very narrow language for the scope of the disclosure. This is a very sensitive issue for corporations that have their own internal R&D because they don’t want to inadvertently disclose their own development plans to the outside party. Once a CDA is in place, a Non-Disclosure Agreement (NDA) can be executed to explore mutual business interests and start the technology testing and validation phase.

It’s well known that about 80 percent of technologies don’t reach the market because they fail to perform as promised, so Trout said he highly appreciates scientists who will help him speed up the time it takes to fail a critical test. He encourages researchers to think about the weak spots early in the process and design tough stress tests, instead of spending time testing scenarios that he or she knows are easily passable. With this approach of early failure, everyone involved saves money from limited development budgets.

Bring a business model with your tech

Customers don’t buy a technology, they buy a solution to their problem. Similarly, investors buy into a business model, not a raw scientific experiment.

Because of that, researchers who bring to investors a well-developed business model and a business plan increase their chances of success in the marketplace. Panelists agreed that they like to see a well-designed go-to-market strategy with a commercialization pathway targeting one specific market segment, large enough in terms of potential revenue.

For example, a $100 million market segment is not large enough  to be attractive for most investors. Even though most platform technologies can be applied to a number of different solutions, panelists said they prefer that entrepreneurs select the single best path to the market and develop a strong business plan around it. Guan said he goes one step further. He likes to see how a technology and proposed product fits into Dow’s existing product portfolio.

Life science entrepreneurs cannot easily quit their day job and work on their startup, because they need millions of dollars just to test their concept and it takes five to seven years to reach the market to generate initial sales.

Investors, such as Ed Robb, D.V.M., Vice President, Business Development North America, Ceva Animal Health, understand this situation well. However, they do ask scientists to spend time articulating their vision for the company that can be created around their innovation. With this vision, their business values and well-articulated business plans, conversation with potential investors can be very effective.

Don't underestimate biz dev costs

Ultimately, everyone involved in the technology commercialization process needs to make money at some point. Panelists agreed that it is not uncommon for scientists to have overblown expectations about the value of their invention. They tend to underestimate time, effort and cost of the business development. This mismatch in expectations can lead to a long and contentious licensing negotiation process.

To level-set the expectations, I would recommend that entrepreneurs spend some time analyzing the SEC fillings of publicly traded companies and focus on the cost of R&D compared to overall revenues and profit margins. Then, they need to factor in high failure rate for most new technologies. Further, most public companies will bury somewhere in their quarterly financial report information about their current licensing agreements, so royalty fee range listed in a document can give entrepreneurs valuable comparable metrics.

Conclusion

NCBiotech once again assembled an excellent expert panel of investors who are very supportive of the challenges faced by ag tech and ag biotech scientists. Among panelists and numerous other investors in the audience, entrepreneurs had plenty of opportunity to network and pitch their ideas.

Some investors complained during the break that this year’s Entrepreneurial Showcase presentations were not in the format of a traditional pitch, and were so focused on details of the technology that no one actually asked for funding. Lesson learned.

Dragana Mendel is founder and president of ANAGARD, LLC,  a Raleigh-based management consultancy for startups, small and medium-size businesses dedicated to helping clients develop and execute growth strategies. 

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of NCBiotech or any of the other companies, organizations or individuals mentioned.

 

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