The Experiment Begins: Y Combinator Admits First Biotech Startups

5/2/14Follow @tanseyverse

Mark your calendars: the high-profile tech incubator Y Combinator holds its Demo Day in August. Even though its alumni include runaway tech successes AirBnB and Dropbox, much of the scrutiny will land on the handful of biotechnology companies that, for the first time, Y Combinator is admitting to its program for the upcoming summer session.

The hacker enclave is starting an experiment to see whether biotech innovators can become more like Web entrepreneurs—quickly launching lean, agile startups that get a first-stage product out as soon as possible to reap some revenue and tap into feedback from potential users and investors. Y Combinator chose its first few biotechs in private meetings this week but declined to release the names. The incubator’s new part-time partner Elizabeth Iorns, a Y Combinator alumna and former cancer researcher, was recently hired to help evaluate biotech applicants. Iorns is also a spokesperson for Y Combinator’s expansion into life sciences.

Iorns told Xconomy that Y Combinator will consider startups from any life sciences sector, including medical devices and diagnostic imaging systems. “At this stage, we’re really wide open,” she says. “This is really very much an experiment.”

The only detail Iorns divulged about the first several biotech participants is that they’re working on “research tools that have longer term medical applications.” The door is still open; candidates can apply for the summer program until the end of May.

Y Combinator’s decision to expand into life sciences has changed its overall investment structure. Because biotechs need more cash, the incubator will increase its own commitment to all startups, not just biotechs, to $120,000 per company. The higher funding level was also intended to support other capital-intensive projects, such as computer hardware startups.

The move into biotech has also sparked online debate, including skepticism that after launching more than 600 Web startups since 2005, Y Combinator has the know-how to shepherd life science companies. Other criticism seems rooted in anxiety about cultural divides breaking down; that the influence of Web technology will have a pernicious effect on the next generation of biologists.

In a sense, though, that cat is already out of the bag, let loose in part by Y Combinator itself. One of its alumni is Experiment.com (formerly named Microryza), a crowdfunding platform that allows biomedical entrepreneurs to raise seed money for research when they lack access to established financing sources such as government grants.

Another was started by Iorns herself. She used her summer 2011 residence at Y Combinator to co-found the Palo Alto, CA-based Science Exchange, an online marketplace that helps scientists outsource some of their experiments to research centers whose expensive equipment would otherwise remain idle part of the time. This reduces capital outlays for biotech startups, because they don’t have to raise huge amounts to buy all the equipment themselves.

One young scientist (and Science Exchange user) says Y Combinator’s program, with Iorns involved, should work well for life sciences companies. “I think it is very transferable,” says Ethan Perlstein, who in 2013 bootstrapped his own rare-disease drug discovery lab and now rents space in a corporate-sponsored incubator in San Francisco. “I’ll be really interested to see what the first batch of biotech companies looks like.”

On-demand services like Science Exchange could spark an expansion of biotech entrepreneurship in the same way that Amazon lowered barriers to entry in the hi-tech world by hosting other companies’ apps and other products on its servers, Iorns contends: “Amazon Web Services transformed Web development.”

Another factor is the emergence of incubators where small companies can rent laboratory bench space for as little as $1,000 a month. “Fundamentally the economics and timelines for biotechs have really changed,” Iorns says.

Traditional VCs already know that biotech structures can be made more virtual or “modular,” to use a software term. But Iorns extends a more radical idea to the conservative biomedical world: “Anybody can do this if you have a great idea. You don’t necessarily need to have a tenure track position (in a university) to do research.”

The tech world has long celebrated its upstart heroes who began in dorm rooms or garages. But the prospect of a similar opening of biomedical entrepreneurship has set off some cultural tremors.

Should a former post-doctoral student, stymied by a lack of faculty positions, use a crowdfunding site to ask ordinary folks to finance a therapeutics startup? What about undergraduates? How will the resulting research be validated if that student isn’t working under a university professor toward publication in a peer-reviewed journal? These worries have surfaced most noticeably in a news story from Nature, the elite publisher of peer-reviewed scientific journals, that questioned Y Combinator’s financial support of the Immunity Project. At the time of the backing, the independent initiative to develop an HIV vaccine had not yet published its research. … Next Page »

Bernadette Tansey is a freelance journalist based in Berkeley, CA. Follow @tanseyverse

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