Here’s an article from Nature News on the startup incubator company Ycombinator moving into biotech funding. Those of you familiar with them will wonder a bit about this, because it’s a space that they’ve avoided. But read on:
In 2008, Y Combinator founder Paul Graham wrote that funding biotechnology start-ups was too expensive. Why the change now?
Sam Altman: Six years ago, the starting costs for biotech firms would not work with our model: it took millions of dollars to get anywhere. But the landscape has changed. We’ve noticed, over the past year, more and more promising biotech firms asking about Y Combinator. I think there is a real trend for biotech start-ups looking more like software start-ups. In ten years it won’t even be unusual for a biotech firm to begin in the same way a software firm does, and we want to be on the leading edge of that trend. Given that we haven’t done this before, we don’t know a lot of people that have a background in it, so we were very lucky that Elizabeth agreed to help.
Elizabeth Iorns: I think the fundamental changes that are happening in the biotech space are like the changes that happened for software start-ups with the introduction of Amazon Web Services. You saw the economics completely shift. Previously, you needed significant investment in physical infrastructure to start a firm. Then all of a sudden you could just turn on servers. That same ability to access the entire technical infrastructure that’s required to start a biotech company is now also available with basically no investment. We see Science Exchange as an example of that platform, and you also see it with QB3 [a life-sciences incubator based at the University of California, San Francisco], which rents out lab bench space for less than US$1,000 per month. That means you can cheaply have access to laboratories, instruments and experts. That’s completely different than it has been at any other time for biotech firms.
I’m on the fence about this. I’m very much in favor of new funding mechanisms for biopharma research, and I’m very glad to see new organizations getting into it. My worry for the Ycombinator folks is that they may be coming into this with a bit too much of the weltanschauung of the tech sector, where companies that start off sounding like “Hey, kids, let’s put on a show in the barn!” can turn into huge operations. (Two that Ycombinator has been in on, for example, are Dropbox and Airbnb, but plenty of other internet startups have had similarly small-scale origins).
I would very much like for biotech to work the same way, but my fear is that we’re much more money-intensive, and that we have a much higher chance of expensive failure. There’s a lot of criticism being thrown back and forth here, with people coming down hard on the Ycombinator stuff (naive, underfunded, etc.), and the folks there saying that they’re being singled out mostly because they’re not members of the club. Problem is, none of these complaints (from either side) are unfounded. I myself am not quite so sure about all these dramatic cost savings – all the work I’ve been in on has been, sooner or later, hideously expensive. But Ycombinator can pretty much shut everyone up, though, with something successful, and I think that they should go right ahead and try for it. I don’t always enjoy being right.
Update: more from Wavefunction, who’s fairly optimistic.
Correction: I’d originally written that Ethan Perlstein’s Perlstein Labs had gotten funding from Ycombinator, but that’s not accurate. He’s worked with the Ycombinator-backed Science Exchange, but isn’t being funded by them.