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A Scientist on the Dark Side


Even as a graduate student, I had a fondness for the bottom line. A postdoc friend from those days would joke that I was too practical to be a real scientist. It didn't come as a surprise to most people when, shortly after receiving my Ph.D., I accepted a position as an investment analyst with RA Capital Associates.

As is the case for most scientists who find a way into business--a.k.a. the dark side--there was nothing traditional about my path. I received no formal business training, with the exception of a few college classes in entrepreneurship and accounting. As an undergraduate, I majored in biology and spent most of my free time in a research laboratory. In graduate school, I investigated the cellular entry mechanisms of HIV. However, my preference for applied rather than basic science fueled an interest in biotechnology.

In my second year of graduate school, while attending a crowded lecture by a professor who had founded a drug discovery company, I realized that there were many other students and postdocs trying to learn about the biotech industry. With several like-minded colleagues, I launched a biotech-focused student organization. The Biotech Club would ultimately be my ticket out of the Ivory Tower. We invited a different speaker every few weeks such that, by the time I graduated, I had met dozens of executives, venture capitalists, attorneys, and entrepreneurs. We would receive passes to major industry conferences by recruiting student volunteers for the event organizers.

One of my other projects involved interviewing people about their experiences starting biotech companies. Later, I would compile these notes into a first draft of what is now the Entrepreneur's Guide to a Biotech Startup, which is available free at

After graduating, based on the strength of my network and a recommendation from a friend, a firm hired me to market their services to biotech investors and business development executives. It was only a consulting project, not a full-time job. The next month, I met an entrepreneur at a conference and figured that I could help him raise money for his diagnostics startup. The company had an excellent business plan, and I felt confident introducing them to my network of investors. In a third case, a friend referred me to a proteomics startup that needed help developing its business strategy. The main challenge was convincing management to stop discovering new applications and to develop a product for one of them. These independent consulting projects paid the bills while I actively searched for a full-time job in venture capital (VC) or business development. Several months later, thanks to connections I made while in school, I had offers from both a VC firm and a biotech company. I turned them down in favor of a third offer that I couldn't refuse.

Validating a Business Model

A business model describes the way in which a company makes money: Who are the customers, what are they purchasing (service, instrument, drugs?), why will they pay, and how much will they pay? An example is the Razor Blade Model: A customer may own a single razor for many years, but he must purchase new blades frequently--the profit is in the razor blades, not the razor. Companies that give away an expensive instrument to the customer and then recoup their investment and profit from selling cheaper disposables are said to be following the Razor Blade Model.

Before investing too much in a technology, a startup should have a solid business model in place for commercializing the technology. Validating a business model might require building and selling a few prototypes or identifying a direct competitor who has already succeeded in doing what you plan to do. Rest assured that there is usually room in every market for two or more companies doing the same thing.

Little things can complicate a business model. Consider the example of a startup developing an inexpensive module that will improve the resolution of existing MRI scanners. Radiologists may love the technology but may refuse to buy it simply because installing it would invalidate the manufacturer's warranty--not something one should do with a million-dollar complex instrument. In this case, investors will want to know that one or more of the dominant MRI manufacturers are willing to cooperate with the startup.

As a second-year graduate student, I read The Billion Dollar Molecule, a story about the genesis of Vertex Pharmaceuticals. A year later, at a conference, I introduced myself to Rich Aldrich, the chief business officer of Vertex and one of its founders. It's not every day one exchanges business cards with a character out of a book. Later, when I was job hunting, I e-mailed Rich about applying for a position with Vertex. As it turned out, he had just left Vertex, cashed in some of his options, and wanted to set up an independent investment operation. Rich saw my technical background as complementary to his own business expertise and invited me to join him. RA Capital Associates has been a two-person firm ever since.

RA Capital Associates invests in public and private biotechnology companies and provides strategic advice to startups. When evaluating a public company, I read analyst reports, consult our knowledgeable friends, and speak with the management. We typically buy stock in companies with market capitalizations under $500 million that have one or more drugs in late-stage clinical trials and enough cash to last them several years. Our rationale is that such stocks will appreciate significantly over the next 1 to 2 years if the drugs are successful regardless of how poorly the rest of the biotech sector performs.

I also screen a half-dozen business plans per week from small companies either seeking capital or inviting my boss to join their board. Attractive companies will have experienced management, a profit-oriented business model, intellectual property, technology validation, and a low valuation. Usually, we turn companies down for the simple reason that we just don't see how they will make money. One piece of advice I offer to entrepreneurs is that they should validate their business model before they perfect their technology.

There is no shortage of clichés about why Ph.D.s and MBAs scoff at each other; one supposedly flouts the bottom line and the other has no appreciation of technical feasibility. Indeed, each must earn the respect of the other, although one does not often see an MBA applying for work in a research laboratory. Scientists making the transition into business should take every opportunity to meet new people, become involved in business projects, and consult for free if necessary. Internships are an excellent way to build resumes with work experience (see the related articles for additional information on internships). Evelexa offers "Virtual Internships" that allow members to work independently on business projects in their spare time. Also, scientists who cannot afford the high cost of admission to industry conferences may volunteer to work at a conference in exchange for free access, although such opportunities are not always advertised. These experiences allow a scientist to stand out from the rest. And as they say, fortune helps those who help themselves.

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