Strategic Technology Resources

Dr. Greg Lanza writes:

“A small company has a specific technology around which it is founded, a specific opportunity. Their problem is development of a cogent business plan and establishment of freedom to operate (FTO) (particularly, if the field is highly competitive). The management must execute a program to bring incrementally increasing value to the company based on meaningful milestones. Small companies need constant funding rounds to fuel the development and each must be an "up" round. To be an up round adequate money must be secured at each funding level to allow the company to achieve the next value-added milestone. This is critical for venture capital funded companies.

The key first step is to position small companies with a convincing and achievable plan to garner adequate financing for significant development. In many cases additional outside money, for example governmental funds, can be leveraged with private investment or vice versa to reduce risk to both parties. The outside review and governmental granting of funds provides a level of due diligence which helps to satisfy other investors, beyond just the total money acquired.

For most VC managers, all investments are commodities in that the returns achieved through investments in widgets are as valuable as in technologies to fight cancer. Of course, the lower the risk, the lower the return. Everyone is looking for high returns, so many are often willing to accept significant risk. Thus, a strong presentation needs to be put together to excite investors about opportunities that may be risky. The presentation must tout the promise as well as how the potential risks can be ameliorated. One key risk is freedom-to-operate. It is one thing to have intellectual property, but quite a different situation with regard to practicing that technology. "One can not sell what one does not own." Once the technology portion of the story is accepted, then the entire deal is based on the financial numbers.

Another major factor to consider is the rate at which milestones can be achieved and returns gained. Most funds operate for over fixed time windows, e.g., 10 years. During that time, a fund must find investments and reap a return on the money. Return can be direct sales, sell-off, IPO, etc., but essentially one needs to convert the privately held company shares into cash or cash-equivalents. Thus, the amount of money sought needs to be adequate to maintain a development tempo which will allow this key milestone to be reached within a few years. This is why many VC firms invest late, either at the time of clinical trials or in phase II, when the risks are less and the time to liquidity is shorter.

Most small companies need help identifying and organizing these issues to generate at least a seed round with which they can recruit a first CEO and the initial start-up people. This team must quickly identify and solve the gaps in the technology and business plan in order to initiate a credible "A - round".

Wyman, your great strength is putting teams and early development plans together. You help others to crystallize their thoughts, find program weaknesses, and develop integrated working plans. More importantly, you have a knack for assembling start-up teams, inspiring them, and creating something greater. The Bovine Somatotropin (BST) program at Monsanto was the perfect example. You interviewed and hired the team, led them to establish and commit to an aggressive development plan, and importantly, inspired them to overcome adversity and to succeed. Eventually the program had a life of its own and was rolling to its inevitable success. VC will be looking specifically for these elements in all small company investments. In the end, the final decision to invest will be made at a "gut-level" based on confidence in the technology and team beyond what they personally understand" ----

Greg Lanza, MD PhD., Formerly Manager Biology, Bovine Somatotropin (BST) Program Monsanto Company and currently Associate Professor of Medicine and Bioengineering, Division of Cardiology Washington University Medical School. Dr. Lanza is Co-Founder of Kereos, Inc. (Kereos.com). Kereos develops targeted therapeutics and molecular imaging agents that detect and attack cancer and cardiovascular disease earlier and more specifically than previously possible.