Bay Area's Biggest Startup Factory Looks to Fund This New Type of Biotech

July 5, 2017
By Alex Keown, BioSpace.com Breaking News Staff

SAN FRANCISCO – What’s the best way to fund a biotech startup? Traditionally investors have dumped millions upon millions into a company hoping the research pays off into a viable revenue stream that will be a solid return on investment.

But, as most investors know, it can take years before any kind of return is seen. But Sam Altman, president of Silicon Valley-based Y Combinator, a startup accelerator, believes there may be a different and faster approach to seeing such a coveted return on investment. In a recent interview with CNBC, Altman suggested that backing biotech companies that use computer science technologies, including machine learning, may be a safer bet. Altman suggested companies using those kinds of technology are likely to grow faster than more traditional counterparts. As such, Altman said those biotechs could be funded more like tech startups than traditional life science startups.

In his interview Altman pointed to Boston-based Gingko Bioworks, a successful graduate of Y Combinator. Privately-held Ginkgo Bioworks delivers designer organisms for its customers, using engineered microbes to manufacture cultured ingredients such as flavors, fragrances, cosmetics and sweeteners. Since Ginkgo stepped out from Y Combinator in 2014, the company has seen strong growth that includes more than $150 million in financing and the acquisition of synthetic DNA-provider Gen9 earlier this year.

While little of the interview actually focused on Altman’s ideas for biotech funding, he indicated that advances in computer-driven technologies are leading the world closer to medical consultations with artificial intelligence-powered physicians. It’s for that reason that he told CNBC he was eager to expand into more funding of biotechs.

Still, Altman’s model of treating biotech companies like tech startups are not without problems, particularly when it comes to the years of science-based research necessary before most new companies ever announce their existence. In other words, the idea of stealth mode. CNBC pointed out that most Y Combinator companies must be able to “demo a minimally viable product in three months.”

That could be a problem for Y Combinator and the article does share some concerns raised by critics. Ryan Bethencourt, venture partner with the accelerator IndieBio, argued that Altman and Y Combinator want to “fund tech people that do biotech, rather than embracing what it takes to do biotech.” Bethencourt said Y Combinator doesn’t have the experience when it comes to an industry that has strong regulatory guidelines, as well as “pricing and reimbursement complexities.” Bethencourt said Y Combinator has not changed its funding models enough in order to successfully enter that area of business.

Altman, though, remains undaunted by the criticism. He told CNBC that the life science companies Y Combinator backs may take longer than traditional tech companies. However, with that being said, Altman said there are some business aspects that are similar, such as “getting introductions to potential customers for early pilots.”

“I'm super excited about the entrepreneurial focus in health and biotech," Altman said in his interview.