April 15, 2005 | I want to believe that the life science industry is finally prepared to accept the systems biology paradigm. Parallel advances in the ability to measure, observe, and capture data have dramatically furthered our understanding of the inter-relatedness, or, more importantly, the co-dependencies of these extraordinary biological systems.
So, where is the venture capital community in all this? After many high-profile financings over the past six to eight years -- and the resulting fallout from the many subsequent write-offs -- VCs have been slow to return to support the bio-IT sector. A reasonable concern has been that the complexity and required advancements in other industries, such as measurement technologies, would hinder the ability of a bio-IT company to generate meaningful, repeatable, and predictable revenue streams.
Peter Johnson, chief business officer of Icoria, a systems biology solutions provider in Research Triangle Park, N.C., says, "As the capacity to measure activity at each biological state has matured, so has the interlinkage of each of the biological scales ... This is extremely valuable to the understanding of organism development, mechanisms and the progression of diseases, and responses to drugs."
Icoria is developing a comprehensive solution that captures multiple, historically unrelated data streams to assemble a holistic perspective of systems biology. The principal objective is to automate, through the "digitization" of the data, so that the analysis will be faster, cheaper, and better. These advances are predicated on the acceptance of common standards and language. Many of the early bio-IT pioneers failed to develop a comprehensive solution or understand customer needs. Specific point solutions were too easily disintermediated and vulnerable to larger solution vendors.
The negative implication to this approach is that venture-backed companies will lack the resources to build or acquire such a comprehensive offering. The challenge to integrate all of these data streams to create actionable results is often viewed with trepidation by venture capitalists. Are we trying to "boil the ocean?"
Venture investors are paid to invest in technologies that are somewhat over the horizon, which is a good thing, Johnson says, noting that "systems biology is still in its infancy ... no group has assembled the capacity to measure all levels of biological scale concurrently." The development of the industry will continue to sputter, given that we still lack enough examples of successful drug discovery programs based on the usage of bio-IT tools.
The available early evidence is quite compelling. Johnson estimates the expected savings during the drug development life cycle to be approximately four years, with the greatest impact in pre-clinical phases -- well before real meaningful expenses are incurred. VCs get excited about productivity tools with measurable, hard-dollar savings attached to them. For instance, estimates suggest that the target validation phase can be halved from two years to one with the adoption of these tools and a better understanding of biomarkers.
So here's a little advice from one VC who wants to believe. It is not how much you raise, but rather how much you own of your company. In other words, be very focused and capital efficient, so that the solutions you set out to develop are exactly consistent with customer requirements. A rule of thumb is that software companies should not need more than $15 million of total capital to build a sustainable business.
Having said that, you must also give the appearance of being bigger than you are. Customers like to purchase complete solutions, so consider partnerships and, where appropriate, M&A strategies that allow you to deliver a more robust offering. Building point solutions with one or two customers in mind will create only a modest business, as the products will be too customized.
While VC funding trends still fail to portend a meaningful recovery in venture investor appetite, it is very difficult to point to other industries this important with the ability to create novel and innovative technologies solving vital problems for future generations.
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: firstname.lastname@example.org.