ICYMI: The non-scientist’s guide to investing in science startups
Yesterday, Breakout Labs Scientific Director, Hemai Parthasarathy, participated in a webinar hosted by the Angel Capital Association (ACA) on the topic of investing in disruptive science and what to look out for, especially if you’re a newbie.
Hemai and the panel of experts, which also included Andrea Belz, Director of the Innovation Node, Los Angeles, Ronjon Nag, Head of the MIT Alumni Angels of Northern California, and moderator Swati Chaturvedi, founder and CEO of Propel(x), shared their tips for how to dig into deep science and spot a good investment to an audience of about 200 eager investors (mostly angel) and academics.
We think you’ll agree that their advice is applicable to investors and entrepreneurs alike. Here are our top three takeaways:
1) Disruptive science technology = science + business
To kick off the conversation, the panelists were asked to define disruptive science to help investors understand the difference between an interesting research project and an idea that has true commercial potential. Disruptive science technology–as agreed upon by the panelists–is a fundamental scientific advance (ideally something that has the capacity for multiple applications) that also has an innovative business model.
The panelists noted that it’s common to see one without the other–the science or the business–but that true success requires a combination of the two. A few good examples include Modern Meadow, Positron Dynamics, Ondax, and Tribogenics. Andrea encouraged investors to ask entrepreneurs the hard questions about their business the same way they do about their technology.
Universities, accelerators and incubators continue to be strong sources for new startups. Propel(x) is another great resource and recently launched a channel program where investors can get a centralized view of startups from leading industry partners. You can view the Breakout Labs channel here to see which of our companies are fundraising.
2) Science investments take time
It’s tough to place valuations on hard science companies due to the level of risk involved in the early stage, but once proven, they can be as lucrative as what’s seen in the web economy. When asked about investor returns, Hemai and Ronjon agreed that in investing in science is a commitment to the long game. In fact, Ronjon noted that he assumes a 10 year hold on any investment he makes in the space. “If anything comes out earlier, that’s great,” he shared. “But I plan to be in it for at least 10 years.”
Hemai added that apps and consumer technologies are often more enticing to investors because of the potential returns, but they are also dependent on trends. “A number of the companies we [Breakout Labs] invest in take a path where they will have shorter term goals and acquisition opportunities that can be very attractive to investors,” she said. “They have aspirational long-term goals like curing diseases, but they are also developing things like research tools along the way. It’s shorter steps to a larger vision over time.”
3) People are a deciding factor
Beyond the technology and commercialization opportunity, the panelists put a big emphasis on people as a key factor in determining a valuable investment. Entrepreneurship is not for everyone, and scientist entrepreneurs are a rare breed. Hemai said that the founding team is something Breakout Labs takes a serious look at when reviewing proposals. “We look for the people that have the entrepreneurial instinct, and their ability to be coached and partnered with the people they need to build a business,” she said.
Ronjon echoed that sentiment and offered that one of things he keeps in mind when coaching companies he’s working with is how they’ll handle the tough times. “In the beginning, they are very optimistic but I say, if you hit a period where there is no money, what are you going to do? Will you survive?”
For Andrea, it all boiled down to one word: respect. “I’m not interested in arrogant scientists who think science alone will drive a market,” she explained. “Things don’t sell themselves. You need to have someone who can explain what they’re doing in layman’s terms. Someone who can build a business, not a science fair project.”