Should Life Science Investors Invest in the Horse or the Jockey?

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When considering early-stage investment opportunities, many investors emphasize the team over the business opportunity, i.e., they bet on the jockey more than the horse. However, in the realm of life science startup companies, where intellectual property (IP) forms a cornerstone of success, the horse versus jockey analogy takes on a unique dimension. Here, the "horse" represents the innovative technology or breakthrough discovery, while the "jockey" embodies the skilled team of scientists, researchers, and executives driving the company forward. Betting solely on the IP's strength or the team's expertise can be risky. A groundbreaking patent or scientific breakthrough is valuable, but without the right team to navigate regulatory hurdles, conduct clinical trials, and commercialize the product, success remains elusive. Conversely, a proficient team with deep industry knowledge can make significant strides. Still, without a robust IP portfolio protecting the innovations and without the IP solving a compelling need that drives adoption, they may struggle to differentiate and secure investment and, ultimately, win market share.

The winning formula for early-stage life science companies thus lies in combining strong IP foundations having large market opportunity with a capable and experienced team. The upside can be enormous – multi-billion-dollar potential and the opportunity to improve the health and lives of many people. However, pulling together all the necessary elements for success is challenging for life-science startups.

Many spin-outs from universities are based on a professor and one or more of his or her students setting up a company to work toward commercialization of a technology they developed in their university research. This structure can provide solid technical expertise to the endeavor; however, teams like this often wear rose-colored glasses when evaluating the business potential of their own inventions. Professors often have an emotional attachment to their research and inventions, which can cloud their judgment when assessing market demand, competition, and commercial viability. This optimism bias, typically in combination with a lack of business experience, frequently leads them to overestimate the market size, underestimate competitive threats, or overlook potential challenges in product development, pricing, or market adoption.

This rose-colored view can be compounded by a lack of market validation or feedback from potential customers or industry experts early in the startup journey. Without rigorous market research, customer discovery, and validation processes, professor-led startups risk investing time and resources into developing products that may not meet market needs and have the potential to achieve sustainable commercial success. Thus, while passion and enthusiasm are valuable traits in entrepreneurship, maintaining a realistic and critical perspective on the business opportunity is crucial for the long-term success of professor-student-founded life science start-ups.

Assembling an experienced team for a life science startup that is still far from market readiness, faces numerous regulatory barriers, and lacks significant capital can be an uphill battle. One of the main difficulties lies in attracting top talent to join a risky venture with uncertain timelines for product development and commercialization. Experienced professionals, especially those with expertise in areas like clinical trials, regulatory affairs, and market access, are in high demand and may prefer established companies with more stable prospects and resources. Furthermore, the lack of significant capital on hand can limit the startup's ability to offer competitive salaries to attract top talent. Without a strong financial backing or a track record of successful fundraising, recruiting experienced professionals becomes even more challenging.

One solution to these challenges is to spin the technologies out through a venture studio model. Investors grappling with whether to bet on the idea or the team will find that neither option alone is a strong indicator for success. Instead, they may consider turning instead to venture studio models, which offer their investing partners a more systematic and effective approach to building successful companies. A life science venture studio like VIC Tech can provide investors with both elite horses and talented, experienced jockeys to invest in. Venture studios typically have a team of industry experts, including seasoned entrepreneurs, scientists, and investors, who conduct thorough due diligence on potential startup ideas. This independent evaluation helps to validate market opportunities, assess technical feasibility, and identify potential pitfalls early on. By leveraging their collective experience and networks, venture studios refine and de-risk startup concepts before investing significant resources.

Moreover, venture studios often have an established network of experienced professionals, including scientists, engineers, regulatory specialists, and business development professionals, who can be deployed to support portfolio companies. This access to a talent pool with diverse expertise allows startups to quickly assemble a skilled team without the challenges of independent recruitment. The in-house teams for venture studios like VIC Tech are deeply experienced at getting companies launched   and positioning them for growth and success. VIC Tech places the founding capital, the initial team, and a complete support infrastructure into every new venture it launches. Additionally, venture studios may offer shared resources and infrastructure, such as laboratory facilities, legal and financial services, regulatory expertise, and industry partnerships, which can significantly accelerate the development and commercialization process for life science ventures.

The foundational intellectual property is exclusively licensed from the given university (or other research institution) and the professor/inventor is typically a co-founder and technical advisor to the startup. As a key advisor, their primary responsibility is to provide strategic guidance, mentorship, and subject matter expertise to the company. One of the important contributions of the professor/inventor advisor is their deep domain knowledge and understanding of the technology or innovation being developed by the startup. They can offer insights into the scientific or technical aspects of the product and help navigate complex challenges that may arise in the continued development of the technology.

Traditional investment strategies often involve spreading significant funds across multiple startups, hoping for a few big wins to cover losses. This approach, common among venture capitalists and accelerators, relies on taking numerous chances in the hope of hitting a home run. Conversely, venture studios represent a paradigm shift in investment strategy. Operating as institutionalized co-founders, these studios focus on identifying a few key problems each year and then matching them with the right talent and resources. By concentrating 100% of their efforts on these selected ventures, venture studios facilitate rapid development of their portfolio companies and help them overcome the challenges that always arise. Data supports the efficacy of this model. For instance, studies show that startup studios tend to outperform traditional investment methods in terms of success rates and returns on investment. At VIC Tech, our affiliated individual investors in the VIC Investor Network have seen a combined 38% IRR across all 40+ investments made since the network was formed in 2013. A venture studio’s ability to strategically allocate resources, provide mentorship, and foster collaboration between diverse teams contributes significantly to their success.

In conclusion, while the debate between betting on the idea or the team persists in startup investing, the emergence of venture studios offers a compelling alternative especially in sectors such as life science that face high barriers to getting to market (but also provide high reward). When co-investing with a good venture studio choosing to emphasize the horse or the jockey is unnecessary – the investor can get both.