This week, Destination Medical Center held their latest Investors and Innovators Forum, blending together Rochester’s entrepreneurs with potential stakeholders for a day of connection.
Programming for the event featured an “Experienced Innovator’s Panel,” discussing pitfalls and roadblocks in startup development. The panel included Lee Jones- Founder, President, and CEO of the biotech company Rebiotix- and serial entrepreneur and CEO of Vergent Bioscience and ApoGen Biotechnologies, John Santini. The panel was moderated by Ann Ladd of Fredrickson and Byron.
Rebiotix, Jones explained, was founded “somewhat by accident.” While spending time at the University of Minnesota’s (UMN) Office of Technology Transfer, she became aware of a process called fecal transplant, where feces are taken from one person and placed into another to treat disease.
“I thought it was the most ridiculous idea I’d ever heard of in my life,” Jones joked.
Fecal transplant works by replacing dysfunctional microbiota- the collection of microbes that live within the human body- with functional microbiota to restore an individual’s health. Rebiotix utilizes a process called Microbiota Restorative Therapy to deliver live microbes into the intestinal tract.
To date, Rebiotix has raised $39M in capital. They’ve completed three Phase II clinical trials and are now in a Phase III trial with their first drug product. The company is expected to launch the very first commercial microbiota-based drug and is further along, clinically, than any of their competitors.
Vergent Bioscience sells reagents to life science companies. Currently, the company is developing a near infrared probe for use in oncology. The probe is injected prior to surgery and binds to proteases- enzymes that degrade other proteins- within the tumor microenvironment. Probe usage allows surgeons to remove residual cancer cells, improving margins and patient survival. Vergent Bioscience was originally funded by an angel investor. Currently, the team is developing strategic partnerships with medical device companies.
Santini founded ApoGen Biotechnologies with two colleagues from the UMN, Drs. Reuben Harris and Daniel Harki. The company is developing a suite of therapeutics targeting APOBEC3B, a protein that’s upregulated in two-thirds of all solid tumors. Last November, ApoGen raised $7M in capital from venture firms and major pharmaceutical companies.
Although all three companies had distinct funding paths, both Santini and Jones said relationship building was key to drive in early capital. Rebiotix participated in Minnesota Cup, the largest state-wide business plan competition, and took third place in its division. But Jones said most of the company’s funding came from investors with whom she had previous relationships. Santini did not enter Vergent Bioscience or ApoGen Biotechnologies in any business pitch competitions, although he did participate in these events with some of his earlier companies.
“It was a good experience to meet people, to test out the hypothesis, to test out the story,” he explained.
For Santini, however, there was no direct link between participation in these competitions and raising early stage capital. Like Jones, his funding was all about relationships.
“A really important box that [investors] need to check is, do they trust the management team? Do they trust the founders?” he explained.
The best way to raise capital for himself was to make that personal connection with investors, even if it meant flying across the country to take a face-to-face meeting.
Santini said that all pools of funding have their value and purpose. Very early, flexible funding from friends and family is useful for immediate capital, although it puts personal relationships at risk. With angel investing, he said, the “pots get bigger” with more money available, although this process takes longer and is highly variable.
When taking venture capital investments, the stakes become really elevated, he explained. Founders must realize that they “have to give up something to get something.” He said when founders prepare to take venture capital, they should have clear expectations of what they want from their business and realize they give up some degree of control and decision-making power by bringing more voices into the conversation.
Both Santini and Jones said they spend about fifty percent of their time engaging with potential investors and strategic partners.
“If you’re afraid of getting turned down [when seeking funding], you might as well leave right now,” Santini laughed.
Personally, Santini’s found that only ten percent of interactions potentially lead to funding, and of those only five percent may convert into capital for his business. For the investor, about “fifty different variables” go into the decision-making process besides what you’re selling, such as the timing of their fund and if they recently invested in a similar business.
“Timing is everything,” he explained.
Even if an investor said “no” a few months prior, Jones said the market changes and a “no” could become a “yes” under the right circumstances.
“You’re just working for that one time that you get the money in hand,” she said.
Jones admitted that it’s difficult to attract funding for a biotech firm headquartered in the Midwest. To circumvent this issue, she spends time on the coasts and hires people from these areas of the country to gain connections.
“For anything in biotech or biopharma here in the Midwest, it’s tougher [to attract capital] than if you were in Boston or San Francisco,” Santini agreed.
However, he remains hopeful that we can grow a local ecosystem and create a “critical core” to drive more investment into the region.
It takes perseverance and determination to build a biotech startup in Minnesota, but it is possible.
“If you think you have an idea, go out and try it,” Jones advised. “The worst thing you can do is not try.”