Cashing in on founder-led biotech

The biotechnology industry was born around 50 years ago. Among the first founders were a Stanford University medical professor and a University of California, San Francisco, biochemist, who together hatched the idea to splice together DNA strands and then clone them using Escherichia coli. The biochemist, Herbert Boyer, saw a path to profit and in 1976 cofounded Genentech with venture capitalist Robert Swanson. Boyer helped lead Genentech as a vice president until 1990.

The early days of biotech are littered with such stories. Biochemist Ronald Cape cofounded Cetus—which competed with Genentech to create a recombinant interleukin-2—in 1971 and led it as CEO for 13 years. Harvard University molecular biologist Walter Gilbert cofounded Biogen in 1978, 2 years before he won the Nobel Prize, and served as its CEO from 1981 to 1984.

These days, it’s rarer to see a scientist controlling the company they founded.

Biotech is a much larger enterprise now than it was in the 1970s, but it’s just as risky. About 90% of drug candidates don’t make it through clinical trials. At the same time, there are now more seasoned executives who’ve been through the rigamarole of bringing a drug to market.

In the 2010s, a new class of operators came in. Venture studios like Third Rock Ventures and Flagship Pioneering would incubate and fund biotech companies—and seek to install their own management teams. Such firms value experienced leaders with the know-how to put together data packages that will please the US Food and Drug Administration or with the medicinal chemistry instincts to make a drug candidate truly best in class. Traditional venture capital (VC) firms also tend to prioritize experienced managers over first-time founders.

Instead of being part of the C-suite, the founders of these biotech firms would serve on a scientific advisory board or stay out of the new ventures altogether. After signing a licensing agreement, the researchers would then go back to their day jobs in academic labs.

That arrangement works just fine for plenty of scientific founders. But many who do want to take a crack at executive leadership have been left out on a limb.

“It went from, ‘This was a very effective and very powerful tool’ . . . to ‘this was the only way it makes sense to build biotech companies,’ which is very much not the case,” says Jake Becraft, cofounder and CEO of Strand Therapeutics.

Enter the “founder-friendly” VC firm. New investors have sprung up to counter the venture studio model, and to capitalize on the founder-led biotech movement, by teaching first-time executives the business tools they need to effectively lead their start-ups—as has been done for years in Silicon Valley’s tech industry. Founders have also begun to strategize on how to stay in control, prioritizing partnerships with investors and advisers who want to give them that chance.

Among the new founder-focused VC firms is the recently launched Curie.Bio. Curie came onto the scene in 2023 with $520 million to invest. In contrast to venture studios, the firm says it lets founders run the show and keep costs low by offering them its own network of experts.

That network includes Christoph Lengauer, a four-time chief scientific officer and former Third Rock partner, and Chris De Savi, a medicinal chemist who started his career at AstraZeneca and went on to help lead drug discovery efforts at Blueprint Medicines and Kymera Therapeutics. These experts help shape the companies Curie invests in; founders have access to their skill sets without having to pay them to join the companies full time.

“The team I lead at Curie . . . are all hardcore drug hunters,” Lengauer says. “Those are medicinal chemists and biochemists and project team leads and heads of R&D in pharma and biotech. There’s a lot of discovered, developed, and approved drugs in that group. And that team is expensive. That’s the Curie value proposition: that we have that team.”

Curie has taken out billboards along I-93 and I-90 in Massachusetts, visible to drivers traveling over and around the storied hub of Cambridge. This summer and fall, the Kendall/MIT station on the Greater Boston subway’s Red Line was plastered with ads for the new firm. “It may be biotech winter,” one read, “but Curie.Bio is funding founders.”

Curie’s approach is attracting attention—and money. While biotech funding in general is only beginning to emerge from a 2-year slump, Curie just raised another $380 million in June to fuel new investments. It’s a bet on the theory that tough times make for the best start-ups. So far, one start-up has graduated from Curie: Forward Therapeutics, which is developing small molecules for chronic inflammatory conditions. Curie has around 20 others in its portfolio, which are earlier along.

“I only see Curie.Bio becoming stronger over time,” says Toufike Kanouni, cofounder and CEO of Forward. Kanouni is a Takeda Pharmaceutical veteran who’s cofounded one other biotech but had never been an executive before. “What I can say to all founders out there, and to my fellow chemists, is that you don’t have to reinvent the wheel,” he says. “If you have an idea and you have a patient out there with challenges and you have an idea of how to potentially treat those health challenges, pitch it.”

Founding pains

Scientists who want to start and lead companies are often met with skepticism, and first-time founders get it the worst.

Strand Therapeutics is a Boston-based biotech developing self-replicating messenger RNA containing elements that regulate where and when the molecules are expressed. The hope is that these molecules could become powerful targeted cancer treatments. The company has $97 million in venture backing and seems well on its way to success; it began testing its lead drug candidate in humans—its first clinical trial—in May. But it wasn’t always this way.

Becraft started Strand while he was getting his PhD in biological engineering at the Massachusetts Institute of Technology. He had no experience managing a company, but he believed in the power of synthetic biology, and he wanted a direct role in building the firm.

Becraft remembers a meeting he took with a “well-respected Boston biotech CEO” when he was still in graduate school and trying to get Strand off the ground. They met for coffee and decided to take a walk afterward to keep the conversation going. After close to 2 ½ hours, the CEO asked him, “What’s your thought on getting a real CEO?”

“I’d like to take a stab at this,” Becraft recalls saying. “I think early on, there’s some technological decisions that might make sense for me to run. I don’t know everything, but I’m sure I can find ways to learn.”

The CEO was skeptical; the two parted ways. Becraft says he didn’t hear from him again until around 2 years later, after Strand had formally launched and was raising its series A investment round. The executive wanted in as an investor—now that Becraft had some experience.

Liane Clamen, cofounder and CEO of the start-up Adaptilens, has a similar story. She’s a Harvard-trained ophthalmologist and inventor who has licensed out technology before, but Adaptilens is the first company she’s led. Adaptilens is developing a lens designed to be placed inside the eye after cataract surgery.

“I believe I’m the best one to bring this from idea to market, but I also believe that I can build—and I have been able to build out—a team,” Clamen says. “I’ve had a lot of years of experience and wisdom in terms of who would be a good, collaborative teammate.”

But that collaborative leadership style didn’t resonate with everybody. She remembers one potential lead investor who told her he wasn’t used to a CEO who would bring in teammates to answer questions, for instance. Clamen was thrown. “I’m old enough to know my strengths,” she says. In the end, she chose not to accept him as Adaptilens’s lead investor.

Instead, Perceptive Xontogeny Venture (PXV) Fund led the start-up’s $17.5 million series A round, announced in April. Pillar VC—which had led Adaptilens’s $1.6 million seed round in 2020—also participated, alongside 380 Cap and Accanto Partners.

Xontogeny, an investment firm affiliated with PXV Fund, takes an approach similar to Curie’s. Xontogeny CEO and PXV Fund portfolio manager Chris Garabedian has aimed his efforts at helping first-time founders since he launched Xontogeny in 2016, shortly after leaving Sarepta Therapeutics as CEO. Like Curie, Xontogeny is selling not just money but its network effect.

Garabedian says his team takes an “active management” approach with the founders of portfolio companies whose seed rounds it leads, and it meets with them at least weekly. Since Adaptilens is a later-stage company, PXV Fund is slightly less hands on but applies “the same principles,” Garabedian says. In addition, Xontogeny partner Gianna Hoffman-Luca sits on Adaptilens’s board.

Garabedian isn’t surprised to see founder-focused venture firms taking off.

“This founder-led movement either was going to fall flat, or you were going to see the proliferation of more Xontogeny-like structures,” Garabedian says. “We put out a clear signal that we are here to help the first-time CEO, the scientific founder, the entrepreneur. That’s why we started it. We think there’s some great technologies that are attached to founders that would not be easily embraced by many VCs out there.”

Adaptilens investor Pillar VC is bringing its annual Founder-Led Biotech Tour to four cities this month: San Francisco, New York City, London, and Boston. Pillar has grown its life sciences investments significantly since absorbing its biotech accelerator, Petri, in 2021. About 40% of Pillar’s operations are now focused on life sciences, according to Tony Kulesa, a Pillar principal and cofounder of Petri.

“In times of great disruption, when you’re throwing the playbook out the window, you’re going to bet on founders to show you the way,” Kulesa says. “Especially the young technologists who aren’t operating by a known playbook time and time again but trying to design a new one.”

Behind the brand

What remains to be seen is who is putting their money where their mouth is. For some investors, say Strand’s Becraft, being founder-friendly is “a brand.” What really matters are the terms of their investments—in other words, how much they take and how much founders get to keep for themselves.

A Curie.Bio slide shared with C&EN by a third party shows a sample seed investment in which Curie takes about 50% of a portfolio start-up’s equity, while the founders keep a generous 50%. The idea is that since the founders keep such a large stake, there’s less of an opportunity for equity dilution as additional investors join in subsequent funding rounds. Founders have the potential for a bigger payout when their start-ups exit via a stock offering or acquisition.

But outside of venture studios like Flagship, a 50% stake by a single investor is uncommonly large. A Curie spokesperson confirms that the firm has used the slide in a seminar for founders, adding that “Curie’s equity stake varies based on many factors.” Founder and CEO Zach Weinberg has previously said that Curie’s investment arm takes a 33% stake, while its services group takes a 7% stake.

“Curie.Bio, they say they’re founder friendly. Sure. But they’re going to take all your equity,” says Ethan Perlstein, founder and CEO of the rare disease therapeutics firm Perlara. “It’s the East Coast cosplay of founder friendly.”

Curie invested around $9 million in Forward Therapeutics. As of April, Forward’s founders still owned close to 30% of the company, according to Lengauer.

“That’s a lot,” he says. “Can you imagine? If Forward gets bought for $500 million, the founders walk away with $150 million. That’s serious.”

Traditional seed-stage biotech investors typically take smaller equity stakes. A sample capitalization table—a spreadsheet tracking ownership in a firm—available on Pillar’s website shows founders keeping a 41% equity stake after closing a seed round; the rest is broken up into small chunks among various investors. Many industry experts warn founders against giving away more than 40% of a company at the seed stage.

Being founder friendly also means making the process of founding a start-up accessible to those without business backgrounds. Pillar, for instance, publishes a Founder Playlist with resources including how-to articles, a selection of prevetted vendors, and templates for fundraising and legal documents. Andreessen Horowitz similarly has a Company Building blog offering advice about cash management, growth metrics, and more.

Successful first-time founders are also starting to break down information barriers themselves. Celine Halioua, founder and CEO of the veterinary biotech start-up Loyal, makes blogs and lectures about her path to building the company available on her personal website. Kristen Fortney, cofounder and CEO of the antiaging biotech BioAge Labs, has given countless talks and interviews about the journey from founding her start-up in 2015 to going public on the Nasdaq this year.

“There was the PayPal mafia, the Facebook mafia, the Google mafia, all those early employees who made a shit-ton of money in options,” Perlstein says. “The same shit’s going to happen in founder-led bio when Celine, Kristen, hopefully me one day—hopefully we’re successful, and then we’re going to make some decisions about which founders get backed.”

West Coast style

Scientists who want to start companies have other ways to get started. As Perlstein says, “VC is not the only game in town.”

One option is an accelerator: a competitive, time-limited program designed to help extremely early-stage start-ups hone their products and business strategies.

Unlike many VC firms, accelerator programs tend to take small equity stakes—or none at all. Adaptilens participated in the Massachusetts-based accelerator program MassChallenge and the Harvard President’s Innovation Challenge early on. Both support founders with advice and networks during the program, then stage a competition at the end with a cash prize attached.

Perlstein’s company, Perlara, started in 2014 and participated in the California-based Y Combinator in 2016. Perlstein turned to the storied accelerator program that’s birthed a generation of start-ups, including Airbnb, Dropbox, and Reddit, after a bad experience with an angel investor—the notorious “pharma bro” Martin Shkreli.

“By the end of 2016, it was clear that Martin’s promises were not going to come true,” Perlstein recalls. “The company was in danger of flaming out.” A friend encouraged him to apply to Y Combinator, which at the time was extending its branches further into biotech. Perlstein calls it “the best decision I ever made.”

Y Combinator takes a 7% equity stake in each of the start-ups it invests in. Standard terms involve a $500,000 investment. That’s not much money for a biotech, but it was enough to rekindle the flames of Perlara. Y Combinator also spurred Perlstein to change his business strategy to partner directly with rare disease patients and their families, who would fund individual projects in exchange for part ownership of any resulting data or drugs.

“They said, ‘Make what people want.’ I really took that to heart,” Perlstein says.

Before Perlara, there was Ginkgo Bioworks, which in 2014 became the first biotech company to participate in Y Combinator. Ginkgo also eschewed the standard biotech business model. Founded by a group of MIT graduate students, the firm quickly morphed into a provider of synthetic biology tools to biotech companies, much like some firms offer software tools to tech companies. Cofounder and CEO Jason Kelly has compared Ginkgo to Amazon Web Services many times. Ginkgo has spun out a number of companies, including ones focused on fake meat and beauty products.

Kelly says Ginkgo didn’t get much traction with Boston’s traditional biotech investors 10 years ago. Before Y Combinator started soliciting life sciences pitches, Ginkgo had been funded largely by government grants. Kelly says he came across a blog post that Y Combinator was planning to expand into life sciences and thought, “This is amazing.” But “biotech land,” as he put it, was skeptical.

“Literally, categorically, everybody out here [in Boston] was like, ‘Oh, that is a terrible idea. What the hell does Y Combinator know about biotechs?’ ” Kelly says. “’They’re completely useless software guys who won’t help you.’ I’m like, ‘Well, you’re not giving me money anyway, so what’s the difference?’ ”

Kelly and Perlstein are among a growing class of biotech founders who have been influenced by Silicon Valley. The tech world reveres founder-CEOs like Brian Chesky of Airbnb, Jack Dorsey of Twitter, and Mark Zuckerberg of Facebook (now Meta).

“If you’re going to make a dichotomy, West Coast style tends to be a lot more founder friendly,” says Ashley Zehnder, cofounder and CEO of the start-up Fauna Bio. “It’s more about letting the originators of the technology try to run the companies as well.” Fauna is developing drug candidates for cardiopulmonary and retinal conditions and has partnered with Novo Nordisk and Eli Lilly and Company to find new targets for weight-loss drugs.

Zehnder is a trained veterinarian with a PhD in oncology and cancer biology from Stanford University. She and her two cofounders came up with the idea for Fauna Bio when they were postdoctoral researchers at the university. They were mulling the idea of applying to a Stanford-associated accelerator when they met Laura Deming, cofounder and venture partner at an accelerator called age1. She offered them a spot.

“We had 3 weeks to decide if we were leaving our postdocs to start the company,” Zehnder says. “We ended up with this very Three Musketeer–type moment. Laura has a spot in this accelerator. Fauna really needs the skill sets of all three of us. And it was like, OK, either we all three decide to do this or we don’t.”

Age1 invested on what Zehnder says were very favorable terms. The start-up got to work scaling its decidedly unique approach: sequencing genomes of ground squirrels and other animals to find genes they share with humans but use for different things.

For the investors who are on board with that approach—and even with a trio of first-time founders leading as executives—it’s a no-brainer.

“When we talk to investors, it falls into two camps,” Zehnder says. “There’s people who think what we do is a little bit crazy—and that’s fine, people have a right to their opinions—and people who are like, ‘Oh my god, why have we not been doing this the whole time?’ ”