Y Combinator is doing something that technology accelerators, even those planted firmly in the healthcare space, have traditionally avoided. It will invest in biotech startups.
Technology accelerators never expressed interest in backing biotechnology companies because drug development takes many years, is capital intensive and a high-risk proposition. But the reward is saved or improved lives, so there’s that.
But maybe as crowdfunding websites begin to warm up to biotech companies and some websites even focus on crowdfunding for life science industry companies, Y Combinator has seen a way forward. In an interview with Nature, Sam Altman and Elizabeth Irons of Y Combinator said they are looking for biotech startups with a software edge.
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Sam Altman said:
“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.”
After it restructured its investment formula, it will invest $120,000 in companies that meet its criteria — the equivalent of a Small Business Innovation Research grant from the NIH.
Asked what companies they would invest in, Irons identified a few businesses it had already invested in. Benchling — a tool that analyzes and shares genetic information, Science Exchange and Experiment.com — a life science crowdfunding platform. Among the companies she helped advise with the Science Exchange are OncoSynergy, a startup at the California Institute for Quantitative Bioscience’s incubator that’s working on a brain cancer cure. She also highlighted Perlstein Labs, a company creating cures for rare disease established by Ethan Perlstein.
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It has invested in the Immunity Project — which is developing an HIV Vaccine and has raised funds through crowdfunding. It has kicked up some controversy for what critics say is a lack of peer reviewed data.
Biotech startups have suffered from the reduction in federal grants because of government cutbacks, so crowfunding and now, Y Combinator, offer the chance to increase early-stage funding. But there seems to be a certain amount of angst that the science behind these companies won’t be subject to the same disciplines as traditional biotech companies. Altman responded to the Immunity project criticism this way:
“Shouldn’t the biotech community be happy that more people are trying to do this and that more people are funding this work? I think we should have a lot more people trying to develop HIV vaccines. The cost structure has changed such that they can do it on much less money and much more quickly than traditional labs. As we will fund more biotech companies, a lot of them are going to look untraditional.”