From Research Lab to Venture Backed Company

Post 1 45f0cf74b41f3f44fc9393d2b5993af6d971cea5d90f3ebf7d51dd7e4828f839

The Current State of Scientific Funding in America:

From Research Lab to Venture Backed Company

Javier avatar 7a142510f329990068a573ba676ca69b58e2268ba6fec2a346c8265984dff76dJavier Noris wrote this on Jan 20, 2016

Alberto Gandini was a senior researcher at Carnegie Mellon University in the summer of 2011. He was working on novel new microfluidics point-of-care diagnostics for malaria patients.

It was during this time when he realized the commercial potential of his work. He always had an entrepreneurial spirit and began looking for ways to fund the commercialization of his research. After exploring for a few weeks he ran into what is commonly referred to in the industry as "The Valley of Death".

"80 to 90 percent of research projects fail before they ever get tested in humans. By industry’s reckoning the number may be even higher, for every 5,000 compounds tested, only five make it to clinical trials." - Faster Cures (Crossing Over the Valley of Death)

His options were limited and it seemed like academia and industry were not set up to bridge further research & commercialization of his technology.

Alberto's story is commonplace at research institutions across the nation. The current system is not setup to take innovations from academia to industry or what is commonly known as "Translational Research".

“There's a backlog of about 20 years of drugs that are waiting to be tested but can't be funded." - Roger Stein, Senior Lecturer in Finance at MIT's Sloan School of Management


Phase I – The Academic / Basic Phase (0K-250K)

Phase II - The Seed / De-risking Phase (100K-1M)

Phase III - The Angel / Validating Phase (500K – 10M)

Phase IV - The Venture / Growth Phase (7M-100M)

This post focuses on demystifying the entire scientific funding cycle. We hope this provides a rubric and go to guide for future scientist entrepreneurs to use as they look to bring their discoveries to market.

We take a different approach than others have when trying to outline the different stages of scientific funding. We stay away from the traditional segmentation of Basic/Commercial or Basic/Translational/Commercial as it is typically seen in literature and focus on an outline that more efficiently outlines scientific funding sources based on dollar volume at various stages. Through this lens we then also explore where the "The Valley of death" in translational research is most prominent.

Phase I : The Academic / Basic Phase (0K-250K)

This is the phase where basic research is carried out. The experimental method is employed and researchers test hypothesis to gain insights. There is usually no commercial objective, instead researchers seek to build upon and further the total scope of human knowledge. The science in this phase is highly theoretical and is usually undertaken in an academic setting. Examples of things that are undertaken in this phase are:

- Decoding the Genetic Sequence of a Protein

- Measuring Atmospheric Pollution Profiles using Drones

- Studying Targeted Drug Delivery by using Magnetic Nanoparticles

- Researching Analog Genetic Circuits for Interactive Learning

Federal Funding

The financing of basic research has changed dramatically over time. In the 19th century most of basic research was funded by wealthy patrons. It was in the middle part of the 20th century we first began to see the rise of federally funded basic research.

For about half a century we continued to see the rise of federally funded research. However, in 2004 something unusual happened. Federal funding for basic research peaked and began a decade long period of stagnation.

Post2 f42fb87fc55b1b3f49d0e163bcb8795afbbeb666ed85bfecd5c6bd376b8d95e0

As a percentage of GDP, federal research has decreased strongly in the past decade.

Post6 27b18d0f87793d0f89b4ddf61539e5be9aa1e93da5a351f4e9681308304c607d

NIH (National Institute of Health)

Founded in 1887 the NIH is the largest federal agency funding science in the US. It is composed of 27 separate Institutes & Centers.

"Simply described, the goal of NIH research is to acquire new knowledge to help prevent, detect, diagnose, and treat disease and disability, from the rarest genetic disorder to the common cold. The NIH mission is to uncover new knowledge that will lead to better health for everyone. NIH works toward that mission by: conducting research in its own laboratories; supporting the research of non-Federal scientists in universities, medical schools, hospitals, and research institutions throughout the country and abroad; helping in the training of research investigators; and fostering communication of medical and health sciences information." - NIH Website

The NIH is of particular importance to us because it is typically the first source of funding for young researchers starting off their careers in science. R01 Grants are the grants that these young researchers typically compete for and their ability to land one during their postdoc years can have long lasting implications on the rest of their careers. When speaking with researchers at academic institutions they overwhelmingly say that R01 Grants are harder to attain than ever before.

Later in the NIH grant funnel are the P-Series and U-Series awards. P-Series awards are larger awards that allow for entire labs to be run for an extended period of time. U-Series awards are some of the largest awards and typically require some form of organizational co-operation from multiple research teams to make them work.

In 2012 under the leadership of Francis Collins, the director of the NIH, a new program called The National Center for Advancing Translational Sciences(NCAT) was approved. Collins has been very vocal in his view that there is huge opportunity laying dormant in the translational science space. The goal of NCAT awards are to advance translational research for treatments and cures for disease, so they can be delivered to patients faster.

"“I am a little frustrated to see how many of the discoveries that do look as though they have therapeutic implications are waiting for the pharmaceutical industry to follow through with them." - Francis Collins, Director of the NIH

NCAT awards are very new and not much data is available yet. However, we are very enthusiastic about its potential moving forward.

National Science Foundation (NSF)

The NSF funds 24% of federally supported academic research. The NSF is the umbrella federal agency and the only one who supports all fields of fundamental science and engineering, with a budget of 7.3 Billion in 2015. The NSF is tasked with maintaining the US at the leading edge of scientific innovation.

NSF will invest $20 million to The BRAIN Initiative project. NSF also proposed a cyber-infrastructure initiative that will accelerate the pace of discovery in virtually every research discipline, by advancing high performance computing, creating new research networks and data repositories, and developing new systems to better visualize data (CIF21). It allocated $125 million for its cyber-infrastructure initiative.

"To promote the progress of science; to advance the national health, prosperity, and welfare; to secure the national defense." - NSF Mission Statement

Department of Defense (DOD)

This department is the largest employer in the world. It serves many purposes, one of which is maintaining America's scientific excellence and military edge through science and technology.

In 2015 the DOD had $64.4 billion of its budget allocated for research and development. The budget includes $11.5 billion for the DOD’s Science and Technology (S&T) program and $2.9 billion for DARPA (Defense Advanced Research Projects Agency).

DARPA is a particularly interesting sub-agency within the DOD. It is responsible for the development of emerging technologies for use by the military. However, research funded by DARPA has produced significant technologies that revolutionized many non-military fields, such as computer networking and graphical user interfaces in information technology. DARPA unlike most other agencies with federal funding, has almost free reign with its research projects. Their broad mandate has allowed the agency to continually outperform other agencies in innovation efficacy historically.

"To provide the military forces needed to deter war and to protect the security of our country" - DOD Mission Statement

Department of Energy (DOE)

The DOE had a $12.3 billion R&D budget in 2015, a $950 million (8.4%) increase over the 2014 budget. DOE’s Office of Science (DOE SC) invests in basic research and research infrastructure to keep America competitive. It received $5.1 billion of the R&D budget.

"To ensure America’s security and prosperity by addressing its energy, environmental and nuclear challenges through transformative science and technology solutions." - DOE Mission Statement

National Aeronautics and Space Administration (NASA)

NASA's R&D portfolio was for $11.6 billion in 2015. There seems to be a general perception that NASA research is not very applicable to the daily lives of human beings here on earth.

The truth is that there is a very long list of spin-offs from NASA's derived technology, such as - memory foam (originally named temper foam), freeze-dried food, firefighting equipment, emergency "space blankets", dustbusters, cochlear implants, and more. Much of this work is done through the NASA Technology Transfer Program which claims over 1800 successful spin-offs in its portfolio.

NASA also has prominent programs like the National Space Biomedical Research Institute (NSBRI) and the Earth Observing System (EOS) satellites program that have many earth bound implications.

"To pioneer the future in space exploration, scientific discovery and aeronautics research." - NASA Mission Statement

Foundations & Philanthropists

Post5 210d0ec074fa90817ffc96c4cc9d688dd7d10d4727b2232f4ee6f36e44a55895

"US foundations to science, technology and medical research have grown from $793 million in 1999 to $1.7 billion in 2010" - Foundation Center

Science Philanthropy has been on a steady rise in the US. People like Zuckerberg, Gates & Ellison have been leading the way and are putting significant amounts of money to work for science. Similarly, leading foundations have continued to see growing support especially in medical research.

Top 5 Foundations for Science & Technology in 2012 - Total Dollar Value of Grants

Gordon and Betty Moore Foundation - $95,638,615

The Simons Foundation - $52,497,917

The David and Lucile Packard Foundation - $52,161,642

Alfred P. Sloan Foundation - $50,361,866

The Lemelson Foundation - $25,930,108

Top 5 Foundations for Health in 2012 - Total Dollar Value of Grants

Bill & Melinda Gates Foundation - $1,666,496,401

The Robert Wood Johnson Foundation - $268,082,813

The Susan Thompson Buffett Foundation - $239,185,120

Leona M. and Harry B. Helmsley Charitable Trust - $120,621,526

The California Endowment - $107,704,348

- Foundation Center

We are very bullish on Science Philanthropy. We have seen positive trends develop in this sector. Two particular areas that seems to have started to get a large amount of attention in the past decade are medical research for childhood related diseases and age related diseases. The Bill Gates of the world are working to rid the world of childhood diseases while the Peter Thiels are trying to figure out how to live longer, healthier lives.

The trend of giving from billionaires seems to be particularly on the upswing. The recent effort from Bill Gates and Warren Buffett to establish a "Giving Pledge" to inspire billionaires to give at least half of their fortunes to charity is just one such example. As of this writing there are 147 commitments on the Giving Pledge website.

Crowdfunding / Donation Platforms

Crowdfunding platforms for basic research have begun to pop up in recent years. They are a new source of capital available to researchers willing to go the extra mile to secure funds. These crowdfunding websites act as donation platforms where a researcher's peer network (colleagues, family & friends) help fund smaller research projects.

Although this approach is better suited for smaller research projects, we began to see a few larger projects being funded through these platforms in 2015. This group shows promise and could potentially grow to be a significant part of the solution to funding gaps in the basic research space.

Crowdfunding Websites Focused On Basic Research

Experiment - Make Science Go Faster

Instrumentl - AngelList For Science

Walacea - Back Science You Believe In

It's interesting to note that these crowdfunding platforms were founded in the most part by former researchers themselves. The platforms were born from the frustrating experiences each set of founders had when looking for money for their own research.

"We experienced how hard it was to fund our science. Ultimately we left to take better paying jobs." - Angela Braren, Founder of Instrumentl

It seems likely that these crowdfunding websites will not be able to take on the full burden of basic research funding. The typical raise amount is not large enough to cover funding cycles for the prototypical lab (100K-250K/year). However, these platforms can fill critical gaps with regards to smaller research projects, last-mile funding and time sensitive funding projects.

"The typical raise is between $500-$5,000 on our platform. Researchers often use it as last-mile funding or time-sensitive funding" - Angela, Founder Instrumentl

Changing Landscape for Basic Research

Post3b 91c5d7cff3a334ced66806db950e984055075001ddef980a8fd3d53400370b12

Federal Agencies, Foundations & Crowdfunding platforms are the major sources of capital available to researchers at this phase.

Although there may appear to be large amounts of money in the system there is a growing feeling among researchers that we do not have adequate support for basic research nationwide. There are two factors at play here:

1) Stagnant Level of Funds

2) Growing Population of Researchers

Post3a eab1cc2693bf7fc7d8ed7aadf53166f904a0c4529c76a74e343623d0f0ced4b2

Compounding the problem is a very bureaucratic system that typically rewards good fundraisers and grant makers. Ideally the system would reward the best science. There needs to be a re-shuffling of priorities in basic research to align incentives and promote better research funding mechanisms going forward.

Overall there is still a very large pool of capital available to researchers at this stage. However, it's becoming an increasingly competitive fundraising process and changes need to be made if the US is to maintain its lead in Science & Technology moving forward. Brace yourself, the scarcity of funds gets even more frightening in the next couple of stages.

Phase II: The Seed / De-risking Phase (100K-1M)

This phase typically comes when a scientist or a group of scientist has made an interesting discovery. They begin to question whether this discovery may have the potential to have some commercial value. At this stage there is still large amounts of research to be undertaken and the concept still has a very high degree of risk.

This is a stage where many scientists begin to fall-off and stagnate at. They may look around for options on how to proceed but are often underwhelmed by their possibilities. The traditional researcher skill-set is not strongly geared to do some of the business development, fundraising and networking that are necessary to transition successfully to this stage.

Meanwhile, there is pressure to remain in the status quo and it is dangerous to leave an academic career for something as risky as starting a company. It’s important to understand that tenure positions are very few and difficult to attain. Leaving such positions is a highly risky endeavor.

This is the beginning of the “Valley of Death” where ideas go to die. Due to the small amounts of capital required at this early stage there is still a decent amount of support for researchers here. However, until recently, if you happened to miss out on Small Business Innovation Research Grants there were not very many alternatives you could go to.

Small Business Innovation Research (SBIR) & Small Business Technology Transfer (STTR) Programs

These programs have been around since 1983 but they have started to become more of an emphasis in the past decade. As stated on the SBIR website:

“The Small Business Innovation Research (SBIR) program is a highly competitive program that encourages domestic small businesses to engage in Federal Research/Research and Development (R/R&D) that has the potential for commercialization. Through a competitive awards-based program, SBIR enables small businesses to explore their technological potential and provides the incentive to profit from its commercialization. By including qualified small businesses in the nation's R&D arena, high-tech innovation is stimulated and the United States gains entrepreneurial spirit as it meets its specific research and development needs.“ - SBIR Website

Both the SBIR & STTR Programs give out Phase I & Phase II awards. Phase I awards are meant to test feasibility and had an average value of $159,296 in 2012. Successful results from a Phase I Grant are needed to be considered for Phase II Grants. Phase II Grants are awarded based on commercial potential and averaged $831,154 in 2012.

Post7c 2c3a10c4bf0264c4acfdac8a9f10744f6b13c523d4b90e254c9b3c2f44a38242

SBIR Mission and Program Goals

- Stimulate technological innovation.

- Meet Federal research and development needs.

- Foster and encourage participation in innovation and entrepreneurship by socially and economically disadvantaged persons.

- Increase private-sector commercialization of innovations derived from Federal research and development funding.

SBIR / STTR Grants are very competitive, the following chart demonstrates the competitiveness of attaining an SBIR Grant from different agencies. The right most column indicates the total acceptance rate.

Post14 bc4659ed5b1ae8a1d1c6846ffa132011ff1f42fdebda7f1593c0b394b1304ed6

To add to the difficulty, the grueling and exhaustive application process of SBIR Grants is a common complaint from researchers nationwide.

“Before applying for an SBIR, steel yourself to write dozens of pages of argumentative text in answer to an extensive list of intimidating questions, buried within a dense application that's riddled with esoteric rules... the first SBIR I wrote took longer than my Master's Thesis, and I had help.” - Dan White, SBIR Funding: Dreadfully Wonderful

Despite it's downfalls we are very optimistic about SBIR and excited to see where it goes. There have been some great companies that have benefitted from SBIR Grants and we expect the number of success stories to continue to grow.

“Had we not had the SBIR Grant we would not have been able to move to the next stage.” - Alberto Gandini Founder of Accel Diagnostics

Post7a f9f4ccdaed35e14025f792e433c27838854015417dfc24c4d4ef50f6abeec02a

Recently Steve Blank, a very prominent venture capitalist began working collaboratively with the SBIR team to implement a more hands-on scientist entrepreneurship training program called I-Corps. Innovations like these are what makes this program exciting to people in the space. You can read more about the I-Corps program here.

Accelerators & Incubators:

Accelerator programs have been prevalent in startup land for over a decade now. With programs like YCombinator, Techstars and 500 Startups leading the charge. A more recent phenomenon is the development of Science/Health focused accelerator programs.

Life-Science & Science-Tech Accelerator Programs

IndieBio - $250,000 (Debt+Equity) + Lab Facilities

Breakout Labs - $350,000 (Grant) + Strategic Support

Qualcomm Accelerator - $120,000 investment + $350,000 worth of partner perks + Techstars Network

MassVentures Start - Follow on funding to SBIR and STTR companies up to $500,000 of seed capital

QB3 - $125,000 (Grant) + Lab Space + Follow-on funding in 2nd year

These programs are great options for "indie scientists" or people who want to leave the academic setting all together. They provide excellent resources and typically will help with connections to investors for follow-up funding. Some of them even have an equity stake in the companies, so it's in their best interest to help companies advance to the next stage.

We purposefully left out a few other accelerator programs that only offer facilities and support but offer no funding. Those non funding accelerators could still be great options and we list them along with other resources at the end of this post.

Tech Transfer Offices:

Another option for aspiring scientist entrepreneurs is to work in tandem with their university's Technology Transfer Office. Technology Transfer Offices work as a sort of mediator between scientist entrepreneurs and outside financiers that show interest in specific discoveries. Unfortunately, the numbers have not shown these offices to be very efficient at mediating the process.

"Between 1991-2011 on average, 87% of Technology Transfer Offices in the US did not break even." - Walter D Valdivia, University Start-Ups: Critical for Improving Technology Transfer

In addition to that the system is highly centralized, with only the most prestigious institutions getting most of the benefit from these sorts of organizational structures.

“In 2012, a year very much in line with the ten-year trends in this sector, the top 5% of earners (8 universities) took 50% of the total licensing income of the university system; and the top 10% (16 universities) took 70%, nearly three-quarters of the system’s income”. - Walter D Valdivia, University Start-Ups: Critical for Improving Technology Transfer

Post9 f2bb32f1d7369c6310931b763ae14a84066ea86ee426c42a9f67c4655c59ca6a

Technology Transfer Offices have traditionally worked primarily as intellectual property licensing offices. There have been some recent efforts to alter this model and instead try to work with and support scientist entrepreneurs in creating viable companies. We feel that this trend will continue and Technology Transfer Offices will begin to spin off and function as something resembling University Science Incubators. This is similar to the path Dartmouth's Technology Transfer Office took with the Dartmouth Entrepreneurial Network and it's New Venture Incubator.

Post8 fac31f9ad084d4f79ca4d2e12a36d40f5a7e54980e8428f834205be449ca6726

Foundations & Philanthropists

Post4c e45ce77ce846aee50c2bf389abfa098c71e2f7bd1c83a2795c71dca2f8edd708

Foundations step in once again to fill some of the void left by federal agencies and private industry at this stage. The type of foundation that focuses on this stage of the scientific funnel is typically looking to support the de-risking of some novel technology. This group has shown tremendous support for helping to de-risk promising treatments in common diseases such as Parkinson's, Alzheimer's, HIV/AIDS and more.

"For science to work, we need a healthy funnel. We need to support science at all stages." - Andrew Wong, Founder of Boundary Impact Ventures

There are some people starting to pay attention to the potential of philanthropy at this stage. There is a huge opportunity for those looking to push the envelope and come up with novel ways to mix philanthropy into science. One such person is Andrew Wong of Boundary Impact Ventures.

"My motivation came from my past experience in the sector. I saw that a clear gap existed between grant to first private investment." - Andrew Wong, Founder of Boundary Impact Ventures

Andrew has been working on creating a new kind of fund that merges Science Philanthropy with a concept known as Impact Investing. He sees this as a way to get more value for your money and better support science enterprise at its early stages.

"There is going to be a shift, and we will see people begin to think about investing philanthropic capital instead of just granting it away." - Andrew Wong, Founder of Boundary Impact Ventures

We already touched on why we are so bullish on Philanthropy in the basic research stage. The kind of philanthropy needed at Phase II is significantly different. We strongly agree with Andrew that new models merging Impact Investing and Science Philanthropy are likely to play a large role for early stage scientific funding going forward.

ScienceVest Seed

ScienceVest Seed is our attempt to fix the funding gap that exists at Phase II of the scientific funding funnel. On ScienceVest Seed you will see early stage science startups that are looking for their first private investment to de-risk their technology.

Every startups that applies undergoes a thorough due diligence process. We strive to only list the most promising early stage scientific funding opportunities for investors looking at early stage deals in the sector. Deals on ScienceVest Seed will be under 1M and typically circle around 500K.

ScienceVest Seed provides investors with access to deals they otherwise would not have access to. We simultaneously help science start-ups by exposing them to our broad investor network.

Sciencevest seed logo a58bfa3d51fdf1fd17d8da636057a15c780ff12135dd11915f47867a619c664b

It is important to note, that despite our efforts to list the most promising early stage startups, there is still significant risk involved for investors at this stage. Startups at this stage are de-risking a lot of their technology and still face significant hurdles ahead.

This is also an opportunity for investors to bring more impact to a science based company. Both through their financing and through their expertise.

ScienceVest Seed aims to attract scientific domain expert investors, impact investors, philanthropists, and early stage angels who are willing to take more risk in return for higher upside / lower price on each deal. You can browse the startups raising on ScienceVest Seed by navigating here.

Changing Landscape for De-risking Phase Research

SBIR/STTR, Accelerators, Tech Transfer Offices, Foundations & ScienceVest Seed are the primary options available to anyone at this stage. SBIR/STTR programs are a great option but are highly competitive and have several other issues. Although there are several Science / Health accelerators they are not enough to support the entire ecosystem. Most of them only have the capacity to take a handful of companies each funding cycle.

Tech Transfer offices are headed in the right direction but, are usually slow moving and highly inefficient. Similarly, Science Philanthropy at this stage has yet to take the necessary steps to make the meaningful impact we feel it will one day make.

With ScienceVest Seed we aim to support early scientist entrepreneurs who need further de-risking of their technology. We also aim to attract gutsy investors that have a unique risk/return profile in the impact investing space to be able to support this early stage science. By doing so we can play a significant role in closing the funding gap at this stage in the science funnel.

Phase III: The Angel / Validating Phase (500K – 10M)

This phase is the biggest test for most early stage companies. The amount of capital that is raised at this stage is substantial. There is no large federal program that provides capital at this stage. Scientist entrepreneurs are thrown to the jungle and left to fend on their own. This is the do or die stage and it also coincides with the bottom most part of the infamous "Valley of Death".

There is further de-risking needed at this phase but it is expected that some significant validation will come from it. This can present itself in various ways but for therapeutics and some biotechnology companies, it comes in the form of successful completion of toxicity studies and clinical trials.

At this stage it begins to truly feel like a company and stops being just an idea. An overwhelming feeling creeps in that much work is left to do but there is never enough time.

The majority of companies that reach this stage will die. A large amount of these companies will die simply because they were not able to secure enough funding to progress down the science funnel. This is substantive amounts of money and is not handed out easily. The amount of capital is simply very constrained and unable to support most of the innovations coming through at this stage.

“There's a backlog of about 20 years of drugs that are waiting to be tested but can't be funded." - Roger Stein, Senior Lecturer in Finance at MIT's Sloan School of Management

Angel Investors:

The number of Angel Investors in the US is growing rapidly. In the life sciences they typically want to see some sort of previous de-risking or validation and typically co-invest with other angels. A lot of companies we run into at ScienceVest are at this stage. Companies work on gathering numerous individual angel investments ranging from 50k-500K to reach their 500K-10M in fundraising goals.

Post10 fbc23ae527b12d25460433d0e73e50a3f2fb4f4b6fa58ec42a457a44530035e6

The hardest part for most companies is getting your first 1-2 investments as there is a strong herd mentality from angels. Additional angels come on board much easier once peers have taken the first jump. Although the proliferation of angels has been growing steadily in the general startup space, this has not necessarily been the case in the life-science sector. We have seen many early stage VC shops and Angel Groups move out of the early stage life-science sector over the past decade and in particular the past 3-4 years.

"In the first half of 2012, $123.9 million was invested by angels across 70 deals into life science companies. This represents 26.5 percent of the total angel dollars invested and 20.5 percent of the deals, and is a marked decline from the 40.8 percent of total Angel dollars invested and 23.3 percent of deals in life science companies in the first half of 2011." - Jeremy Halpern, Angels in Life Science America on Xconomy

Angels are a key part of our funding mechanism and we need to set up structures that encourage angels to continue to invest in life-science if we want to see the kind of scientific progress necessary. Angels are unique, they provide strong value adds by coming in as “smart money”. Angels are critical in providing product development expertise and are crucial in decreasing the time spent fundraising for early stage companies. They will typically use their vast network to help life-science companies connect with the right experts and investors.

A problem we have noticed with new angels coming into the investing landscape is that they are not comfortable with science. Most new angels do not have the ability to vet scientific deals. Science is inherently a highly technical field and it's easy for new angels to feel intimidated by highly scientific companies. Creating opportunities for angels to easily assimilate scientific concepts and understand the experimental results, clinical trial data and intellectual property details will go a long way to expanding the life-science angel base.

Impact Investors & Impact Funds

We touched briefly on Impact Investing in the Science Philanthropy part of Phase II as we felt there were some synergies to be made there. However, where impact investors more naturally fit and where they can make the largest mark is in Phase III. Impact investors operate a lot like angel investors except that they seek investment opportunities that have significant social impact.

Depending on the impact investor, some are willing to take on more risk or slightly lower returns in order to gain impact value from their investments. All impact investors are not created equal and there is a broad range of risk tolerances and impact affinities. This is precisely why impact investors can play such a large role in early life-science funding. As an asset class, life-science provides a very large spectrum of impact/risk/return possibilities.

Post11 63ff80f0ec71e655a25124e41ad983912f1aa86b37ce791d794010f5230000c5

There has been tremendous growth in the impact investing landscape. The number of funds engaged in impact investing grew quickly over a five-year period and a 2009 report from research firm the Monitor Group estimated that the impact investing industry could grow from around US$50 billion in assets to US$500 billion in assets within the subsequent decade.

"We believe we are on the threshold of a major change not unlike the early days of the modern venture capital industry..." - Sir Ronald Cohen and William A. Sahlman, Social Impact Investing Will Be the New Venture Capital on Harvard Business Review

Post12 412561223c5be03e90e40df20a1b3ac9815c7a82487c03f7f5c1613c23849ea4

Despite the proliferation of Impact Funds and individual Impact Investors we have not seen a large increase in science focused impact investments. The field is still maturing and we foresee this trend changing rapidly in the coming years. Impact investors will seek to diversify their portfolios and begin investing in science as a means to achieve market returns in tandem with desired social impact returns.

"Just as the formation of the venture capital industry ushered a new approach and mindset toward funding innovation within the private sector, impact investment has started to bring opportunities to harness entrepreneurship and capital markets to drive social improvement." - Sir Ronald Cohen and William A. Sahlman, Social Impact Investing Will Be the New Venture Capital on Harvard Business Review

ScienceVest Offerings:

ScienceVest Offerings is how we aim to bridge the financing gap for Phase III companies in the scientific funnel. We provide discovery and diversification opportunities for investors looking to get involved in the sector. Additionally, we are broadening access to this space by allowing individuals to be able to invest with as little at 10K.

Companies listing on ScienceVest Offerings have gone through a rigorous vetting process to ensure investors the best possible deals at this stage. Companies will be raising anywhere from 1M to 10M and will likely have already raised some sort of previous private round to de-risk their technology.

Companies at this stage still have further de-risking to do but, have gone through some of the heavy lifting that early stage science companies must go through. They are now ready to advance to further de-risking and more importantly validation of their technology (more advanced clinical trials, consumer product, etc).

Sciencevest offerings logo 92b783fbe88a1403a9cce13dacbc3a1fb1dc6a73644c90082c92ae1ba46b3ea8

The scientific investing world has traditionally been very exclusive in its nature. This is due in part to the high technical barriers involved. Overtime it has evolved to have highly centralized networks of activity that are hard for newcomers to navigate. Through ScienceVest Offerings we aim to expand deal access to "outsiders".

ScienceVest Offerings aims to attract current scientific angel investors and science impact investors. We are also expecting to attract first-time investors and investors from other asset classes that have previously found scientific investments inaccessible. You can browse the startups raising on ScienceVest Offerings by navigating here.

Changing Landscape for Validating Phase

Angel Investors, Impact Investors / Funds & ScienceVest Offerings are the options available to scientist entrepreneurs at this stage.

Angel Investors are crucial for a healthy science pipeline. Providing ways for them to access deals and feel comfortable investing in science is crucial to the future of scientific innovation. The ecosystem also needs to attract more impact investors and demonstrate why science is the perfect asset class for this kind of investor.

This is the phase with the fewest and hardest to reach funding sources. It is critical we support the ecosystem and come up with new ways to support the scientific funnel at these crucial junctions.

By providing diversification and discovery opportunities we hope ScienceVest Offerings can play a role in fixing some of the deficiencies at this stage of the scientific funnel.

Phase IV: The Venture / Growth Phase (7M-100M):

In Phase IV companies can no longer call themselves "startups". By this point the company has overcome numerous major hurdles and has been de-risked significantly. A company is likely to be deep into later stage clinical trials or product development. They need a last large influx of capital for go-to market expenses and customer discovery. They are entering what is known as the growth phase.

At this stage of the funding funnel the situation starts to improve in a dramatic way. There is a large influx of capital from large institutional investors. The risk/return profile is significantly more aligned with what venture capitalists are accustomed to. Similarly, Big Pharma steps in with acquisitions to fund further development and commercialization of technologies.

Venture Capital

Venture Capital is strong within science and particularly in the biotechnology sector. Other sub-sectors like health-tech and therapeutics are also close behind. Despite talk of VC money leaving the sciences we have continued to have strong years. The data supports this.

Post13a 566ac39aeed4e4ec6351ad48f95ff12cb8b65d11cf4e30eac618244e07523753

Posts13b 1443674bb5e836c97096af79fa414e31f1847d4c18aa71bcd0a68f1fa85e33ff

The truth is that VC money coming in at this stage is not leaving science, it is money at the earlier stages that is leaving. The data shows that in volume VC money is actually increasing but it is increasingly moving to later parts of the funnel.

“US venture capital funding for the life sciences sector, which includes biotechnology and medical devices increased 49% in value... For the full year 2014, life sciences investments reached $8.6 billion, a 29% increase in value over the $6.7 billion total for 2013” - PricewaterhouseCoopers, MoneyTree™ Venture Capital Funding: Biotech Funding Surges

Posts13c 9f42f87fecb391568f0d1b351e34ef0a216eceb2c27c02538479932ce8ae3273

Venture Capital comes in at some of the very later stages of science companies. Venture capitalists are experts at customer discovery, achieving product market fit and brokering IPO's or acquisitions from Big Pharma.

For science focused companies Venture Capital firms mostly invest in deals of 10M and more. They may sometimes go a bit lower but basically never invest in raises below 5M.

This was not always the case, but it has become a general trend in the sector which has left Phase III companies with a gaping financing shortfall. Meanwhile companies that manage to make it to Phase IV usually have a much easier time closing their rounds.

Big Pharma

Big Pharma plays a crucial role in the scientific funding pipeline. Big Pharma is one the primary exit strategies for young biotechnology companies and the state of Big Pharma influences the pricing of rounds all the way down the funnel

Over the past decade Big Pharma has undergone many changes. They have fiduciary pressure to produce new revenue generating drugs due to large portfolios of patents expiring in the next few years. On the other side they have drug discovery processes like "small molecule discovery" that are producing diminishing returns.

As a result, Big Pharma is becoming more and more dependent on young biotechnology companies.

"Nearly 60% of projected pipeline revenue—an estimate of how much income companies will get from drugs in development—comes from externally sourced products" - Max Nisen, Biotech/pharma columnist for Gadfly at Bloomberg LP

Despite all of the changes, 2014 was a great year for Big Pharma in many respects. Drug approvals were at historically high levels with numerous very promising candidate drugs also entering late stage clinical trials.

"2014 was a good year for pharmaceutical innovation – the best, in fact, since the industry’s all-time record of 1996. FDA approved a total of 44 drugs – 39 by CDER, and 5 by CBER." - Bernard Munos, 2014 New Drug Approvals Hit 18-Year High on Forbes

Big Pharma is a crucial stakeholder in the scientific funding landscape. Big Pharma no longer holds the stranglehold it once did on the drug discovery process but it still influences pricing all the way down the supply chain. Biotech companies often plan their financing strategy with a target to become acquired at some point during Phase IV of their life cycle.

Big Pharma will begin to change as many new biotechnology companies are also opting to go at it themselves and IPO, rather than submitting to Big Pharma acquisitions. Innovation is needed within traditional Big Pharma to retain their competitive edge.

Changing Landscape for Growth Phase

There is lots of capital deployed at this stage. It doesn't seem to be slowing and, even with a significant retraction of capital the supply of capital would still be significantly stronger than in earlier funding phases.

Venture Capital and Big Pharma will continue to drive financing for most late stage science companies. There is a disconnect between angel investors from phase III and venture capitalist from phase IV. Venture capitalist have seemingly moved further down the funnel exacerbating the lack of capital for earlier stage companies.

There is a chance that this trend will continue but market pressures may actually cause it to reverse. Deals for venture capitalists are becoming overpriced and more competitive. This may lead groups of venture capitalist to return to earlier stages of the scientific funnel to find more adequate priced deals. Only time will tell.

Meanwhile Big Pharma will continue to be a major source of acquisitions. Big Pharma will need to innovate internally to be able to keep up with the times but in the meantime they will continue to increasingly source potential drugs from biotech companies at this stage.

Closing Thoughts:

Post 1 45f0cf74b41f3f44fc9393d2b5993af6d971cea5d90f3ebf7d51dd7e4828f839

Phase I – The Academic / Basic Phase (0K-250K)

Phase II - The Seed / De-risking Phase (100K-1M)

Phase III - The Angel / Validating Phase (500K – 10M)

Phase IV - The Venture / Growth Phase (7M-100M)

This has been an overview of the scientific funding landscape from basic research all the way to venture backed company. If you are a researcher you should now feel more comfortable with the landscape and ready to pursue entrepreneurship. Investors should get a better idea of where they fit and what they can do to support a scientific funnel that has some key weak points.

We would like to end the post by emphasizing how imperative it is that we as a society support scientific enterprise. It goes without saying that scientific innovation has the potential to affect us significantly within our lifetimes. The majority of the most significant events (genetic editing, artificial intelligence, brain understanding) will for the most part be related to numerous scientific breakthroughs.

We need to start viewing science as an asset class in all of its phases and create a system that supports scientific enterprise through the entire scientific funnel. This is what we are trying to do with ScienceVest, we hope you come along for the ride!

Other Scientific Funding / Entrepreneurship Resources


A few programs that didn't quite fit into our narrative above but are still worth a look at.

TMC Innovation




Blueprint Health

Startup Health

Tax Policies & Regulations:

It's important to keep an eye out on the changing landscape of tax policy and regulation as it pertains to science policy and impact/philanthropic investments.

Research & Experimentation Tax Credit

IRS rule change implicitly charges private foundations with impact investing mandate

Department of Labor (DOL) clarifies pension rules for impact investing

State & City Agencies:

Often overlooked, state & city agencies offer significant support in the development of new technologies. The budgets are significantly smaller but competition is sometimes less fierce since many overlook this potential funding avenue. Below are some of the strongest such agencies.



San Diego

New York


Sign up below if you'd like to come along for the ride as we dig deeper into everything -- from scientific funding policy to learning how to generate quality deal flow as an angel investor.

If you are a startup in Phase II (ScienceVest Seed) or Phase III (ScienceVest Offerings) go ahead and submit your startup for consideration, we are always on the lookout for new companies to help fund. If you are investor sign up to browse deals on our platform and feel free to reach out should you have any questions.

Special thanks to Alberto Gandini from Accel Diagnostics, Ethel Yang from Accenture, George Church from Harvard Church Lab & Editas Medicine, Natalie Jonk from Walacea, Angela Braren from Instrumentl, Nick Dragojlovic from Funded Science, Lisa Suennen from Cardeation Capital, Meg Bouvier from Meg Bouvier Medical Writing, Jan Kralj from Stanford University, Andrew Wong from Boundary Impact Ventures, Christian Darabos from Dartmouth College, Shruti Verma from USC and Viputheshwar Sitaraman from Draw Science for providing interviews, sharing your experiences and for helping to debug these thoughts.

Subscribe to get notified of new ScienceVest offerings and recieve scientific funding related news delivered right to your inbox each week.

Sciencevest © 2016

This site is operated by ScienceVest Inc.,"ScienceVest", which is not a registered broker-dealer. ScienceVest does not give investment advice, endorsement, analysis or recommendations with respect to any securities. All securities listed here are being offered by, and all information included on this site is the responsibility of, the applicable issuer of such securities. ScienceVest has not taken any steps to verify the adequacy, accuracy, or completeness of any information. Neither ScienceVest nor any of its officers, directors, agents and employees makes any warranty, express or implied, of any kind whatsoever related to the adequacy, accuracy or completeness of any information on this site of the use of information on this site.

This website is intended solely for accredited investors. Investments in private placements and startup investments in particular are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest in start-ups. Companies seeking startup investments tend to be in earlier stages of development and their business model, products and services may not yet be fully developed, operational or tested in the public marketplace. There is no guarantee that the stated valuation and other terms are accurate or in agreement with the market or industry valuations. Additionally, investors may receive restricted stock that may be subject to holding period requirements. Investments in early-stage private companies should only be part of your overall investment portfolio. Furthermore, the allocation to this asset sub-class may be best fulfilled through a balanced portfolio of different start-ups. Investments in startups are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.