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By Michael Greeley

May 12, 2005 | “It is struggling to provide tools to scientists,” states Larry Arnstein, CTO of Teranode, a Seattle-based provider of biological pathway simulation analysis and experiment workflow software. The inherent variability introduced by the chaotic physical infrastructure of today’s laboratories as well as the random nature of experimental processes have made the development of IT tools challenging. How entrepreneurs respond to these tensions will dictate whether their vision will be funded.

Arnstein observes that large long-term projects within pharma tend to be funded and more often than not, proprietary solutions will be developed or established vendors will successfully sell highly customized products to these companies. It is the shorter-term smaller projects that struggle to get corporate sponsorship. And it is these opportunities which early-stage companies are more readily able to address. The risk for venture investors is that this strategy implies that it will be challenging to build meaningful repeatable revenue streams.

Clive Slaughter, assistant director of the Hartwell Center for Bioinformatics at St. Jude Children’s Research Hospital in Memphis, acknowledges that “we have the resources but it is a huge job” to network the laboratories. Often, he says, “the results lack flexibility, and it is therefore overwhelming to write solutions to existing systems.” Increasingly, customers like Slaughter recognize these tools will have profound implications for productivity and are releasing IT budgets to “facilitate record keeping and communication in our labs to track items more effectively; the changes are night and day.”

Flexibility Counts
The movement to open and flexible platforms is inevitable, says Arnstein, as “the business environment has changed and the scale of experiments has also changed with automation and specialization in these labs.” While some analysts envision a day when networking links researchers within and between organizations, many venture investors remain skeptical. The focus today is more on vendors who’ve identified specific opportunities and developed standardized products to solves those issues.

When the traditional enterprise became networked nearly 20 years ago, there was a dramatic improvement in productivity and creativity. Irena Melnikova, senior analyst at IDC Life Sciences Insight, sees “tool collaboration as creating solutions to connect various R&D departments, which are good for planning and scheduling of equipment and people.” Many of her clients are focused on efficiency gains through better resource management.

So, where does that leave emerging company CEO’s trying to sell into this space? Matt Shanahan, chief marketing officer at Teranode, had more than ten years experience at Documentum, where he saw new document management tools launch a new set of enterprise productivity solutions. He sees a market populated with customers with either a deep understanding of systems biology or struggling with data integration.

Customers are grappling with changing experimental formats and evolving workflow processes - issues not adequately addressed by traditional solutions that can’t capture this fluidity. “The elegance of these types of solutions is that data become reusable; measurements are fully described by the meta data tags,” says Shanahan.

So what’s not to like? Clearly these types of new bioinformatics solutions will be superior to Excel, Access, and ad hoc Perl scripts. That being the case, venture investors worry about the power of the incumbent, particularly if the solutions are proprietary and highly customized. Furthermore, how does a new company displace those offerings? The cost of customer acquisition will be high. Ordinarily a vibrant partnership strategy would accelerate market entry, but those partnerships in this industry have so far had limited commercial success.

Entrepreneurs are being rewarded for a narrow product focus that will solve clearly articulated sets of issues. Broad horizontal solutions frighten investors. While the products you may be developing promise great successes in extending the enterprise, your focus should be just that — focused.

Michael A. Greeley is managing general partner of IDG Ventures, a global family of funds operating in North America, Europe, and Asia, with approximately $600 million under management. E-mail: mgreeley@idgventures.com.


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