Tom Ranken is the first to admit he can get a bit ornery on the subject of venture capital in the Northwest. “It used to make me foam at the mouth when VCs would say there’s plenty of money out there and all the good ideas get funded,” he says.
But now Ranken, the former CEO of the bioinformatics company VizX Labs, thinks the VCs may be at least partly right. He has had the change of heart after doing a research project this spring that dug into why the Northwest doesn’t create more biotech startups. He and Jim Severson, the former vice provost of technology transfer at the University of Washington, identified all 21 life sciences startups formed in the state from 2006 through 2007, and interviewed CEOs at 11 of them about what the region needs to provide more fertile grounds for new companies. (Click here for the full WBBA report)
It’s hard to find good comparisons on startup creation by region, Ranken says, but one study has suggested that a startup is formed for every $65 million in sponsored research. By that rule of thumb, the region should have produced three times as many startups, he says.
The study, paid for by the Washington Biotechnology and Biomedical Association and the City of Seattle, debunked several popular perceptions about the drought, Ranken says. It found there isn’t a shortage of management talent, and the region is actually exporting some of its talent. Venture capital is nearly impossible to get for small companies that aren’t likely to go public, yet it can be scored for companies with big ideas that could someday generate more than $100 million to $200 million a year in revenue. Technology transfer isn’t as big of a road block as it once was to commercializing ideas from the University of Washington. But one real issue at the region’s anchor university is an academic culture that frowns on entrepreneurial efforts, Ranken and Severson found.
“The academic culture here seems to be that once the knowledge is published, it’s done,” Ranken says.
Here’s a sampling of recommendations from the report:
—Perform more research to understand what Ranken and Severson dubbed “Good Life Science Businesses.” These are the firms that do the industry’s grunt work—managing clinical trials, contract manufacturing, and running toxicology tests. These companies collect steady fees and fulfill key functions in the local biotech machine, but get little recognition because they will never become the next biotech to change medical practice, like Amgen (NASDAQ: [[ticker:AMGN]]) or Genentech (NYSE: [[ticker:DNA]]). “The Good Life Sciences Businesses are seen as the Ma and Pa grocery stores, when Ma and Pa come in to the store, do a little work and go home,” says Ranken, who calls that perception “garbage.” Examples of low-profile, yet important, companies are Quintiles, a contract research organization based in Research Triangle Park, NC, and Axio Research, a small contract research organization in Seattle, he says.
—Round up some of those former Immunoids and Icosians who scattered after corporate takeovers and re-connect them in a life sciences angel network for companies that don’t qualify for venture funding. “Local angel networks have little life sciences expertise and angel capital is nearly impossible to identify and access in Washington,” according to the report.
—Copy the model of Accelerator, the startup incubator affiliated with top venture firms and Leroy Hood’s Institute for Systems Biology, and apply it to medical devices, diagnostics, and (here we go again) the so-called Good Life Sciences Businesses.
—The WBBA needs to redesign its networking events that connect entrepreneurs to other entrepreneurs, or hook up inventors with entrepreneurs. “These activities probably will require many different foci, venues, times, etc. to remain fresh and vital,” according to the report.
The report has made an impression on the WBBA, says Jack Faris, the trade group’s president, who sat in on some of the interviews and heard some feedback first-hand. “We want to pursue most if not all of the recommendations,” he says.
One recommendation that’s dead on arrival? Amending the state’s Constitution to allow direct state aid to startup businesses. Some executives would like to see that happen in order allow the state to do something aggressive on a global scale, like Massachusetts Gov. Deval Patrick’s initiative to put $1 billion into supporting life sciences over the next 10 years.
“Here it would take a two-thirds vote of the legislature and a vote of the people,” Ranken says. “It’s politically impossible.”
