Business school applications require many thousands of words’ worth of essay questions, usually dealing with those universal but ephemeral corporate themes of Teamwork, Impact, and Dealing With Difficult Situations. Somewhere within this morass the applicant is generally expected to answer the question, “What are you going to do with an MBA?” To this there are three types of answers:

1. The Exceedingly Grandiose (“Harness the power of sustainable development to change the fate of the Third World”).

2. The Believable But Contrived (“Leverage my current skill set and augment it with a top-notch experiential education”).

3. The True But Obviously Unacceptable (“Get a job that doesn’t make me want to kill myself”).

Needless to say, upon matriculation these claims are immediately forgotten, as the practical matters of schoolwork and socializing take over. But right around the time that everyone starts giving serious thought to their summer internship, the question, unbidden, comes roaring back. What am I going to do with my MBA?

The summer internship, as the mid-point of the two-year MBA, carries far more import than regular people usually ascribe to the word “internship”. It is often assumed that upon graduation the student will give serious consideration to a full-time position at the summer employer or, at the very least, remain in the same general industry. This past January, at the MIT Sloan School of Management, anxieties around internships began to escalate. As a first-year, I found the whole process to be like a pop quiz, blindsiding me into making a life-changing decision before I was ready. I mean, I came to business school to escape the real world.

Eventually, however, an attractive opportunity presented itself. Through an old colleague I was introduced to a startup in Boston called WordStream, which got its funding a year ago and launched its product in January. WordStream is run by Rob Adler, a serial entrepreneur who was brought in a month after the company’s funding to be CEO. Rob, a Harvard Business School grad, exudes enthusiasm, and is one of those mysterious people whose number of connections on LinkedIn is listed as “500+”, which always make you wonder exactly how much larger than 500 people their network is.

WordStream is still at the stage where the company’s strategy is constantly being reexamined and openly discussed amongst everyone in the company (there are currently only 18 full-time employees). Who is our target customer? What exactly is our value? How should the product change?

The entrepreneurship professors at Sloan, veteran entrepreneurs themselves, often speak in quasi-romantic tones about working for a startup as a capitalistic ideal, the intersection of high-minded business strategy and dirty, sweaty reality. They could not be more correct. About a week after starting at WordStream, Rob came over to me, looking grave. “I’d like to speak with you for a minute,” he said. He brought me into …Next Page »

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Did you know that Goldie Hawn, David Blaine, and Martha Stewart are coming to San Diego at the end of October to discuss…healthcare? Probably not, maybe because the exclusive TEDMED2009 conference is $4,000 to attend, and already sold out. TED stands for Technology, Entertainment, and Design, and its conferences aim to bring together people from different backgrounds to stimulate innovation. The TEDMED conference is independent from TED, but appears similar in style.

BIL conferences piggy back on TED conferences, offering a more informal, affordable, ‘grass roots’ option. BIL is not an ‘official’ acronym, and was honestly chosen based on the ’80s movie “Bill and Ted’s Excellent Adventure.” Perhaps to signify the BIL conferences’ universal appeal and inclusiveness, different words beginning with B, I, and L appear each time you visit their websites (for example ‘Beauty, Inspiration, Logic.’). BIL conferences have been described as ‘(providing) an irreverent counterbalance to the wide-eyed earnestness of TED.’ The BIL conferences are organized as so-called ‘unconferences’ which are free and attendee-driven, and BIL:PIL is the healthcare ‘flavor.’ A few of the BIL:PIL speakers are invited, and others submit their talks to be voted on. Like TEDMED, it will bring together visionaries from different fields and disciplines, including scientists, patient advocates, and leaders, to discuss healthcare. Indeed, some TED speakers have been known to leave its posh settings to have fun with the BIL attendees, which in this case would mean a trek from the Hotel Del Coronado to San Diego State University’s BioScience Center.

If the BIL:PIL conference is free, does that mean the speakers will be less qualified? Not really. What BIL:PIL lacks in hype, it makes up in the passion of its organizers, who champion the event. I met BIL:PIL founder Jonathan Sheffi, formerly of Amgen and currently attending Harvard Business School, in Washington DC, and he described his vision for the conference. What follows is Sheffi’s ‘pitch’ for the conference.

“Healthcare innovation is too important a topic to be left to a select few. Through the unconference model, we’re inviting all healthcare pioneers to share their work with the world. Whether it’s the latest innovation in stem cells, a new way for patients to find each other online, or a revolution in open science — the world is waiting to hear from you. More importantly, San Diego’s great promise as a world leader in healthcare makes it the ideal host for this event.”

Sheffi has been successful in securing many thought leaders in the so-called healthcare 2.0 movement, which aims to use tenets of new and social media to revolutionize the industry. Speakers range from those using lessons from Harvard Business School to lower healthcare costs, to virtual reality software, to online communities for patients. One of the headliners is Joe Trippi, well known …Next Page »

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It was a busy week in the land of New England life sciences. Let’s dive in.

—Luke did a massive analysis of the financial health of all the public biotech companies we follow the Boston area and the news… Well, it wasn’t good.

—Cambridge, MA-based Vertex Pharmaceuticals (NASDAQ:VRTX) brought in $155 million in cash by selling $120 million in debt and $35 million for the rights to potential milestone payments. Both deals were related to the potential European commercialization of telaprevir, Vertex’s experimental drug for hepatitis C.

—Adimab, a Lebanon, NH-based biotech startup developing a new platform for discovering antibody drugs, raised $8.2 million in a Series D round of venture financing. Google Ventures led the financing and Polaris Venture Partners, SV Life Sciences OrbiMed Advisors, and Borealis Ventures participated as well.

—Merrimack Pharmaceuticals of Cambridge forged a co-development and co-marketing deal with French pharmaceutical firm Sanofi-Aventis. The partnership, focused on Merrimack’s antibody cancer drug MM-121, will bring the Cambridge firm $60 million upfront and as much as $470 million more in milestone payments, not to mention double-digit percentage royalties, should the drug reach the market.

—Luke chatted with Peter Hecht, CEO of Cambridge -based Ironwood Pharmaceuticals, which recently recruited former Genentech CFO David Ebersman to its board. Does the move signal that Ironwood—whose lead, potential blockbuster, drug is in late-stage clinical trials—is preparing to go public? Hecht wouldn’t say so, but Luke explains why Ironwood might fare well on Wall Street.

—The FDA followed an earlier advisory panel recommendation that clofarabine (Clolar), a leukemia drug from Genzyme (NASDAQ: GENZ), not be approved for use in a broader population of patients. The agency said that Cambridge-based Genzyme should conduct another trial of the drug in patients over age 60; it’s currently approved just for children with leukemia.

—Ryan spent the day at the MassBio Investors Forum in Boston, checking in with folks from Cambridge-based RNAi-drug developer Alnylam Pharmaceuticals (NASDAQ:ALNY), (which referenced a potential spin-off company perhaps in the works); Waltham, MA-based EyeGate Pharma (which has rounded up $12 million of a planned $20 million to $25 million financing); Cequent Pharmaceuticals, another Cambridge-based RNAi-drug developer (which is moving its first drug into clinical trials); and Pathogenica (a brand-new diagnostics firm spun out of George Church’s lab at Harvard Medical School). He also gleaned some insights (and arguments) about the future of biotechnology from Harvard Business School professor Gary Pisano and life sciences investment firm CEO Steven Burrill.

—Epizyme, a Cambridge startups out to turn the science of epigenetics into new drugs that work by turning genes on and off, raised $32 million in a Series B venture round led by Bay City Capital. Amgen Ventures, Astellas Venture Partners, MPM Capital, and Kleiner Perkins Caufield & Byers participated as well.

—Boston-based antibiotic developer Paratek Pharmaceuticals struck an exclusive development and commercialization deal with Swiss drug giant Novartis. The deal, which could be worth as much as $485 million in initial milestone payments, focuses on Paratek’s PTK 0796, which is in late-stage clinical development for treating complicated skin and skin structure infections as well as certain cases of pneumonia.

—Immuneering, which is developing computer models to predict patients’ responses to cancer drugs, became the first life sciences startup to join Polaris Venture Partners’ new Dog Patch Labs startup incubator in Cambridge. The move will take the company out of CEO Ben Zeskind’s apartment in Boston’s Back Bay.

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Harvard Business School professor Gary Pisano is considered a leading scholar of biotech industry economics, and has developed a reputation for providing treatises on how biotech firms have been unable to generate profits throughout history. Steven Burrill gives his own critiques in his life sciences banking and investment firm Burrill & Company’s industry reports. These two top minds in biotech united—and at times clashed—during a segment of the MassBio Investors Forum in Boston this week.

Both Burrill and Pisano agreed that the biotech industry is in for some dramatic changes. Burrill, CEO of San Francisco-based investment firm Burrill & Company, forecasted that new diagnostics would outperform new drugs as moneymakers for life sciences firms as the U.S. healthcare system evolves from a system of reactive care to preventive care over the next decade or so. And sounding a familiar drumbeat from his deep analysis of biotech in his book “Science Business,” Pisano said the industry needs further integration to remove some of the inefficiencies that have made developing biotech drugs such a costly and risky business.

But the two collided over how biotech startups should think about building the value. People in the industry should ask themselves how they can create the greatest amount of perceived value of biotech inventions in the shortest amount of time, and then cash in on that value, Burrill said. “It’s never going to be as good as we hope it will be,” he said. This sparked a brief debate between Burrill and Pisano about the merits of perceived versus actual value in the biotech industry. Pisano took the stance that focusing on perceived value could cost the biotech business loss of confidence among investors if they lose money because the promise of a life sciences invention fails to deliver.

“I think over time perceived value and real value have to match up or investors will get wise and stop buying,” Pisano said.

This debate is timely because many biotech companies are desperate for more dollars to continue operations. But the sinking value of companies and other market forces has made fundraising particularly difficult for life sciences firms over the past year. The big elephant in the room for the industry is that there are some 135 public biotech companies with less than a year’s worth of cash in their coffers and 70-odd firms valued at less than the amount of cash they have in the bank, Burrill said. It’s tough to argue with that point. For private venture-backed biotechs, the strained values of their public counterparts are contributing to the poor evaluations for their own fledgling operations.

The good news for biotech entrepreneurs, Burrill said, is that the life sciences industry is …Next Page »

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Every once in a while, an investment model comes along that turns the innovation community on its head. The venture capital industry, still less than 50 years old, is one example. Now an emerging paradigm called royalty-based financing, applied to early-stage startups, may be another. The approach has its roots in the Boston area, and is starting to generate some serious buzz in the Northwest. If you’re a VC, angel investor, or entrepreneur, it definitely needs to be on your radar.

The concept of royalty-based financing is simple. Instead of buying equity in a young company, an investor agrees to receive a percentage of the company’s monthly revenues—up to a limit of, say, three to five times his or her investment. Instead of waiting five or 10 years for a startup to go public or get acquired, an investor can start seeing returns almost immediately. This approach means investors should be able to fund a much wider range of startups than just those that typically receive venture backing—the ones that have potential to grow huge, fast. The downside is that your returns are capped, so if you do end up backing the next Google or Amazon, you still only get five times your investment back. Meanwhile, for entrepreneurs, it provides startup money without having to give up an ownership stake in the company.

Royalty-based financing is not new, but it’s only been in the past few months that investors around Seattle, including the seed-stage fund Founder’s Co-op, have been openly exploring the model. In New England, a few investment firms are actively using it, led by Lexington, MA-based Royalty Capital Management, Wakefield, MA-based BDC Capital, and Portland, ME-based Rockwater Capital. Harvard Business School professor Clay Christensen (of The Innovator’s Dilemma fame) is a supporter of the model, and views it as disruptive to the venture capital industry.

The idea actually dates back to mining companies getting financed to dig for oil, natural gas, and minerals, and government-funded economic development programs. But it is getting renewed interest from VCs and angel investors who increasingly need returns fast, in a tough climate for exits. Indeed, royalty-based venture financing “has the real potential of becoming a major new sector in the private capital market,” says Arthur Fox, the founder of Royalty Capital Management, who first used the approach with startups in the early 1990s.

Back then, Fox was an advisor to several startups; he’s an MIT alum and was previously an engineer with HP and Westinghouse before co-founding three tech companies of his own. He first tried out the royalty-based idea as a way to get compensated by the companies he was mentoring, instead of taking some stock. He found that this made them more efficient with his time, plus he would get paid every month. So he decided to try out the strategy as an investor. “It changed everything, because the normal criteria in selecting companies as a venture capitalist is a high-growth one,” Fox says. “When you invest in a company, buying stock and equity, you have no way of getting out unless they become significantly large enough to have a liquidity event.” With the new approach, he says, “every month you get a check, and it doesn’t matter if they ever have an IPO, or get bought out.”

Fox’s two previous funds have returned good profits. His biggest win was Andover Advanced Technologies, a multimedia software startup that had no revenues when he originally invested $100,000 in 1993. After two years, Fox had gotten back $125,000 in his cut of the revenues, and he invested in a second round with an angel investor, in which he took some equity. The company (renamed Andover.net) went on to ride the dot-com wave with a successful IPO in 1999, and was acquired for $1 billion by VA Linux Systems in 2000. Fox’s stock ended up being worth $15 million. It’s an example, he says, of how …Next Page »

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Cancer drugs are notorious for offering slim odds of helping patients live longer, while guaranteeing they’ll suffer some unhappy side effects. Lots of scientists are searching for clues in the genome for how to select people most likely to benefit from a drug, while sparing everyone else. Boston-based Immuneering thinks there’s a better place to look—the immune system.

Immuneering popped on my radar at last week’s XSITE event at Boston University, where I met CEO and founder Ben Zeskind. He’s 27, with a list of accomplishments that puts him in boy wonder territory. He’s got a bachelor’s in electrical engineering and computer science from MIT, a Ph.D in bioengineering from the Whitehead Institute, and an MBA from Harvard Business School. Zeskind didn’t tell me about his background, but got my attention when he said he’s recruited Bob Carpenter to be his chairman and mentor. Carpenter is 64, a 30-year biotech entrepreneur who once sold a company to Genzyme (NASDAQ: GENZ) for $1 billion, and since then has spent 15 years on the Cambridge, MA-based biotech giant’s board of directors.

This mentor-and-protege team has its sights on making a fundamental change in cancer treatment. Immuneering wants to take blood and tumor biopsy samples, look at whether the patient has immune cells with the right characteristics to produce a powerful, long-lasting immune response against tumors, and run those readouts through a proprietary mathematical model to predict the odds that a patient will respond to a drug. This fundamental understanding should also offer suggestions for how to boost the odds of success, explain why some drugs work for individuals and not others, and do it for virtually every type of cancer with a few tweaks to the model, Carpenter says.

Since the global market for cancer drugs was worth $66 billion in 2008, and is expected to grow to $84 billion by 2012, governments and health insurers are going to continue putting a lot of pressure on drugmakers to justify all that cost, largely through tools that can predict …Next Page »

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Here’s a rare bit of good news from the venture capital world. Boston-based Excel Venture Management has nailed down a $125 million fund to invest in new life sciences companies that it hopes will have broad potential to shake up a variety of industries, including information technology and alternative energy.

Excel has been operating for the past 18 months, but has been tight-lipped about its strategy because it hadn’t yet closed its fundraising. The fund is led by a group of managing directors that formerly worked together for years at CB Health Ventures—including Rick Blume, Enrico Petrillo, and Steve Gullans, as well as Juan Enriquez, the founding director of Harvard Business School’s Life Sciences Project. I got an up-close look at what the firm is trying to accomplish from Enriquez.

The fund’s strategy is to look for ideas that have their roots in life sciences, but have broad potential as “platforms” that can be applied in other industries like IT, energy, agriculture, textiles, and chemistry, Enriquez says. This is becoming possible as biology is becoming more of a digital science, he says. The opportunities in life sciences are already starting to make an increasing impact on the financial statements of industrial giants like General Electric (a big maker of medical devices), DuPont (owner of Pioneer Hi-Bred International seeds), and even classic tech companies like Microsoft, IBM, and Google, which are betting big on digitizing healthcare and life sciences.

“About one-fourth of GE’s earnings come from healthcare and life sciences companies, which is getting larger, while the share of financial services is getting smaller,” Enriquez says. “At DuPont, the single largest driver of earnings is Pioneer seeds. For a lot of companies in a lot of industries, life sciences is the place they are looking for future growth.”

So that’s the lofty vision, but how is this supposed to work out financially? Plenty has been written about how the life sciences venture model is broken, partly because new drug development typically takes a decade or more, costs hundreds of millions of dollars, and has about a one-in-10 success rate in clinical trials. Excel’s answer to that? It will strictly invest in companies …Next Page »

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The recession may be resetting our expectations, but technology innovation could be re-arranging our thinking about the importance of hometown VCs. And the arrival of a new venture-backed automaker in our region also raises an interesting question: Could San Diego become America’s new “Motor City?” Forthwith, the highlights from last week’s news:

—The V-Vehicle Company, which emerged from stealth mode to announce it plans to manufacture an “environmentally friendly and fuel-efficient car” in Northeastern Louisiana, became the third automaker to establish its headquarters in our region. V-Vehicle joins Aptera Motors, based in Carlsbad, CA, and Fisker Automotive, which is just a little farther up the road, in Irvine, CA. Does this mean we should start thinking of San Diego as the next Detroit?

—I attended Xconomy’s inaugural XSITE (the Xconomy Summit on Innovation, Technology, & Entrepreneurship) conference at Boston University last week, where Synthetic Genomics’ co-founder Juan Enriquez raised profound concerns about out-of-control federal spending. But Enriquez also pointed to a way out, saying that the technology innovation embodied in the 100 universities scattered throughout the Boston region represents “an incredible engine for economic growth.” He also argued broadly that venture capital is crucial to economic recovery because it represents 0.2 percent of GDP but 17.6 percent of U.S. economic output.

—Another Synthetic Genomics co-founder, founding chairman and CEO J. Craig Venter, was in Stockholm, Sweden, last week, where he talked with Xconomy contributor Erik Mellgren. Venter, who became known as one of the world’s leading scientists for his work in sequencing and analyzing the human genome, told Erik he’s optimistic about receiving federal economic stimulus funding for the J. Craig Venter Institute. The next day, a scientist at the institute’s Maryland campus got $8.8 million as part of the government’s economic stimulus package for research that focuses on the microscopic organisms in our bodies.

—At a time when San Diego’s hometown venture capital firms seem to be evaporating, a group of researchers are suggesting that the importance of local VCs investing in local technology startups could be overblown. Researchers from the Harvard Business School, the National Bureau of Economic Research, and the Federal Reserve Bank of New York found that the portfolios of VC firms that invest in distant technology startups may actually perform better than those of VCs who keep their investments close to home. The findings may go against the grain of conventional wisdom, but the researchers suggest that VCs demand more from their out-of-town investments.

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The conventional wisdom used to be that technology startups should be located as close to their venture investors’ main offices as possible. That way, it’s easier to call on your venture partners’ experience and networks, get them to attend your board meetings, and so forth.

But the conventional wisdom may be dead wrong. Private equity industry news site PE Hub is calling attention today to a new study showing that startups located far away from their venture investors’ offices actually perform better than those headquartered closer to the mother ship. That finding may come as solace to entrepreneurs in cities such as San Diego and Seattle that are slightly off the beaten venture path, or that are losing homegrown firms.

The study, by a group of researchers from Harvard Business School, the National Bureau of Economic Research, and the Federal Reserve Bank of New York, focused on venture firms in the nations’ three largest clusters of venture activity—Boston, New York, and the San Francisco Bay Area—and asked which of their portfolio companies outperformed the firms’ averages. “Surprisingly, much of the VC outperformance in these venture centers arises from their non-local investments,” the authors report. (PE Hub has put the full paper online here.)

The reason for this counterintuitive finding, the researchers speculate, is that there’s a higher “monitoring cost” to investing in a far-away company—because of the expense of traveling to those locations, among other things—and that venture firms therefore have a higher bar for making those investments. In other words, they only bet on companies that they expect to have a higher rate of return, and to the extent that they bet right, they get that higher rate.

This “hurdle rate” effect is so strong, in fact, that the researchers found that outperformance rates actually go down if a venture firm opens a branch office in the same city with once-distant portfolio companies. Harvard Business School professor Josh Lerner told PE Hub’s Dan Primack that the results ought to cause venture firms to rethink their assumptions about geography. Focusing on local investments because they’re less costly might be a “mental trap,” Lerner said, if it leads investors to relax their standards.

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Can competitions and prizes get you to the Moon? Google thinks so—it’s backing the $30 million Lunar X Prize, which will be awarded to the first privately funded team that sends a remote-controlled robot to the Moon, drives it 500 meters, and collects video of the trip. Back here on Earth, the $10 million Archon X Prize is being offered to the first team that can build a device that sequences 100 human genomes in 10 days or less, and the Wellpoint Foundation is proposing a $10 million Healthcare X Prize for the first organization that figures out how to deliver a 50 percent improvement in the cost-effectiveness of community healthcare over a three-year period. Right here in the Boston area, Waltham, MA-based InnoCentive is using the prize model to attract solutions for dozens of problems, ranging from improving the fire resistance of polyurethane foam to accelerating the growth of soybean shoots.

But in Glastonbury, CT, there’s a company called TopCoder with a prize-based business model that predates all of these efforts. It’s using the model to create products that are arguably more relevant to our economy in the short term—better software applications. And it’s doing it for far less money; first-place winners rarely take home more than $3,000.

Companies like AOL, ESPN, Ameriprise, Ferguson, Geico, and LendingTree have outsourced thousands of software development projects to TopCoder’s worldwide freelance community—”from something as simple as a Web page all the way up to full-blown enterprise resource planning (ERP) systems,” in the words of company founder and chairman Jack Hughes.

The model is so successful that it’s attracting the attention of business scholars from Harvard, MIT, and other academic centers. “They’re creating enterprise-class software projects in a highly distributed setting, and for me that was an order of complexity that I wasn’t expecting,” says Karim Lakhani, an assistant professor at Harvard Business School who has written two papers about TopCoder.

You might wonder why the competition model attracts any willing participants, considering that competing takes a lot of work, and that the big money is usually reserved for the top-placing teams, while everyone else gets zilch. Indeed, I’ve always wondered whether giant prize programs like the X Prizes are an efficient way for a society to array its resources—just look at the 26 organizations that collectively invested more than $100 million competing for the $10 million Ansari X Prize. All but one of the teams walked away with nothing after Burt Rutan’s SpaceShipOne won the prize in 2004.

But TopCoder has invented a system that seems to work, both for its clients and for its community members. For one thing, the company never bought into the winner-take-all concept. For each competition, the company sets the dollar amount of the first-prize award based on the size of the job and the amount the client is willing to pay. TopCoder sets aside about half as much for the second-prize winner. The third-, fourth-, and fifth-place winners don’t get cash, but they do get points—and everyone gets paid later out of a general prize pot based on how many points they’ve accumulated.

“We wanted to avoid the problem of people submitting and always coming in third and never getting paid,” says Hughes. While it’s standard practice elsewhere in the software business to offshore software development to the cheapest available labor pool, “We just weren’t interested in that,” says Hughes. “We were more interested in …Next Page »

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Like a growing number of Americans, I do most of my reading in front of a laptop or handheld screen. And though I think I read electronic texts a good deal faster than the average person—who by several accounts reads between 200 and 250 words per minute on a screen—I’m open to any technology that could help me breeze through 1,000 words in a minute. ReadingStream, a stealthy Boston startup with a new system for reading electronic texts, says that reading online texts at that clip isn’t out of reach.

The startup and its technology were introduced to me last week by tech entrepreneur Aaron Day, the CEO of Boston-based corporate weight-management firm Tangerine Wellness, who is serving as chairman of an advisory board at ReadingStream. The firm’s founders—CEO Eileen Shapiro and Joshua Kriger—have developed software that rapidly presents single words and images in the middle of a screen, with the time each word or image spends onscreen dictated by 60 psycholinguistic characteristics such as how concrete the meaning is and how common its usage is. Basically, the system strives to reflect how the brain processes text rather than trying to make the brain fit the technology. For example, the widely used word “red” may appear more briefly than the word “onomatopoeia,” which is seldom used in everyday speech and has an abstract meaning The goal is to help people read quicker while boosting their comprehension. (See a demo of the technology on YouTube at the end of this story.)

The patent-pending algorithms used to factor in these psycholinguistics are intended to be major differentiators between ReadingStream’s technology and the droves of so-called rapid serial visual presentation (RSVP) systems, which have been around for years and also quickly present words one or a few at a time. In fact, one such system is available as a free plug-in for Mozilla …Next Page »

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Carmichael Roberts says he has avoided taking the traditional path during his career as a scientist and entrepreneur. And he’s now taking a path that will lead North Bridge Venture Partners from its traditional emphasis on IT to a larger mix of investments based on breakthroughs in chemistry and materials science. He even let me in on a stealthy new startup he’s recently launched to commercialize stretchable silicon for multiple industries such as electronics.

Roberts, a 40-year-old general partner at North Bridge, was brought to the Waltham, MA, firm in fall 2007 largely because he has scientific expertise that none of the other partners have. He’s the only person at the firm with a Ph.D. (it’s in organic chemistry), and the only one that focuses exclusively on investments in chemistry and materials science. He says he likes it that way, as opposed to being one of several Ph.Ds at a venture firm. (Examples of the latter would include Polaris Venture Partners and Flagship Ventures.)

“As an entrepreneur, what you do is pick areas where there’s a big void and there’s an opportunity,” Roberts says. “And, by definition, if you dare to step into that area there will be a little competition—but for the most part there are few incumbents.”

By focusing on chemistry and materials science, Roberts expects to make investments across several industries, including life sciences, energy, and electronics. This is familiar territory for him. I recently spoke with him just before he gave a talk at a clean technology meeting at Harvard Business School, and he wore his biotech hat last September at Xconomy’s life sciences forum in Cambridge, MA. As was noted at the forum, Roberts is chairman of nonprofit Diagnostics For All, which is developing paper-based diagnostics to provide low-cost options to patients in developing countries. He is also chairman of North Bridge portfolio companies Arsenal Biomedical (formerly WMR Biomedical), a stealthy medical devices firm based in Watertown, MA, and 1366 Technologies, a North Lexington, MA, firm with technology to produce low-cost silicon solar cells.

Less than two years into his job at North Bridge, Roberts (an Xconomist) is already steering the firm towards investments in more science-driven companies. He says he’s begun a startup in Waltham, tentatively dubbed MC10, to commercialize …Next Page »

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It’s too early to know the full impact of the economic meltdown on executive compensation at private technology and life sciences companies. Alas, 2008—or at least the first three fiscal quarters of it—could be viewed next year as the end of the good old days of executive compensation.

Still, for those of you who want to know how much your executive peers’ at said private tech and life sciences companies were compensated this year (or at least the pre-meltdown part of the year), your cup runneth over with the recently completed 2008 Compensation and Entrepreneurship Report in Life Sciences and a similarly titled report in information technology. The annual studies—conducted by the J. Robert Scott executive search agency, law firm WilmerHale, Ernst & Young, and academics at Harvard Business School [disclosure: the first two are Xconomy underwriters]—showed a continued trend that Bob noted last year of steady growth in executive compensation across the board in both life sciences (which in this post means medical devices too) and technology. And an interesting feature of the technology compensation study is the inclusion of clean technology companies for the first time. (Read on to see how their pay compared with executives in other segments of the tech industry. A hint: not great.)

Xconomy isn’t big on covering studies, because many lack the depth to draw serious conclusions, but these compensation studies appear to be quite thorough. The reports are based on compensation data from multiple private companies (342 from tech and 189 from life sciences), with a wide swath of executives (1,600 executives with 10 different job titles on the tech side, and 1,000 executives with 13 job classifications in life sciences). And all U.S. regions are accounted for—so our communities of readers in Boston, San Diego, and Seattle can see where they stack up next to each other (again, see our chart of the results on the next page). Also, the figures were gathered from April to June 2008.

I don’t want to touch the argument on whether electrical engineering courses are more difficult than microbiology, but the studies show that life sciences CEOs typically earn more than their tech counterparts, with average 2008 base salaries of $300,000 for top life sciences executives, up 6.7 percent from $281,000 in 2007, and $236K for the tech chief executives, a 4.2-percent increase from $227K last year. Though not explicit in these reports, perhaps it should be noted that the smaller size of the life sciences industry compared with IT, and the high degree of scientific/technological variation among life sciences firms, could make this compensation gap between the two camps a matter of supply and demand. I’m just speculating, though. …Next Page »

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When shareholder activists like Carl Icahn start banging on a company’s front door, threatening to rally investors to help them take over the company, it naturally gives management headaches. But what effect does it have on a company’s ability to innovate?

It’s a good question in general, and it’s moving front and center next week here in Boston as Icahn seeks to gain control of Biogen Idec, the Cambridge, MA-based global biotechnology company (NASDAQ: BIIB). The answer, according to an unscientific poll of a dozen leading business school professors of innovation, is that nobody really knows.

In Biogen’s case, the company believes, not surprisingly, that such activism hurts not just innovation, but morale and other aspects of the business. “It’s the uncertainty,” says Biogen spokeswoman Naomi Aoki. “Whenever you have uncertainty, it has an impact on whether people want to do deals with you and with your ability to recruit and retain employees.”

Although the firm won’t reveal too many fresh stats, it is forthcoming about a few problems that seem to support the company line. At least one key executive spot has been hard to fill during these recent uncertain times at Biogen. David Parkinson, who had been the company’s senior vice president for oncology research and development in San Diego, left to become CEO of Nodality, a San Francisco Bay Area diagnostics startup in September, a month after Icahn first began making noise at the company. The oncology research job remains unfilled nine months later, Aoki confirms. And, as of last weekend, the company counted 83 openings in research and preclinical development.

Biogen’s business development group also appears to have slowed a bit, as, perhaps, partners wait to see if Icahn can get his nominees elected to the board before they agree to a deal. Biogen did seven business development deals from September 2005 to July 2007—a rate of about one every three months. Since Icahn entered the picture, Biogen has completed two deals in 10 months, Aoki says.

To at least partially counter the presumed effects of Icahn’s presence on employee morale—including that of top scientists who lead its innovation efforts—Biogen launched a retention program in February that offers key employees bonuses of up to 150 percent of their annual salary if they remain continually employed at the company through March of 2009.

It seems like common sense that an ongoing proxy fight might unnerve employees, and that morale—and innovation with it—could suffer. In Biogen’s case, top executives, even if they keep their jobs, may also feel the pinch in their wallets, because their annual bonuses are partly based on their ability to keep turnover low and fill senior vacancies quickly, according to the company’s proxy statement with the Securities and Exchange Commission.

But some academic research suggests that corporate takeovers, despite their controversy, actually have a positive effect on innovation. Josh Lerner, a professor at Harvard Business School, looked at patenting trends before and after 495 buyout deals. “Patents granted to firms involved in private equity transactions are more cited (a proxy for economic importance), show no significant shifts in the fundamental nature of the research, and are more concentrated in the most important and
prominent areas of companies’ innovative portfolios,” Lerner and colleagues wrote in the April 2008 paper.

Of course, patenting data is public, so it’s easy to capture, but it isn’t the only measure of innovation. Business development, product approvals, publications, and advancements through phases of clinical trials are also signs of the potential for innovation at a biotech company like Biogen, just like recruiting and retaining innovative employees.

Lerner’s data doesn’t address any of those issues, and it also doesn’t tease out patterns like what happens to innovation if there’s a prolonged tug-of-war for control.

This is where Biogen’s case falls into completely uncharted territory. There really aren’t any …Next Page »

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What if within the next decade or so the U.S. healthcare system was completely transformed? Hospitals like Boston’s Beth Israel were all replaced by retail clinics and medical centers specializing in specific procedures, such as hernia repair or hip replacement. Diagnostics companies finally started reaping the big profits while pharmaceutical companies, biotechs, and device makers took their place as underdogs. And a newly hatched Center for the Determination of Comparative Efficacy was the most feared gauntlet anyone had to navigate to get a new test or treatment to market.

That’s the vision I heard from Clayton Christensen, Wayne Rosenkrans, and other notable speakers at last week’s personalized medicine meeting sponsored by the Harvard Medical School-Partners Healthcare Center for Genetics and Genomics.

In case you’ve already started to roll your eyes, let me assure you this is not the same “personalized medicine” we have been hearing about for the last decade or so. The term once meant matching patients to therapies based on fancy new gene tests. But now its meaning has become intertwined with “evidence-based medicine,” according to Rosenkrans, who is president and chairman of the Personalized Medicine Coalition (PMC) and director of Personalized Medicine at AstraZeneca.

Now, when people talk about personalized medicine, they likely mean “Segmenting patients so that care makes sense,” he said. “It’s not individualized, it’s just stratified.” And it’s no longer just about genomics, but more about assigning a treatment based on evidence from lab tests, imaging, and IT tools such as decision-support software.

Lawmakers like this idea, because it should mean we can stop paying so much for unnecessary care: The more quickly and accurately we can determine who needs what, the more efficiently we should be able to dole it out. As healthcare costs soar, lawmakers are becoming more and more drawn to this new vision.

But back to some of the possible radical transformations I heard about at the meeting.

Rosenkrans predicted that by 2010 there will be between six and 12 new tests approved that guide the prescription of specific drugs, in addition to the few that have been approved to date. VC funding for this new expanded version of personalized medicine …Next Page »

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First, the good news: salaries and bonuses for key employees of privately held firms in life sciences and information technology went up virtually across the board in the past year. Now, the not-so-good news: New England high-tech executives are in the middle of the pack (or lower) in compensation when compared to their peers around the country.

These are a couple of the conclusions that leap out—well, in some cases you have to dig them out—of the 2007 Compensation and Entrepreneurship Report in Life Sciences and a similarly named study in Information Technology that were officially released today. The annual studies were conducted by the J. Robert Scott executive search agency, law firm WilmerHale, and Ernst & Young, in conjunction with academics at Harvard Business School. I looked at the full, 84- and 72-page versions of the studies that are distributed primarily for participants. Released today for general consumption were scaled-down versions of the reports, but there’s a lot more in even the condensed versions than we can cover here.

The studies, based on surveys of some 1,000 key employees in life sciences and 1,200 in IT, looked at privately held companies by such parameters as financing round, revenue size, industry segment, and geography. They covered a variety of key jobs (13 in life sciences, 10 in IT), from CEO to head of human resources. Data about founder-execs was stripped out of the general survey and put into a separate section of the report, largely because founder compensation runs all over the map and it’s hard to draw conclusions from it (although, not surprisingly, founders get more equity—read on). All told, the survey covered 166 life-sciences and medical-device firms, and 244 information technology companies (just over half them were software firms). Roughly half the companies in each bucket had completed two or fewer rounds of financing—and a clear majority had fewer than 40 employees.

I’ve made lists below of CEO compensation by industry category and geography. But here are some basic observations. For starters, if you are a life sciences/medical devices CEO, you’re in a good place, compared to your IT counterparts. The average non-founder life sciences/medical devices CEO is earning a 2007 base salary of $281,000, a 3.9 percent increase from the 2006 average of $270,000. In IT, by contrast, the average CEO base salary is $227,000, up from 217K the year before.

Bonuses, of course, form a key part of the mix—and here, the IT execs have the potential to do a bit better. …Next Page »

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A handful of websites have turned user-generated content into figurative gold: think YouTube, which started with $11.5 million in venture capital, convinced a few hundred thousand amateurs to upload their home videos, and got purchased by Google for $1.65 billion. But now a trio of Harvard Business School students has launched a Web business designed to transform users’ creativity into literal lucre.

The UpDown, a free-to-play fantasy investing and social networking site that launched today in Cambridge, plans to single out the members whose imaginary portfolios show the best performance and use their strategies to manage a real stock fund seeded by Swiss angel investor Joachim Schoss. Revenues from the fund will be used to operate the company, reward the top performers, and who knows—take over the world?

Well, not quite. If the wisdom-of-the-crowd concept turns out to be a good investment strategy, The UpDown will simply create a larger hedge fund or mutual fund and invite outsiders to invest, acording to Michael Reich, the startup’s CEO. The more the fund earns, the bigger the rewards the company will kick back to its members, says Reich, who co-founded the company with fellow HBS students Georg Ludviksson and Phuc Truong. “It’s all for fun—but hopefully we can get it to the point where people are making good enough money that they appreciate it,” he says.

Don’t start on that resignation letter quite yet: so far “Neurodoc,” the top performer in The UpDown’s closed beta test, has earned all of $202.86 in rewards. (Testing, which began in June, involved about 1,000 students from various business schools and their invited friends.)

The UpDown isn’t the first fantasy-investing network where the results have been used to inform real stock investments. Over the last three years, Marketocracy Data Services has recruited 55,000 people to manage model portfolios; sister company Marketocracy Capital Management, which manages a family of mutual funds, uses data on the best-performing portfolios as part of its research. Then there’s Gotham Capital’s exclusive Value Investors Club, which limits membership to 250 people and offers a weekly $5,000 prize to the authors of the best investing ideas.

But The UpDown’s idea is different. Reich’s explanation is worth quoting at length: “Our idea is to have a fund that is managed by thousands of people. But if you just take everyone’s advice at the same value, it would probably be tough to have a good investment strategy. Obviously you need to apply some kind of intelligence to find out who are the people among those thousands who actually should be running the fund. There are two ways to do that. You could either say ‘I’m a good fund manager myself and I’ll use the community as a form of research’ [the Marketocracy and Value Investors model]. That’s not how we plan to do it. The other way is to use a quantitative model to take into account all of the information we have about the performance of the users on our site, and select the ones that have an investment strategy that is superior, then weight their opinions a lot more strongly than people who have shown inconsistent performance or who have only been on the site a short time.”

The UpDown is building that quantitative model right now, and plans to start applying it to the seed fund it as soon as UpDown users have compiled a decent track record to draw upon—possibly as soon as three months from now, says Reich.

Meanwhile, there are plenty of other activities to keep The UpDown members busy. Members start off with one million imaginary dollars to invest, and the site’s tools help them buy and sell stock as often as they like, as well as track the performance of their portfolios over time. Opinionated members are encouraged to submit company analyses (including buy or sell recommendations) that are then rated by other members; each week The UpDown hands out cash prizes to the authors of the highest-rated stock picks. Members can also join groups where members collaborate to manage a joint portfolio and interact via message boards and private messages.

While the website includes a few contextual ads from Google, The UpDown is subsisting for now on a $500,000 angel investment from Schoss, according to Reich. Schoss “has started maybe 20 Internet comapnies in Europe, and is also very active in the alternative investment space, which I think explains why he really liked our company,” says Reich. “It has this investment side and this Internet aspect, and the way we do it is completely new.”

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