Y Combinator (YC) is a well-known player in the startup incubator space, but mostly associated with tech. Although there have been companies in YC with a healthcare focus, many of the past have been information-technology or tools-based.
Now, YC has jumped with both feet into the life sciences with an incubator program geared to bio companies. Particularly, this program will accommodate wet-lab activity more associated with therapeutic, biotech and diagnostics companies. What will this look like? Diego Rey, a visiting partner at YC, presented his view of YC Bio at a get-together at UCSF’s Entrepreneurship Center last week. Here’s what I learned and what issues it raises for me.
The initial cohort (starting June 2018) is slated for 10 candidate companies. It is geared for early stage startups coming from academia and still at the proof of concept stage. The program is a 12-month stint, rather than the usual 3-month residence of the tech companies.
Of note is the equity exchange: 10-20% for $500k to $1 mil in funding. This is a significant chunk of money and a significant chunk of equity. So, what do you get for this? It’s not the lab space, that’s on a rental basis. Guidance through the labyrinths of healthcare? Mentorship through the webs of FDA, EMA and other regulations? Not clear.
What does YC Bio offer?
One thing for sure, YC has a strong network of investors. The exposure alone could be worth it. However, YC’s investor network traditionally has seen YC companies with a very different risk profile. The bulk of YC’s startups have been in the tech space and involve technology that is typically low cost and time to get to proof-of-concept (POC). In fact, the traditional YC program is billed for companies already past the POC stage and ready to address issues such as expansion and commercialization. Many may have already put a product in play in the market, albeit in a small way, and some already have a revenue stream.
Not the same for YC Bio companies. This will likely require investors with an appetite for early stage life science, that hasn’t yet been de-risked with POC, and faces a long road of development and regulatory approval.
With the right profile, however, the investor interest might come to pass. For example, life science startups that play at the border of bio and tech, such as AI-driven drug discovery and healthcare tools may find success. One recent example is Verge Genomics which captured a $32 million series A just recently. Verge went through the traditional YC program. It uses AI to go after neurological-directed drugs for diseases such as ALS and Parkinson’s. Intriguingly, the lead investor, DFJ plays heavily in tech with investments in companies such as Baidu, Redfin SpaceX, Tesla, Twitter, and Tumblr.
Aside from investment, what does YC offer in mentorship? I posed this question at Diego Rey’s YC Bio presentation last week. The answer I got was less than inspiring. Apparently, bio companies get the same guidance as tech startups in 3-month program. Given that many biotech-related products and services are targeted to highly regulated spaces overseen by the FDA and must deal with reimbursement and healthcare systems, this approach seems naive. For example, strategically, is the US the best target? What about going into Europe or Asia first? Will offshore trials be acceptable? What about offshore manufacturing?
Now as an IP strategist, from my point of view, this bland approach also seemed to fall down in helping bio companies build a strong and competitive position. Unlike a fair bit of tech, the product development timeline and product life cycles are LONG. IP can be the name of the game for securing a place in the landscape. Does YC help its bio companies understand the IP landscape? Does it help them navigate freedom to operate issues? Does YC develop a layered IP strategy that builds strong protection but can live within a startup budget? I truly don’t know. It certainly wasn’t mentioned.
Now I am not trying to discourage anyone from heading to YC. It has the mark of a Stanford, Harvard, MIT – super hard to get accepted; so, it’s assumed you are coming out the other end with something valuable. And as said, the investor contacts alone may be the pot of gold. But I also think an incubator program should come with industry-tailored mentorship. Just like a company will look to its eventual investors and board members for guidance, so too an incubator getting 10-20% equity and fostering companies at the early stages should offer skill sets and guidance valuable to its startups. This is particularly relevant considering YC Bio is specifically targeting companies coming from academics. Many of these may be first time founders entering the startup business world.
Call for Info
So, help me out here YC community. If you are a life sciences-related YC startup, a graduate or a current cohort member, please reach out. I would love to hear about your experiences. Feel free to comment directly to this blog on LinkedIn, or Twitter or contact me directly at firstname.lastname@example.org.