To Take On New York, Accelerator Makes Big Changes: A Chat With Thong Le
Talk to anyone involved in the New York biotech ecosystem, and it’s clear what’s missing: startups. The big city is just too expensive, entrepreneurs and their backers say—just try finding an affordable one bedroom apartment in Manhattan, let alone lab space—so a number of promising biotech ideas either stay untapped or get snatched up by investors in other cities.
That’s why, despite consistently posting the third highest total of NIH grant dollars of any state in the country (behind, of course, Massachusetts and California), New York lags far behind in total biotech venture dollars. In 2013, for instance, venture firms invested a total of $135 million in New York biotechs—a fraction of the amounts garnered by life sciences startups in Boston ($933 million) and San Francisco ($1.15 billion), according to the National Venture Capital Association.
In recent years, a concerted effort has gotten underway to give Gotham a fighting chance to keep those companies. New York’s research institutions, partly out of desperation, partly out of changes in leadership, have evolved to embrace the idea of working together and with industry to commercialize the ideas of their scientists and professors. Collaborative efforts have sprung up all over the city, from the New York Genome Center to the Tri-Institutional Therapeutics Discovery Institute, to try to harness the city’s financial and research firepower. Institutions like Rockefeller University and Weill Cornell Medical College have established their own internal funds to give their research a chance to cross the translational gap that dooms so many promising projects. Incubators now exist in West Harlem and Brooklyn.
Seattle’s Accelerator now wants in. The biotech startup incubator, created 11 years ago when Leroy Hood teamed with Alexandria Real Estate Equities and a group of venture firms (MPM Capital, Versant Ventures, and Arch Venture Partners), has put $45 million to work and birthed 12 life sciences companies in Seattle. Perhaps the best known of those companies is Theraclone Sciences, a developer of antibody drugs that has partnerships with Pfizer and Gilead Sciences and almost merged with Annapolis, MD-based PharmAthene last year.
Accelerator has talked for some time about getting people into other cities to find new ideas. New York, with its dearth of early-stage biotech VCs on the ground, has long been at the top of the list. In a 2012 Xconomy report, for instance, former CEO Carl Weissman named New York specifically as having the “characteristics” the Accelerator was looking for as part of its expansion plan. But it took awhile for New York’s research institutions to shed their old ways and really begin to work together and embrace the idea of commercializing their science.
Because of that, the timing hasn’t been right. It is now, says new Accelerator CEO Thong Le.
“Five or 10 years ago, it would’ve been nearly impossible for us to establish a relationship with seven institutions, all of whom are agreeing to the same arrangement that they have with us to help support commercialization,” Le says. “A number of things finally came together that really tipped the scales for us.”
On July 29, Accelerator said it has raised $51.1 million for its fourth fund (Accelerator IV), struck partnerships with those seven New York institutions—Albert Einstein College of Medicine of Yeshiva University, Columbia University, Icahn School of Medicine at Mount Sinai, Memorial Sloan-Kettering Cancer Center, NYU, Rockefeller, and Weill Cornell—to tap into their research, and said it would soon open an office in the Alexandria Center for Life Science on Manhattan’s East Side. The two-tower complex, which houses outlets of Pfizer, Roche, and Eli Lilly and sits next door to NYU’s Langone Medical Center, will provide incubator space for up to four Accelerator startups at a time, according to Le.
Accelerator aims to do about one to three deals per year, in which it’ll form a company, put seed money into it, and incubate it in-house. A little more than half of its new fund will go towards startups in the Big Apple, and the company is in the midst of raising another $15 to $20 million on top of the $51 million it’s already bagged in its latest fund, Le says.
As Accelerator plans its expansion, there’s a lot to prove. Some of its 12 companies have graduated from its Seattle incubator and attracted further venture rounds. Le says three of them have produced exits. One startup, Xori, was sold to an unspecified, publicly-traded biotech. A second, VLST, was sold off in pieces and shut down in 2013. Le adds that Accelerator has completed a “major transaction” for a third company, Acylin Therapeutics, that’ll be announced in the near future. Still, Le, citing confidentiality agreements, wasn’t able to name the buyers of these assets or the size of the deals, so there’s no way to tell what types of returns they’ve brought Accelerator’s investors.
In other words, there isn’t yet a banner sale or IPO that Accelerator can hang its hat on, or a startup that’s evolved into an independent, revenue-generating business. Le, who was on Accelerator’s board for seven years before officially becoming its CEO in early 2014, acknowledges that Accelerator has made its share of mistakes. Its investment strategy, he says, is going to change.
“You’ll see a very different level of discipline and focus around the type of deals we’re going to do,” he says.
So what does Accelerator, New York-style, have to do differently to succeed and ultimately to help build a local biotech scene that has some staying power? I spoke to Le about Accelerator’s plans, and how the New York life sciences scene can overcome the obstacles of high prices and the lack of lab space that have limited its development in the past. Here are some edited excerpts from that conversation.
Xconomy: When you stepped in as CEO of Accelerator last year, what was the first thing you wanted to change?
Thong Le: I sat down with the team and with the investors, stepped back and looked at the investments we did, and the strategy we adopted, [and asked if] that was still relevant for the way we do things on a go-forward basis. Originally, Accelerator was begun with the notion that it would help commercialize technologies that came out of [Leroy Hood’s Institute for Systems Biology]. It evolved quite a bit. That’s why you find now we’ve got a broader number of partnerships both in Seattle [and New York]. So really tightening the relationships there so we can really leverage and then help them with regards to commercialization. And then obviously I spent a fair amount of time continuing the job [of] fundraising, and really trying to figure out if we could build out an investor base that could be helpful to us.
X: What’s been the most challenging part of that job so far?
TL: [First], finding people who still have a genuine interest in investing at that [early] stage of the game. Secondly, it’s always a challenge answering that question of, ‘well what’s the performance of Accelerator been?’ And to be honest, to some extent I inherit some of what I’m stepping into, because I certainly wasn’t running the operation there and investments were already made by the time I stepped in. Whenever you enter a situation like that, you try to do the best of what you’ve got there. With regards to the 12 companies we’ve funded, I think there will be some winners. We’ve had a few successes now, but by and large we still have a number of companies in the portfolio that frankly are still private, and are still operating, and the jury is going to be out as to where they end up, and what their outcome is going to ultimately be, in terms of returns for investors.
X: What’s been the biggest problem? What have you struggled with?
TL: When Accelerator was started, the initial notion was that one could finance really big ideas where either the proof-of-concept was really thin, or conceptual, and then one could [do that proof-of-concept work], and then go and successfully raise a much larger round of financing, like a big Series B round. That [round] could then support the execution of that platform or that concept, into something that was much more real. The investing environment is very much different now. Investors over the years have had mixed success in investing in big-idea companies, and I also think frankly the number of individuals and the number of firms that can actually successfully pull off that variability—where you can take a big idea, and you can build the right resources around it to make it happen—there are a very small number of people that can do that well.
X: So how will Accelerator change its model?
TL: Tracing back to 2003 when we started, a lot of things that were invested in were really light or absent in terms of actually having real scientific proof-of-concept behind them, but the ideas were certainly exciting. Moving forward, we may go after some of these bigger ideas, but we will certainly be a little more diligent and rigorous about having stronger data before we make the investments in these companies. Certainly now with the syndicate we have, we have the wherewithal to carry these companies pretty far and be able to provide them with the financing that they need, but I think we have to be a lot more targeted about what we do. If you’re trying to define what your exit is going to be, or where the next financial milestone is going to be, you have to be a lot more disciplined.
X: What types of companies will you be investing in now?
TL: The overall strategy is definitely going to be different. Let’s say there are 12 deals we might do. We’re not going to say that like three fourths of those deals are going to be big-idea platform companies, which is kind of what happened in the prior Accelerator iteration. We’re going to take a very mixed approach. We’ll do some big platform ideas, we may do some targeted product development opportunities, we might do some spin-out opportunities. Also, we’re going to spend a fair amount of time working with our institution partners. We hope that a large portion of the deals are going to come right from those institutions [and from] technologies they’ve been working on. And that’s something I think is going to be markedly different from prior Accelerators.
X: With the new cash, will the size of the investments be different?
TL: We have eight investors in our syndicate [Alexandria Venture Investments, Arch, WRF Capital, Eli Lilly, Johnson & Johnson, Pfizer, the Partnership Fund for New York City, and Harris & Harris Group]. Many of our investors have told us that if we find good opportunities, they will back [those companies]. If we need more, even in a Series A capacity, they are more than willing to provide that for the right opportunities. I wouldn’t be surprised if you see opportunities that we fund that are going to be much [larger] than what we may have historically financed, because we have that capacity and wherewithal.
X: Accelerator had been talking about potentially coming to New York for a while. Why did things finally come together now?
TL: We saw a transition to commercialization with [university] leadership that actually had direct commercialization experience from industry. That made things very different in terms of the way those institutions started looking at and working with industry. That was a huge plus for us: the commercial leadership and its willingness to embrace the development of technologies and the accretion of startup companies. The other piece of it was finding a good base of investors that resonated well, where they were committed to really helping build the ecosystem. We have [backers] like Pfizer, for example, which has obviously spent a long time there. Harris & Harris is based in New York, and has wanted to do things in New York, but hasn’t been able to find a way to implement that. It also turned out that Alexandria was building a strong life sciences cluster where they’d attract a lot of these large pharmaceutical companies. And one of the key pieces they’ve been missing is an effort to establish strong, high-quality life sciences companies that can also take residence in those facilities as well. For us, the timing couldn’t have been better.
X: Were you looking at other locations, too?
TL: We looked at San Diego and some of the other centers in that area. We’ve looked at pockets on the East Coast. We looked at places like Texas, and also looked at places in the Midwest. We’ve looked abroad, we’ve even looked at places in Asia where technology clusters are being established. But the commercialization [efforts in New York], and the type of resources and interest level that we had from investors really trying to build a vibrant life science ecosystem at the early-stage side, that—and also the way the institutions that we’ve partnered with have come together and really wanted to work with us—is something we couldn’t find that at some of the other places that we had considered.
X: There’s been a lot of momentum in New York biotech, but a ton of progress still has to be made. What do you think is missing to take that next step?
TL: We’re hoping that us coming here is a kind of clarion call to the entrepreneurs. One of the things lacking in this community is entrepreneurial-minded, time-tested management that has done startup companies, knows what it means to work in a startup company, knows how to be scrappy, knows how to get a lot done with a little bit of resource. That’s one of the elements crucially missing here. And we’re hoping, at least at this early stage of the game, to work collectively to oversee and manage these companies. So to some extent we solve that problem, but when some of our companies graduate and go beyond the financing we provide them and really look to scale, we’re going to need to recruit high quality management teams to run those companies. We’re hoping the entrepreneurial community steps up to really help out.
X: What other things can local leaders and entrepreneurs do to help move things along?
TL: There’s a lot of work that still needs to be done. Some of it needs to be done by the government, some of it can be done by us. Some of it is being addressed by the initiatives that universities are trying to do with entrepreneurs-in-residence-type programs and whatnot. There may have to be a combination of public and private collaborations to make large spaces available, so that you can actually develop that space into something that’s really world class. But I’m not going to point the finger—I don’t think it’s any one person’s responsibility to solve it. I think everybody has to come together and contribute to finding and helping to develop a solution.