TechBio Guide🔬: Lexicon - Top 100 Key Terms (Part 1)
Guide to TechBio's Ever Expanding Terminology
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Alix Ventures: Supporting Early Stage Life Science Startups Engineering Biology to Drive Radical Advances in Human Health
Overview
BIOS is thrilled to announce the release of TechBio Lexicon - a comprehensive guide to Life Sciences innovation terminology. Our goal is to break down complex concepts and provide a detailed explanation of industry terms, categorized by the central stakeholders of the Life Sciences ecosystem: Academia, Founders, VCs, & Pharma.
The Lexicon is filled with clear and concise definitions, real-world examples, and expert insights to help you navigate the ever complex Life Sciences. Whether you're a first-time founder, a seasoned investor, or simply someone looking to expand your knowledge of the biotech startups, BIOS Lexicon is the perfect place to start :)
BIOS is committed to breaking down barriers in Life Sciences and making biotech accessible to everyone, and we believe that this resource is an important step towards that goal. We hope you enjoy reading the Lexicon as much as we enjoyed putting it together, and we encourage you to share it with anyone else who may find it helpful.
Baseline
Biotechnology: The combination of the life sciences and engineering, utilizing biological systems, living organisms or parts of this to develop or create different products.
Bioengineering: A discipline that further integrates engineering principles of design and analysis to biological systems and biomedical technologies.
Example: Designing new medical devices, diagnostic equipment, or drug delivery mechanisms.
Life Sciences: The sciences concerned with the study of living organisms.
Example: biology, biochemistry, chemistry, microbiology, bioengineering.
TechBio: TechBio refers to the increased incorporation of technology to the biological research process. TechBio companies are typically founder-led, platform companies that focus on incorporating engineering and new advances in technologies from a variety of fields into their platform. These advances often bring together combinations of hardware, software, and wetware to rapidly expand biological understanding and thus enhance (platform) outcomes.
Example: Mammoth Biosciences, Atomwise, Endpoint Health
Academia
Technology Transfer Office (TTO) / Office of Technology Licensing (OTL): TTOs and OTLs are responsible for the process of transferring technology from an institution (like a university) to another person/company to transform scientific research into new companies and products. Almost every significant research institution has a TTO/OTL, and particularly large institutions may have several.
Example: Harvard’s Office of Technology Development, Stanford’s Office of Technology Licensing, MIT’s Technology Licensing, etc.
Academic Founder: As their title implies, academic founders are coming from a research institution and the implication is often that they have yet to develop business or entrepreneurial experience. They bring significant scientific and technical knowledge. Some academic founders leave academia to join their company. Others, often PIs, remain in academia and continue an affiliation with the startup. Over time, serial academic founders develop strong entrepreneurial experience and the reputation to assist in venture creation and, potentially, management and scale-up, though they primarily provide scientific and technical support.
Example: George Church and Robert Langer are academic founders who have spun out the most biotech startups.
Scientific Founder: Scientific founders are scientific or technical experts in their startup’s field. They may have discovered the company’s core technology or have extensive topical experience. Often scientific founders have less entrepreneurial or business experience and may not be in charge of startup operations themselves. Scientific founders can also include serial entrepreneurs who were scientific leaders at their previous startup(s).
Example: Jason Kelly, Reshma Shetty, Barry Canton, Austin Che and Tom Knight were all scientific founders of Ginkgo Bioworks.
Intellectual Property (IP): Legally, intellectual property (IP) is any product of creation by the (human) mind which the law protects from unauthorized use under specified terms and claims. While IP covers patents, trademarks, copyrights, and trade secrets, patents are the primary “IP currency” in the life sciences. The requirements for obtaining patents on an invention in the life science area are the same as those for any other patent; the invention must be novel, nonobvious, and useful. However, there are several areas related to the prosecution and patent term of life science patents that may be different and that may require a higher level of disclosure.
Additional Information: United States: Life Science Patent Practice Guide
Proof of Concept (POC): Proof of concept is an early proof point that a proposed scientific strategy or technology will achieve continued success.
Example: In biotech, this could be early preclinical animal studies that demonstrate efficacy of a drug or target or the identification of an early lead candidate through a novel platform.
Animal Studies: Scientific studies performed in non-human animals, also called in vivo experiments. Animal studies are used during the preclinical development stage for therapeutic candidates and diagnostic tests and range from initial model organisms such as mice, to larger and more representative animal models, including non-human primates, pigs, and sheep.
Example: Animal testing can provide in vivo proof-of-concept data as well as pharmacological and toxicological data required for IND applications before clinical-stage testing.
Founder
Startup: A company in the first stages of operation, typically focused on bringing a single product or service to market and pursuing rapid growth.
Example: Strand Therapeutics, Verve Therapeutics, and Xilis are all examples of biotech startups.
Venture Creation / Incubation: Venture creation is when an investment firm funds and spins out new ideas into new startups. Incubation is when a firm
Example: Flagship Pioneering started Moderna, incubating the company in-house to reach a specific stage / success before the company stood alone.
Incubator & Accelerator: An incubator / accelerator gives early-stage startup companies access to mentorship and support to facilitate their growth. Incubators most often come with a shared workplace. Accelerators often host programs of specific content and timelines. Both can overlap.
Example: Y Combinator and IndieBio are leading accelerator programs. LabCentral and Alexandria Launch Labs are representative incubators.
Academic Spinout: Companies that were formed by taking technological or scientific innovations from university research and translating them to a company.
Example: Mammoth Biosciences is an academic spinout, having spun out the CRISPR technology developed in Jennifer Doudna’s lab.
Scale-Up: A scale-up company is an innovative and relatively new company that has already attained high growth over the past few years.
Example: Orna Therapeutics, Strand Therapeutics, Dyno Therapeutics are all examples of scale-ups.
Non-Dilutive Funding: Funding to a startup which does not require equity in exchange.
Example: Grant funding (e.g. SBIR) and debt-funding are the two most common forms of non-dilutive funding.
Founder-Led Company: Founder-led companies are businesses where the initial founder(s) play a significant role in the company's operation, for example, as the president, CEO, CSO, CTO, a member of the board of directors, or other positions of influence. Multiple studies have shown that founder-led companies produce significantly better results and are more innovative than companies where the founder has left. Some investors consider founder-led companies a more compelling investment as they believe that a founder has greater motivation for the long-term sustainability of their firm. Founder-led companies have been and are continuing to gain traction in recent years.
Example: Ginkgo Bioworks, Regeneron, Cellino Bio, Insitro, BioNTech, Strand Therapeutics, Mythic Therapeutics, & many more
Super Founder: A super founder describes a founder who has had one or more acquisitions.
Example: Elon Musk, Jack Dorsey, Alexis Borisy, amongst many others
Stealth Mode: A strategy in which startups intentionally hide themselves from the market, competitors, and the general public until a predetermined date or, more commonly, a set of milestones are reached. Companies being advanced by venture creation firms are often kept in “stealth” until the announcement of their Series A raise.
Example: Biotech startup Rezo Therapeutics came out of stealth at JPM 2023, officially announcing the launch of their company.
OKRs: ‘Objectives and Key Results’ is a collaborative goal-setting method to set challenging ambitious goals with measurable outcomes. OKRs can be established at varying levels, including: company, team / function, product (line), and individual.
Example: company-level OKR
Objective: Secure additional funding within the next year.
Key Result 1: Reach out to at least 30 VC firms.
Key Result 2: Set meetings with at least 10 VC firms.
Key Result 3: Secure at least 5 term sheets with our minimum required terms.
Key Result 4: Close investment round with $10 million or more.
Example: function-level OKR: Business Development
Objective: establish 2 pharmaceutical partnerships before going out to raise the series A.
Key Result 1: Understand pharmaceutical landscape for alignment with our startup and reach out to at least 15 companies.
Key Result 2: Convert outreach to these companies into at least 10 conversations.
Key Result 3: Negotiate and agree to terms for at least 2 partnerships / client relationships.
Go-To-Market Strategy (GTM): A plan that details how a company will sell, license, or more broadly commercialize their product to their target consumers and gain a competitive advantage.
Example: Partnerships with bigger pharma companies and marketing plans including television commercials and sponsored webinars.
Product-Market Fit (PMF): Product-market fit is when your product addresses and solves the needs of your buyer personas in correlating market segments and channels. This can include scenarios where the company’s target customers are buying, using, and telling others about the product in numbers large enough to sustain product’s growth and profitability.
Pivot: Making necessary and fundamental changes to the way the company works in order to find the right product market fit.
Example: The textile company was not doing well selling upholstery last season so the CEO decided to pivot to selling clothing instead.
Platform Company Models: strategies for maximizing the potential of a platform, often starting with a targeted focus and expansion horizontally and/or vertically over time to, ideally, become a full stack company.
Horizontal Integrated Platform / Company: Growth strategy involving technical expansion via internal R&D or acquisition to expand product or services offerings within the same level of business or supply chain.
Example: AAV bio-manufacturing company expanding into Lenti virus bio-manufacturing.
Vertically Integrated Platform / Company: Growth strategy that involves a company gaining control of the upward or downward supply chain.
Example: AAV bio-manufacturing company developing their own pipeline of therapeutics.
Full Stack Company: A company that can provide an end-to-end product or service without industry incumbents because it has control of its production, distribution, and support.
Example: Biotech startups like Synthego are trying to use this methodology for producing software, high-throughput synthesis of reagents, and automated systems for cell engineering.
Applications: areas of startup revenue generation focus.
Tools: Startups in the tools space provide a service that supports drug and product development efforts.
Example: Elegen provides the leading DNA writing service, able to deliver fast-turnaround, high-quality, increased length, synthetic DNA; eliminating the need for time-intensive in-house cloning and enabling rapid prototyping in the biological sciences.
Services: Building on the traditional definition of services as action or labor, biotech services companies provide a service to their customers, not a product; by providing services, a service company generates money. These services can support R&D, clinical, and/or commercial efforts. Biotech services can be contracted on an hourly, project, ongoing, or custom basis, and include 3rd party suppliers (e.g. legal firms, commercial lab real estate support, reagent suppliers) and contract services from biotechnology companies (e.g. remediation, compound production).
Example: The company provides free IP counseling services from their in-house legal team.
Infrastructure: The basic facilities, structures, and services upon which the rest of a company or industry operates. Infrastructure plays form the foundation upon which broader industries are developed.
Example: Lab Central is a company that provides physical infrastructure for budding biotech startups, while 64x Bio provides a platform that radically increases the speed and scale of mammalian cell line discovery, enabling the rapid generation of viral vectors to support the gene therapy market.
Therapeutics: Products for use in humans in connection with preventing, diagnosing or alleviating a disease. Therapeutics cover a host of modalities, with some of the most common including small molecules (small, chemically synthesized entities), biologics (larger, biologically produced entities), gene therapies (modifies a person’s genes to treat or cure disease), and cell therapies (living cells manipulated to confer therapeutic benefit).
Examples:
Small Molecules: FDA-Approved Small Molecules in 2022
Everyday examples of a small molecule drug include aspirin, diphenhydramine, and other “medicine cabinet” drugs.
Statins, also known as HMG-CoA inhibitors, are a class of bioactive small molecules that efficiently reduce the levels of cholesterol, and therefore are commonly used to manage and prevent various cardiovascular diseases.
Cell & Gene Therapy: FDA list; Full list with descriptions as of Jan 2023. Approved CAR-T cell therapies in the U.S. include: Abcema, Breyanzi, Carvykti, Kymriah, Tecartus, and Yescarta.
Diagnostics: The products and process of identifying a disease, condition, or injury from its signs and symptoms.
Example: A health history, physical exam, and tests, such as blood tests, imaging tests, and biopsies, may be used to help make a diagnosis. More recently, CRISPR technology has engendered many companies focused on molecular diagnostics.
Bio-Manufacturing: Bio-manufacturing is the use of biological and living systems that have been engineered, or that are used outside their natural context, to produce a product. Bio-manufacturing is most often used to describe the scale-up of processes that permit the consistent production of biological products (biologics and bio-similars) at a commercial scale.
Example: The most popular systems for bio-manufacturing are bacterial cells (Escherichia coli) for the production of simple proteins and mammalian cells (Chinese hamster ovary (CHO) cells and a small number of alternative rodent or human cell lines) for the production of complex proteins and glycoproteins.
Board: The governing body of a company to set strategy and oversee management.
Board Member: An elected participant on the board of directors of a corporation or the supervisory committee of an organization. In return for their privileges, Board members have a fiduciary duty to the company and shareholders.
Startup Example: As defined by their investment, lead investor John Hancock serves as a member of the board of directors in startup XYZ.
Industry Example: Kenneth C. Frazier is the Executive Chairman of Merck’s board of directors, a role he began in July 2021, following his retirement from a decade-long tenure as Merck’s President and Chief Executive Officer.
Board Observer: Individuals who are permitted to attend and participate in the meetings of the board, but who are not permitted to vote. Board observers gain the opportunity to follow the progress of the company, while also contributing to decision making, but without the duties of a member of the board. Board observers range from non-lead investors to partners to advisors to members of organizations - including the company - who are being granted an opportunity to facilitate their growth and learning.
Example: A partner was granted a board observer seat and provided their expertise in the target market, while also following the progress of the company.
Scientific Advisory Board (SAB): SABs consist of experts in the startup’s specific field/technology that review and provide strategic guidance for a company’s development efforts. Most often, they are scientific and technical experts who provide expertise related to R&D. Depending on the stage, size, and strategic focus of the company, they may also include translational, clinical, and/or commercial expertise. SAB members are almost always notable names in a given discipline.
Example: George Church, Tomas Bjorklund, Debora Marks, amongst others on the Scientific Advisory Board of Dyno Therapeutics.
Operating Agreement: An operating agreement is a key document used by LLCs because it outlines the business' financial and functional decisions including rules, regulations and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners. Once the document is signed by the members of the limited liability company, it acts as an official contract binding them to its terms. An LLC is required to draft a business operating agreement and file it with the state.
Example: Key elements of an OA from the US Small Business Administration.
Capitalization Table (Cap Table): the cap table is an overview of a start-up's current equity ownership structure. It lists the percentage of ownership and the type of shares of stakeholders such as the founders, employees, investors, etc. The cap table needs to be updated with every new series of funding and issuance of new securities.
Example: See below
Recap: Recapitalization refers to a way for new investors to restructure the cap table and redefine ownership, potentially removing previous investors or shifting previous investors’ equity from preferred to common stock. Recapping can happen if a new investor assumes that a company is overvalued and wants to gain more control of the firm by changing the ownership structure, or can occur if ownership distribution is poorly aligned to incentives and/or will be inhibitory to future company growth.
Up Round v. Down Round v. Bridge Round: Outcomes of a financing round
Up Round: Fundraising round where share price increases. Often considered an indication of a company’s growth and profitable for investors
Example: Startup A’s share price increased from $10 at the Series A to $14 at the Series B, mirrored by a similar increase in company valuation from $100M to $300M.
Down Round: Fundraising round where share price decreases, even if the company valuation increases. Can be an indication that a company may be in trouble. Down rounds could be down to an increased investment risk and, therefore, decreased confidence from investors, or can be driven by macroeconomic factors with the transition of a period of high to low valuations (i.e. bubble burst).
Example: Startup A’s share price decreased from $10 at the Series A to $8 at the Series B, though the company's valuation increased from $100M to $150M.
Bridge Round: Interim financing used to set up a next round of funding to provide additional cash during financial difficulties, or to sustain the company through a certain milestone or period of larger macroeconomic uncertainty. Bridge rounds can be structured as convertible notes where a valuation cap or discount rate is set for the next equity round.
Example: StartupA raised $8M at the seed. To achieve an additional milestone that will greatly increase their valuation for the Series A raise, StartupA raises a $2M bridge round with a 20% discount to investors for at the next rounds valuation.
Venture Debt: Venture debt is a type of loan offered by banks and nonbank lenders that is designed specifically for early-stage, high-growth companies with venture capital backing. Venture debt is a form of non-dilutive funding and many venture debt deals include warrants which may be exercised to purchase common stock in the borrowing entity. As a debt instrument, venture debt has a higher liquidation priority than equity and unlike conventional debt financing methods (like senior/secured lending), venture debt does not necessarily require specific, tangible, underlying collateral security. Recognizing that many startups and earlier stage companies generally do not own substantial assets that can be used as collateral, venture debt lenders often compensate for this incremental risk with warrants on the company’s common equity. Venture debt is usually offered to companies that have already successfully completed several rounds of venture capital equity fundraisings (most often becoming available at the Series A). Companies pursuing venture debt are typically startups that have some history of operations but still do not have sufficient positive cash flows to be eligible to obtain a more conventional loan. A company exploring venture debt is often best positioned to do so shortly after the close of a funding round. Large venture debt players include: Silicon Valley Bank, First Republic Bank, BridgeBank, and more.
Example: Resources on venture debt: SVB, CFI & Flow Capital
Stock: A security that represents equity ownership of a fraction of the issuing company.
Common Stock: a stock that entitles the owner to vote on company policies at shareholder meetings, elect the board of directors, and receive dividends paid out by the issuing company.
Example: Some biotech/pharma common stocks include Amgen (AMGN), Novartis (NVS), Regeneron (REGN), Moderna (MRNA). Many employees, especially those in startups, receive common stock as a part of their compensation package.
Preferred Stock: A stock with no voting rights that gives the holder priority to company income (dividends, liquidation preference). These shares are generally offered to angel investors and early-stage VC firms looking to protect their existing ownership percentage.
Example: GOOG is the preferred, or class C, stock for Alphabet Inc. (Google). $GOOGL is the class A or common stock. Preferred shares tend to trade slightly lower, but are less volatile, than common stock due to the lack of voting rights.
Redeemable Preferred Stock: A preferred stock which can be bought back by the issuing entity with cash.
Convertible Preferred Stock: A preferred stock that can be exchanged for common shares in the same company.
Aggregate Purchase Price: The aggregate value of an offer to purchase a company after accounting for all debts, liabilities, and transaction-related expenses. This is the final calculated value used in mergers and acquisitions transactions
Example: In 2021 Pfizer acquired Trillium Therapeutics for an aggregate purchase price of more than $2 billion.
Vesting Schedule: A vesting schedule is an incentive program for employees that gives them benefits, usually stock options, when they have contractually fulfilled a specified term of employment with the company.
Equity: An equity vesting schedule is the time over which an equity reward for an employee is earned.
Example: A typical vesting schedule is time-based for four-years with a one-year cliff where 1/4 of the shares vest after one year. After one year, 1/36 of the remaining option shares will incrementally vest each month.
Carried Interest (Carry): Carried interest is the share of profits earned by a member of the VC fund. Carry usually vests over a number of years to ensure that partners are incentivised to remain active for an extended period of a fund's life. The vesting schedule will vary among funds but in many cases it is loosely aligned to the investment period of the fund from which the carry is derived.
Example: A limited partner (LP) invests $5K in a fund that charges 20% carried interest. If the fund has a successful exit, and that limited partner’s distribution is worth $100K: the general partner will receive 20% of the amount the investor earned after their principal is paid back ($100K - $5K = $95K*0.2 = $19K).
Key Performance Indicators (KPIs): KPIs are quantifiable indicators that track progress towards a desired end goal. KPIs serve as an objective measure that enables companies to track the efficiency and efficacy of their business plans. KPIs are typically balanced between leading and lagging indicators to ensure timely and efficient tracking of progress.
Example: Burn rate is a commonly used KPI to assess a start-ups financial health.
Burn Rate: A measure of the rate at which a company is spending its cash reserves. This is a relevant metric for understanding a company’s cash runway when it has negative cash flow, which is typical for venture-backed start-ups.
Example: A company’s aggregate expenses including office space, employee wages, and development/production equating to $100,000/month represents the company’s monthly burn rate.
Runway: The length of time a business can operate before running out of money. This is calculated by dividing the company cash balance by the net burn rate (burn rate - monthly revenue generation rate). Understanding the runway helps direct timelines for reaching profitability or raising more capital.
Example: If a startup is going through $100,000/month while not generating revenue, and the company has raised $1 million, then it has a runway of 10 months.
NDA/CDA (Non-Disclosure or Confidential Disclosure Agreement): A legal contract between parties that outlines information that is confidential or protected, typically to protect proprietary information and/or trade secrets. The party or parties signing the agreement agree that sensitive information they may obtain will not be made available to any others for a defined term. NDAs / CDAs can be one-way (only one party is held to confidentiality), or two-way (mutual for both parties). In VC, NDAs are most often signed to ensure that the firm / company is unable to share proprietary technology or trade secrets to competitors.
Example: ILPA's Model Non-Disclosure Agreement is intended to serve the private equity industry by providing a standard document for agreements between limited partners (LPs) and general partners (GPs), benefiting both parties by helping to reduce legal costs and to save time.
Data Room: A data room is a virtual collection of documentation provided by a start-up to investors which accurately represents the start-up. A well-organized data room showcases a company’s strengths and makes the due diligence process easier for investors. Components of a data room include organized documentation covering a company’s financials, intellectual property (IP), team members, technology, and market traction
Unicorn v. Decacorn v. Futurecorn v. Centaur: A unicorn is a startup one worth over $1 Billion (e.g. Cerebral). Decacorn represents a startup worth $10 Billion or more (e.g. SpaceX). Futurecorns are earlier stage startups valued between $250M and $1B that are on the path of becoming a unicorn. Centaurs are startups with at least $100M in annual recurring revenue (e.g. LinkedIn).
Employee Stock Option Plan (ESOP): ESO are a type of equity compensation granted by companies to their employees. Instead of giving stock directly, the company gives options which can be exercised for a pre-agreed (strike) price, often after a specified amount of time (vesting schedule).
Option Pool: An option pool are shares of stock which are reserved for employees of a private company. They are usually used to attract top talent to a company and provide an alignment of incentives.
Example: An employee of a biotech company has contractually been given 100 options vesting over a 5 year period. They receive 20 share options at the end of their first year and then 20 shares at the end of each year through the end of their 5th year. Once vested, the employee has the right to exercise their options and purchase shares in the company for a present rate.
VC
VC Firm Structure
General Partner: Owners of the VC firm who, in almost all circumstances, put money into the fund. Depending on the individual fund, titles vary from GP to Managing Partner or Managing Director. GPs are the leaders of the VC firm and .
Partner: Partners are similar to GPs and help source, lead, and manage investments (sitting on boards), but are not owners of the firm.
Principal & Vice President: Principals and VPs are senior members of the investment team. In addition to helping the firm discover and meet the industry’s most promising entrepreneurs, they also work very closely with companies after investment. Most often, VPs are a half step before Principals and are mainly a position available at larger firms.
Associate: Associates are slightly more junior members of the investment team who are usually in their role for 2-3 years. After this period, they are occasionally promoted to Principal, but they more regularly leave for new opportunities. Associates do not lead investments, but they are typically visible at events and workshops. Their job is usually external facing and involves meeting with a large volume of companies, providing a first filter and bringing the more relevant cases to the attention of the principals and partners.
Analyst: The earliest career members of the investment team, analysts usually perform market landscaping and due diligence, and support.
Examples
General Partner: Chas Pulido (Alix Ventures), Vijay Pande (a16z Bio)
Partner: Ann Bordetsky (NEA)
Principal: Christopher Ghadban (Alix Ventures), Keith Bender (Pear VC)
Vice President: Morgan Cheatham, Sofia Guerra, and Janelle Teng (Bessemer Venture Partners)
Associate: Anastasiya Sybirna (F-Prime Capital)
Analyst: Merouane Ounadjela (Northpond Ventures)
Venture Partner v. Operating Partner: A venture partner is a part-time team member of a venture capital firm, providing strategic, operating and portfolio support. Venture partners are experts in a field, and they are compensated with a share in the upside from venture capital firms, called carried interest. Operating partners are proven business leaders, functioning as either generalists or specialists, and have successful track records of creating value in operating companies. They are usually more capable of developing strategies and leadership teams than a deal-oriented partner.
Example:
Kavita Patel - Venture Partner @ NEA
Shervin Ghaemmaghami - Operating Partner @ F-Prime Capital
Investment Process: In 1984, Tyzoon T. Tyebjee and Albert V. Bruno published a paper describing the venture capital investment process in 5 steps: deal organization, screening, evaluation or due diligence, deal structuring, post-investment activity, and exit.
Example: At Alix, we are for founders, by founders, meaning we know how the fundraising process can be long/hard & are mindful of the distraction that it can be to a company in the interim. With that being said, we want to do the diligence it takes to proudly stand by a company throughout its whole lifecycle & work in the trenches when times get tough. We typically engage in 3 meetings/calls ranging from business to technical diligence with our partners & SAB/MAB over the course of 3-4 weeks. To see a PDF of our full process, please follow this link.
Limited Partner (LP): A limited partner can be either an individual or legal entity, which supplies capital for a fund.
Fund of Funds: An investment vehicle where a fund invests in a portfolio composed of shares of other funds rather than investing directly in stocks, bonds, or other securities (i.e. a VC fund that invests in other VC funds as an LP). Dedicated funds of funds may be less common than standalone mutual funds or ETFs. However, the SEC estimates that approximately 40% of all registered funds hold an investment in at least one other fund.
Example: SVB Capital, Recast Capital
Institutional: An institutional investor is a company or organization that invests money on behalf of clients or members. Hedge funds, mutual funds, pensions, and endowments are examples of institutional investors. Institutional investors are considered savvier than the average investor and are often subject to less regulatory oversight.
Example: Fidelity, university endowments, New York State Common Retirement Fund, Ontario Teachers' Pension Plan
Family Office: An asset manager organized to invest the assets of a single or multiple high net worth family(ies) in the style of a VC limited partnership.
Example: Walton Enterprises, Emerson Collective
Investment Committee (IC): An investment committee is the group of people responsible for managing an organization's financial assets. Many investment firms, particularly larger firms, have a dedicated investment committee whose primary responsibility is to decide whether to move forward with potential investments.
Fund Vintage: The year a fund is formed and begins to make investments (deploy capital) is known as the fund vintage.
Example: a16z’s most recent fund is a 2022-vintage.
Fund Term: VCs raise a certain amount of money in the form of a fund and invest from that pool over a pre-set duration. The fund term defines this time horizon in which the firm can make investments out of the fund before distributing the returns. Fund terms often come with provisions for potential extensions, typically in 1 year increments.
Example: The typical duration of a fund is approximately 10 years. It starts with raising money for 1-2 years, sourcing deals and investing the funds into several companies over >5 years, managing the portfolio along the way and beyond, and exiting the investments (varying timeframes, depending on start-up). At the end of the fund’s term, the capital from the exits will be returned to the investors.
Reserve Ratio: A portion of a fund that is reserved for follow-on investment into its existing portfolio companies.
Dry Powder: The cash on hand that funds and investors can deploy into companies – money raised by venture capital firms, but not yet deployed.
Example: ABC Firm raised a $100M Fund. Having deployed $20M thus far, they have $80M remaining as dry powder, with $30M earmarked for follow-on investments.
Accredited Investors: Those who qualify under Regulation D of the SEC to demonstrate sufficient financial stability to invest in higher risk, unregistered securities, such as venture funds. Accredited investors are allowed to buy and invest in unregistered securities (such as venture funds and hedge funds) as long as they satisfy conditions regarding income, net worth, and/or professional experience.
Early Stage v. Late Stage v. Crossover:
Early stage funds support startups at the earliest stages of development and growth, typically including investments at the pre-seed, seed, and series A stages. Series B tends to be the overlap point between early and late stage investment, and many larger funds will primarily invest beginning at the series A.
Late stage funds invest in more mature startups: (i) for those companies pursuing a pipeline approach, these are companies in clinical trials; (ii) for those that are developing a more commercially oriented product, these startups often have revenue streams and are potentially close to an exit. Today, many late stage funds will opportunistically invest in earlier stage companies.
Crossover funds invest in both public and private companies.
Examples:
Early Stage: Alix Ventures, KdT Ventures, Cantos Ventures, Civilization Ventures, Pear VC
Late Stage: DFJ Growth
Crossover: Tiger Global Management, RTW Investments, Matrix Capital, Viking Global
Sourcing Strategy: In VC sourcing strategy refers to the firm’s approach to acquiring startup deal flow relevant for their target investor stage / range. In biopharma, a sourcing strategy may refer to corporate planning for a similar goal, or may refer to the sourcing of assets or companies for partnership, in-licensing, or acquisition. Sourcing is often network and reputation driven. Ideally, sourcing is couples with data driven analysis and information gathering so that the fund / company can find the best value in its marketplace for engagement and investment.
Example: The VC firm investing in late stage startups established strong relationships with early-stage VCs that have a track record for investing in successful companies that align with the firm's investment strategy.
Deal Flow: Deal Flow refers to the overall number or rate of investment opportunities that an investor has. In VC, this would be the number of start-up pitches they are reviewing.
Example: A VC is likely to review hundreds of pitches from start-ups a year.
Deployment Pace / Investing Window: The rate at which capital is invested from a fund & the overall period in which a new fund is expected to be fully deployed
Portfolio Construction: A practical method for constructing a diversified portfolio of investments and asset classes to maximize overall returns. This construction ideally comes from the careful calculus of a number of different decisions related to how a fund is run and the impact that each of those inputs have on each other. The major contributing factors to portfolio construction are:
Fund Size: Simply, the amount of capital committed to fund.
Management Fee and Carry Percentages: Typically funds have a 2% yearly management fee over the 10-year life of the fund (for a total of 20% of fund size) to cover all overhead expenses and a 20% carry (% of profits the GP receives after investors are paid back in full).
Fund Level Expenses: In addition to the management fees that are paid to the management company for running the fund, there are other expenses that are deducted directly from the fund assets. These fees include legal set-up costs, fundraising expenses and other administrative, legal and infrastructure costs.
Number of Total Company Investments: Some funds run a concentrated strategy and aim to invest in a total of 12-15 companies over the life of the fund, others take a more diversified approach and aim to invest in 30-40 companies, and others aim to invest in 50 or more companies.
Average Initial Check Size: The average amount that will be invested in the first round of fundraising (assuming that more will be invested in the top-performing companies if there is allocation to follow-on investments).
Target Ownership From Initial Investment: The percentage of the company the firm will look to get with their average initial check size.
Follow-On Reserves: The percentage of the fund that will be reserved to make follow-on investments into the fund’s best-performing companies. Some funds have a two-for-one follow-on ratio meaning that for every dollar they first invest into a company, two more dollars are reserved for follow-on, while other funds aim to take a larger ownership percentage up front and reserve between 20% and 40% for follow-on.
Fee and Expense Recycling: Fee recycling is reinvesting the fund expenses and management fees (usually as follow-on investments) as distributions occur. For a $100M fund with a 2% yearly management fee, there will be $20M in total management fees taken over the life of the fund. Many funds look to reinvest the full fund into companies and will invest up to the $20M as companies exit and money is returned to the fund.
Targeted Net Return: The targeted amount of capital the fund looks to return to its LPs. For a $100M fund, a 3x net return means that the fund targets to return to its investors a total of $300M.
Required Return Fund Capital to Targeted Net Return: Going off the example above, if a fund is targeting a 3x net return, meaning they wish to pay to their investors $3 for every $1 invested, the required fund return to hit 3x is actually higher than $300M given fees and carry. It is important to understand the total required return needed to hit the targeted net return.
Graduation Rate Assumptions: Individual company dilution needs to be factored into fund performance. One way to do this is to make some assumptions around the percentage of total companies raising subsequent financing rounds, as well as assumptions on the size and pre-money valuations of those rounds. Some funds may assume that of all the seed investments they make, 50% will successfully raise series A rounds, and of those, 50% will go on to raise series B rounds, and 50% of those C rounds and so on.
Example: see the Kauffman Fellows example here.
Founder-Friendly: An investor or VC firm that is an active and enabling partner to the original founders, while retaining the ultimate goal of maximizing the success of the company they invest in. Building a reputation as founder-friendly can greatly help VC firms attract talented first-time founders.
Investment Thesis: The analysis done by a buyer to help guide an investment decision, establish a match in the firm's investment criteria, and evaluate future investment strategies.
Example: To review examples of investment theses across over 20 scientific areas ranging from non-viral gene delivery to antibodies to high-throughput single-cell manipulation, check out the Alix Substack! By way of example, here at Alix we’re excited to explore high-throughput single-cell manipulation platforms with the following elements:
Ultra-Throughput
Cell Type Versatility
Broad Based Assays & Omic Capabilities
Rapid & Low Cost Asset Development
Early Partnership & Services Opportunities
Valuation: VCs estimate the monetary worth of a company, often determined based on the risk vs. reward that comes from injecting capital, the milestones to be completed with this capital, and market conditions. Valuation is often a primary factor for deciding whether a company will be an investment that will yield the VC profit. There are multiple approaches to valuation; the most common one, called the “Venture Capital Method,” was developed in 1987 by Bill Sahlman.
Example: a VC is willing to invest $10M into start-up A which they assume to have $5M in profits by year 8. This is the year when the VC expects an exit and can return the funds to its investors. To estimate the exit value, the profits of $5M are multiplied by the projected multiple of comparable companies (in this example, comparable companies trade for 10x their profits —> the expected exit value of start-up A: $50M). With a desired rate of return of 20%, the discounted cash flow formula is applied ($50M / (1.2)^8 = $34.72M). The $34.72M is the post-money valuation. Subtracting the initial investment of $5M results in a pre-money valuation of $29.72M.
Investment Memorandum: An investment memo is a document that details an investor’s analysis of a potential investment opportunity. Memo’s most often include the VCs understanding of the company’s science and technology, competitive advantages, strategic vision, and expectations for the investment. In addition, they will discuss the company’s market, competition, and place within the market, as well as potential concerns and the rationale for investment.
Example: Bessemer Venture Partners has a number of their memos available for review on their website.
Average Check Size: the average investment amount that a VC will extend to a start-up at a specific round will vary from investor to investor and depends on their overall investment strategy and industry. VCs who lead rounds will have a larger average check size (often ~30-50% of the round) compared to those who syndicate in deals. Some VCs are also known, at the early-stage, for taking an entire round regardless of size. The round size is at least partly driven by the valuation at hand and broader market conditions, which in turn informs check size. Some investors will require a minimum investment amount to ensure (ideally) a minimum return follows the distribution of capital and attention. At later stage rounds, the amount of investment varies considerably and so it becomes difficult to define an average check size, even in terms of a range.
Example: In biotech, considering lead v. syndicate investments, check sizes
Pre-seed: $10K – $2M (avg. $50K to $250K, lead check $250K to $1M)
Seed: $50K – $5M (avg. $250K to $1M, lead check $1-6M)
Series A: $250K – $10M+ (avg. $500K to $3M, lead check $5-15M+)
Pre- v. Post-Money: Pre-money is the valuation of a company before raising capital from external sources. Post-money valuations include the outside financing and are most often the value used to calculate percent ownership. .
Example: If a VC firm invests $5 million in a company with a $15 million pre-money valuation, then this brings the post-money valuation to $20 million and the firm will own 25% of the company.
Internal Rate of Return (IRR): IRR is the discount rate at which a project breaks even (the total cash inflows equal the total cash outflows). Given as a rate, IRR facilitates comparative analysis between projects and investment options.
Example: Consider project/investment A which has an IRR of 6% and project/investment B which has an IRR of 12%, you could decide between the two by determining the current discount rate. For instance, if the company discount rate is 8%, then project/investment A is a better relative choice according to IRR.
Capital Efficiency: The ratio of the pre-tax revenue generated by a company compared to the total investment made into business growth and product development. Capital efficiency provides a measure of how effectively companies are utilizing capital.
Example: A capital efficiency ratio of 2 translates to 2 dollars in pre-tax revenue to every 1 spent on business/product development.
Priced Round v. SAFE Note: Types of financing instruments
Priced Round: A round of funding where investors can acquire a defined share, or equity, in a startup. This type of funding establishes a valuation for the company based on the total amount of funding raised for that defined share.
Example: Firm StartwithUs invests $1M in a pre-seed round that is priced at $5M post-money valuation, resulting in StartwithUs owning a 20% equity stake in the startup. The round was priced at $4M pre-money, $5M post-money.
SAFE Note: Convertible security that funds startups and can be converted into equity at a later price round. For companies, this gives them access to funding without prematurely establishing their value. For investors, the convertible nature of a SAFE note offers them a share of the company at a future price round, potentially at a discount while offering them potential repayment during a liquidity event if a later price round does not occur. Y Combinator introduced the safe (simple agreement for future equity) in late 2013, and since then, it has been used by almost all YC startups and countless non-YC startups as the main instrument for early-stage fundraising.
Example: YC Batch Investment: “We have a standard deal for all our investments. We invest $500,000 in every company on standard terms. Our $500K investment is made on 2 separate safes:
We invest $125,000 on a post-money safe in return for 7% of your company (the “$125k safe”)
We invest $375,000 on an uncapped safe with a Most Favored Nation (“MFN”) provision (the “MFN safe”)
The MFN safe will take on the terms of the lowest cap safe (or other most favorable terms) issued between the start of the batch and the company’s next equity round. Simply put, we’re giving the company money now but at the terms you will negotiate with other investors later.
Both investments happen at the same time; they are not contingent on any milestones.
Due Diligence: In venture capital, due diligence describes the process of assessing the state of a company’s affairs by thoroughly vetting its assets, liabilities, management, and more while considering whether or not to make an investment.
Example: If due diligence revealed that the company had pending litigation against it for patent infringement, this would affect the VC’s decision of whether to invest.
Term Sheet: A statement of proposed terms and conditions for a proposed investment.
Example: Y Combinator provides an example Series A term sheet.
Exit Strategy: A contingency plan that is executed to liquidate a position in a financial asset once a predetermined criteria has been met or exceeded.
Initial Public Offering (IPO): The process of offering shares of a private corporation to the public in a new stock issuance for the first time.
Example: Verve Therapeutics IPO in 2021.
Acquisition: A transaction in which one party buys some or all of a company's shares, potentially leading to consolidation or merger with the parent company.
Example: Gilead acquired MiroBio 8/4/22 for $405M.
Liquidation Event: An event which causes a company to be sold or cease to exist as a stand alone company.
Example: Mergers, acquisitions and bankruptcy are all types of liquidation events.
Dilution: An investor will likely give money to a company in an investing round multiple rounds before an exit event when the investor can liquidate the investment. During follow-on funding rounds, the company issues more shares. If the investor of a previous round decides not to participate in the current round, their ownership percentage will decrease or be “diluted.” The earlier an investor gets in, the more diluted their equity will be with every round of fundraising.
Example: VC “A” of our previous example invested $5M into start-up during a series A for an ownership of 20% (Pre-money valuation: $20M, post-money valuation: $25M). In series B, a new investor (VC “B”) offers $15M for a pre-money valuation of $35M (post-money valuation $50M). Assuming VC “A” does not invest in the series B and has no predefined anti-dilution protections, this means that VC “A’s” ownership stake will drop from 20% to 10%, having been diluted by 50%:
Series A post-money → Series B post-money = $25M → $50M, 2x
Series A ownership / markup → Series B ownership = 20% / 2 = 10%
Oversubscribed: In the VC world, an oversubscribed start-up describes that the company got offered more money from investors than it had asked for.
Example: For example, a start-up might start a campaign to raise $4M in a seed round. However, many investors are interested in financing the start-up, offering the company $6M in total.
Down Round: The difference between a pre-money valuation and a post-money valuation will determine if a start-up is experiencing a down-round or an up-round during its next round of funding. If the post-money valuation is lower than the pre-money valuation, the start-up will be in the situation of a down-round during the next series. In a down round, the new shares sell at a per-share price lower than in prior investment rounds, which means existing shareholders lose the value of their shares and their ownership percentage. However, it opens up the opportunity for investors by tying additional financing to more control over the company.
Example: Start-up A was valued at $50M for its series A and $200M for its series B. However, due to recession and underperformance of the company, the company is valued at $100M for its series C.
Series Extension: A series extension is an option for a start-up to receive additional funding to meet milestones required for raising the next funding series.
Example: Start-up A promised in its previous financing round to bring one of its leads to clinical trials before raising another round of funding. However, due to supply chain issues, the company won’t be able to reach the milestone before running out of cash. It asks its previous investors and potentially new investors to inject additional cash into the company in a series extension rather than diluting existing equity to reach the promised milestone.
Special Purpose Vehicle (SPV): Normally, the managing partners at a VC pool the money from their investors (LPs) into a fund and distribute the capital in the form of investments across different start-ups. However, sometimes investors want to invest in one company specifically. For making that single investment, VCs will create a legal entity called a special purpose vehicle to isolate the parent company’s assets from the individual investment. SPVs are also used by smaller, often earlier-stage VC funds, enabling them to continue to invest in the later and larger rounds of portfolio companies.
Example: An investor wants to specifically invest in the early start-up A. He invests 100K into the SVP which is created to pool money from multiple investors, in total raising $1M for investing into the company. The investor is now a “member” of the SVP returning him “membership interest” of 10%, often with typical management and carry fees back to the VC firm that brought forward the investment opportunity. The total amount of money that the SVP raised will go as a single payment to the company.
Target Ownership Percentage: VCs often have a targeted ownership percentage in mind when they invest in a company. This targeted percentage acts as a guideline for following funding rounds and estimating an investment's return at the exit.
Example: VC “A” has a target ownership of 20%. Based on its target ownership, it can estimate the required ticket size to achieve the target ownership. If a post-money valuation of $10M is desired, then a check of $2M will be required.
Recycling: Venture capital fund recycling refers to the mechanism of reinvesting proceeds back into the fund for new investments. Fund recycling is known to improve a fund's performance, however, there are typically only two ways to implement it. More often, proceeds from early exits can be reinvested, or management fees can be delayed.
Example: Fund A is $10M. One of fund A’s early, $1M investments exited and returned $5M to the fund, $4M of which is recycled as part of their investable capital and increases the fund size to $14M.
Management Fees: A management fee is the percentage of the Capital Commitments to the Fund that is used to pay for operational expenses, such as salaries and rent. Management fees typically range from 2-2.5% of total committed capital annually, though funds are beginning to explore more nuanced fee structures. These management fees come from the committed capital, unless otherwise specified to be “on top”.
Example: Firm A raises a $100M fund. At a 2% management fee, the firm has $2M annually to pay for expenses. Over the course of a typically 10 year fund lifecycle, the total management fees will be $20M. If a traditional 2% management fee structure, that will mean of the $100M raised, $20M is set aside for operating expenses and $80M is available for investment. If an “on top” management fee structure, the firm would have $100M to invest and $20M separately for operating expenses.
Limited Partner Advisory Committee (LPAC): Limited Partner Advisory Committees consist of representatives of (often significant, institutional) limited partners who are appointed by the general partner. LPACs are formed for the purpose of advising the GP on specific issues during the lifetime of a fund, including conflicts of interest and material changes to the governing documents of the fund where LPs' consents or approvals are required. These LP Advisory Committees should be distinguished from the occasional fund manager’s industry advisory board composed of persons who are experts in the fund’s investment focus and who provide advice and market insight to the general partner, often in exchange for a share of carry or an opportunity to invest in the fund on favorable terms.
Example: General summary of LPACs and their roles
Limited Partner Agreement (LPA): A Limited Partnership Agreement (LPA) is the document that forms and governs a venture capital fund. It specifies the rules between the general partners (who make portfolio investments) and their investors (the limited partners). It serves as the operating manual for the venture business and is required to file a certificate of limited partnership for submission with the state.
Example: Delaware issued model LPAs.
Side Letter: Side letters are agreements that are not part of the primary investment contract. Side letters are often used to grant special rights and privileges to important investors.
Anti-Dilution Protections: Acts as a buffer to protect investors against their equity ownership becoming diluted in a future round or rounds.
Broad-based weighted average: Used for the benefit of existing preferred shareholders when additional offerings are made by the corporation. It accounts for all equity previously issued and currently undergoing issue.
Narrow-base weighted average: Takes into account only the total number of outstanding preferred shares for determining the new, weighted-average price for the old shares.
Full Ratchet: Applies the lowest sale price as the adjusted option price or conversion ratio for existing shareholders. It ensures that early investors are compensated for dilution in ownership caused by future rounds of fundraising.
Drag-Along Rights: A provision or clause which enables a majority shareholder to force a minority shareholder to join in the sale of a company.
Information Rights: The right to inspect, copy or obtain information and documents concerning the affairs of the Company. Information rights require the company to provide investors with a certain level of disclosure, and most often include the opportunity to visit the company’s facilities, inspect the company’s books and records and discuss matters with company officers. The information rights provision will regularly include the number of shares that an investor needs to hold to receive information rights, as the rights are most often assigned to those considered “major investors.”
An example of an information rights provision: “The Company will deliver to each holder of at least [500,000] shares of Preferred, (i) [un]audited annual financial statements within [90] days following year-end, (ii) unaudited quarterly financial statements within [45] days following quarter-end, (iii) unaudited monthly financial statements within [30] days of month-end, and (iv) annual business plans. The information rights will terminate upon an initial public offering.”
Liquidation Preferences: Specifies which investors get paid first and how much they get paid in case of a liquidation event.
Most Favored Nation (MFN): Protects an investor by giving them the same rights and benefits received by later investors, if those rights and benefits are more favorable than those originally agreed, thus maximizing the investors’ potential returns. In the context of an MFN clause, the most important parameters in convertible notes and SAFEs are:
Valuation Cap – the set maximum price at which a convertible note or SAFE converts to equity.
Discount Rate – the discounted price at which a convertible note or SAFE converts to equity, relative to the price paid by investors in an equity priced round.
Interest Rate – the rate of interest payable on the principal amount of a convertible note (not applicable to a SAFE).
Example:
Seed round investor provides capital to a startup via a SAFE that contains an MFN clause, with a $5m Valuation Cap and a 15% Discount Rate.
A later investor subsequently invests via a SAFE, but manages to negotiate more favorable terms, being a lower Valuation Cap of $4m and a higher Discount Rate of 25%.
Because of the MFN clause in the Series Seed investor’s SAFE, the company notifies the early investor of the more favorable terms in the most recently issued SAFE and agrees to modify the original SAFE to match the terms of the new SAFE.
The resultant effect of the original investor’s new SAFE is an increased amount of equity if the SAFE converts and there is a liquidity event.
Management Rights Letter (MRL): An MRL ensures that the investors have access to the essential information regarding the working of a company.
Example: Management rights letters are intended to create contractual management rights so the venture capital fund can take advantage of the VCOC exemption from ERISA plan asset rules. It may, for example, allow the investors to attend board meetings or receive periodic copies of the company’s financial statements.
Pro-Rata: A right which allows an investor to maintain their initial level of ownership percentage during future financing rounds.
Key Provision Example: “The Investor shall have the right to purchase its pro rata share of Standard Preferred Stock being sold in the Equity Financing (the “Pro Rata Right”). Pro rata share for purposes of this Pro Rata Right is the ratio of (x) the number of shares of Capital Stock issued from the conversion of all of the Investor’s Safes with a “Post-Money Valuation Cap” to (y) the Company Capitalization. The Pro Rata Right described above shall automatically terminate upon the earlier of (i) the initial closing of the Equity Financing; (ii) immediately prior to the closing of a Liquidity Event; or (iii) immediately prior to the Dissolution Event.
Redemption Rights: A requirement that the company has to buy back investors preferred shares at a designated time or at the investors request.
Key Provision Example: “Unless prohibited by [Delaware] law governing distributions to stockholders, the Series A Preferred shall be redeemable at the option of holders of at least [__ ]% of the Series A Preferred commencing any time after the [fifth] anniversary of the Closing, at a price equal to the Original Purchase Price [plus all accrued but unpaid dividends]. Redemption shall occur in [three] equal annual portions. Upon a redemption request from the holders of the required percentage of the Series A Preferred, all Series A Preferred shares shall be redeemed [(except for any Series A holders who affirmatively opt-out)].”
Right of First Refusal: Contractual right to enter into a business transaction with a person or company before others can.
Example: If company employees ever want to sell any of their shares to a third-party, the right of first refusal requires them to give the company the first opportunity to purchase the shares on the terms offered by the third-party. If the company doesn’t exercise its right of first refusal, the venture capital investor then has the opportunity to purchase the shares on the same terms. If both the company and venture capital investor forego their rights of first refusal, then the founders may proceed to sell their shares to the third-party.
When establishing partnerships with pharmaceutical companies, they may ask for the ROFR with regards to acquisition of an asset, especially in the case of co-development.
Value Multiple: Financial measurement tool that uses the ratio of two different financial metrics to quickly evaluate a company’s value and compare them to others.
Example: P/E (Price per earnings), P/CF (Price to cash flow), EV/Sales (Enterprise value over sales)
Markup: are the increase in the company's share price and so overall value during a subsequent round. A markup happens when VC B invests in a portfolio company of VC A at a higher price than the company’s last round. This allows VC A to show that their holdings have increased in value, and generally makes the VC and their LPs happy, by acting as a proxy for intermediate measures of success.
Example: VC A’s portfolio company is valued at $20M at the seed. The Startup is subsequently valued at $100M at the close of the Series A, a 5x markup.
Investor Relations (IR): The responsibility of an organization to manage communications between the company and investors by providing a regular and accurate account of company affairs. IR departments may hold shareholder meetings and press conferences, and share information on the company's annual reports (or more frequently), sustainability efforts, and corporate governance guidelines.
Entrepreneur-In-Residence (EIR): EIRs typically work at VCs, startup accelerators or business schools for a short-term, assisting the firm with their portfolio companies by providing previous industry experience. They may also evaluate new investment opportunities if their expertise is needed and when the EIRs eventually develop a new company, the VC fund usually gets early access to the company. Some venture creation focused VC firms, bring on EIRs to source / develop technologies and build their portfolio companies.
Example: Craig Gibbs was an entrepreneur-in-residence at Third Rock Ventures and is now the CEO of Asher Bio, which Third Rock Ventures invested in.
Drag Along: Drag along rights give majority shareholders the power to compel minority shareholders to undergo certain transactions, typically acquisitions. In venture capital, investors often are the majority shareholders and drag along rights gives them the ability to compel founders to sell, even if they do not want to.
Example: In the event of a potential acquisition, a VC with drag-along rights can force through the sale of the company, irrespective of opposition from the founders.
Closing Documents: Documents that dictate the economics and control offered to investors and founders.
Voting Agreement: Voting agreement binds investors and founders (as well as potentially other key employees) to vote their shares in a unified manner for the appointment of directors nominated by a specific party.
Example: If VC A has a voting agreement for a board position, others within the agreement (e.g. the founders and other investors) are obligated to vote for whoever VC A nominates.
Investor Rights Agreement: The Investor Rights Agreement (IRA) establishes the registration rights (which can include rights to force a company to undergo an Initial Public Offering (IPO)), the information rights (which details the information that the startup is required to produce for the investors), and the observer rights afforded to investors. IRAs also establish pro rata rights, which provide major investors the opportunity to participate in future equity rounds and reinvest to avoid dilution of their stake.
Example: NVCA IRA template
Stock Purchase Agreement: The SPA is a contract between the company and shareholder that sets forth the number of shares being purchased as well as the price per share.
Example: Per an SPA, an investor may be entitled to purchase 1,000 shares at $3.00 per share.
Pharma
Business Development (BD) v. Search & Evaluation (S&E):
Business Development: BD represents a double-sized marketplace: startups seeking to engage with biopharma, and biopharma seeking to engage with startups and other biopharma companies.
At startups, business development focuses on connecting with larger players for partnership, co-development, in-/out-licensing, and customer acquisition. Within pharma, BD focuses on identifying and establishing partnerships and/or acquiring or divesting assets (in/out licensing) that will drive growth and strategic expansion in the company. Expanded…
Pharma Business Development & Licensing (BD&L): in biopharma refers to the assessment and execution of potential opportunities for partnerships, acquisitions, mergers, and other deal-making to drive strategic growth. Professionals in BD&L follow developments in research and development at other companies and in the general scientific community and conduct due diligence on specific opportunities. There is typically a very rigorous process of due diligence in an attempt to de-risk opportunities before a company commits to an agreement. As a result, the majority of deals that a BD&L professional works on are unlikely to ever see the light of day.
Licensing specifically refers to the act of partnering on a drug, with in-licensing being the act of a company to purchase rights to a drug for one or multiple markets. The company which sells rights or partial rights to a market is out-licensing in this scenario. Such partnerships can be structured many different ways including complete sale of rights in specific or all markets or co-promotion deals where profits are split. Furthermore, deal terms like royalties and milestone payments can be common in these deals. BD&L professionals are key in negotiating the specific terms of these agreements.
It is also important to note that BD is not the same as mergers & acquisitions (M&A). Though there is often overlap at large companies, the key differentiator is often in the type and size of the deals done (BD focused more on assets and partnerships, M&A on large-scale company acquisitions).
Example: From AstraZeneca Business Development: Partnering with “BenevolentAI to use machine learning and artificial intelligence to discover potential new drugs for chronic kidney disease, idiopathic pulmonary fibrosis, heart failure and systemic lupus erythematosus. Scientists from the two organizations work side-by-side to combine our genomics, chemistry and clinical data with BenevolentAI’s target identification platform and biomedical knowledge graph.”
Business Development Operations (BDO): in biopharma, BDO most often acts to execute on business development deals.
Search & Evaluation: a complementary process to BD whereby new technologies or services are identified to help the company meet their goals, often with a focus on expanding technical (R&D, clinical, operations) capabilities.
Open v. External Innovation: Models for corporate innovation strategy
Open Innovation (OI): Business model that uses both ideas from internal and external sources to create value.
As defined by Chesbrough and Bogers in their OI in biopharma paper (2014), Open Innovation is “a distributed innovation process based on purposefully managed knowledge flows across organizational boundaries, using pecuniary (relating to money) and nonpecuniary mechanisms in line with the organization's business model.” The innovation derived from external sources can include ideas, technologies, and research and development. More specifically, OI can include: open competitions or proposals; mentoring programs; sharing of compounds, data, and technologies; connected ecosystems; etc.
Starting in the early 2010’s, large pharmaceutical companies created Open Innovation platforms primarily focused around compound sharing. By the late 2010’s pharma companies had either continued to evolve and expand their platforms – primarily through the addition of R&D challenges and data sharing – or shuttered their programs; roughly 50:50 among top 20 pharma. Further, most OI platforms today have ceased or greatly diminished their compound sharing programs.
Example: AstraZeneca’s Open Innovation Portal highlights opportunities for direct collaboration with the pharmaceutical company, ranging from optimized clinical compounds with extensive data packages, to preclinical data sets, to high-throughput screening libraries, to real-time R&D challenges.
External Innovation: Hybrid business model of centralized R&D mixed with ideas from open innovation, most often driven by strategic partnerships and investments. External innovation promotes open sourcing, public/private partnerships, research collaborations, and crowdsourcing. External innovation programs are often characterized by a lack of publicly accessible information and more independent internal management.
Example: Novartis establishes relationships with PI’s through their Global Scholars Program, inviting them as Fellows to the Novartis Institute for Biomedical Research (NIBR). The invited academics are provided $1m over 3 years and partner with NIBR scientists to explore a novel area of research of interest to Novartis. This process further strengthens the company’s scientific connectivity to academia.
Connected Ecosystem Facilities (CEFs): serve as innovation hubs, built as shared spaces with external partners including: company researchers, startups, biotech, government, non-profits, etc. Almost always found in locations of high innovation density (e.g. Boston, Shanghai) and often aligned with a pharmaceutical company’s strategic geography (e.g. Takeda / Japan).
Connected Ecosystem Facilities reflect a trend that has been increasingly prominent since ~2015, in which pharmaceutical companies and, at times, nonprofit / government / real estate players in key geographies establish facilities that go beyond a standard incubator or shared laboratory facility space. These facilities are sometimes be used to prompt the acceleration of an emerging ecosystem.
Note: the primary players not included in the current iteration of CEFs are payors and providers.
In 2018, Takeda opened Shonan iPark, Japan's first pharma-led connected ecosystem - bringing together pharma, startup, gov, academia under one roof with 22 tenants.
Started in 2017, Bayer’s LifeHubs leverage innovation at global hotspots (UK, Beijing, Berlin, Boston, California, Lyon, Singapore and Tokyo/Osaka, Munheim).
Pharma Collaborations: Smaller biotech companies or academic institutions may establish collaborative engagement with large pharmaceutical companies. These collaborations often follow a standard workflow:
Pilot: An initial assessment or collaboration to understand the feasibility and potential for further collaboration. Conducting a pilot is essential to identify best practices for the collaboration, address and establish questions, and understand approaches for different scenarios. A pilot may also serve as a comparison ground for pharma to assess comparative technologies before deciding which to bring forward in full collaborative partnership.
Example: Pharma Company engages with Startup to complete a 3 to 6 month pilot, defining a target area(s) to test the technology to understand its applications and potential limitations.
Partnership: Most often refer to strategic collaborations between big pharma companies and biotech companies or startups. This type of partnership should benefit both parties and often combines the novel innovations of biotech with the expertise and resources of big pharma.
Example: In 2020, a partnership was struck between AstraZeneca and MiNA Therapeutics where they aim to evaluate small activating RNA (saRNA) in treating metabolic diseases. MiNA will provide expertise in discovery and development of saRNA and AstraZeneca will provide experience in metabolic diseases.
Deal Structure: A binding agreement between parties in an acquisition or partnership that outlines the rights and obligations that both parties are responsible for, sometimes across numerous scenarios, including: pricing, assets, and liabilities. Important deal terms can include intellectual property, data rights, and exclusivity (geographic, modality, indication, etc.)
Upfront: Payment given (from pharma to startup) at the start of the deal.
Amgen paid Generate Biomedicines $50M upfront for their multi-target, multi-modality research collaboration agreement.
Milestones: Outcome midpoints and/or timepoints for both the startup and big pharma. Milestones are linked to key inflection points (such as initial POC experiments, IND-enabling studies, progression through clinical trials), unlock financial payments (from pharma to startup), and ensure partnership continuation.
Example: Milestones or key results expected to be achieved by Company B to report back to funder/Company A.
Royalties: A royalty is an amount paid by a third party to an owner of a product or patent for the use of that product or patent (pharma to startup, pharma or startup to university). The terms of royalty payments are laid out in a licensing agreement. Royalty payments are often based on sales metrics and will often come with a cap for the maximum amount that will be paid to the licensee.
Example: Payments given from Company A to Company B for rights to a technology owned by Company B. Example between license agreement, including royalty clauses, dated as of January 10, 2020 between Bayer HealthCare LLC and Dar Bioscience, Inc.
Bio-Bucks: Describes the total possible value of a deal that pays out when an experimental drug hits negotiated milestones. Bio-bucks are most often included in large deals that include upfront payments.
Example: When Company A promised $X to Company B for the product, but has only given $X-Y as the upfront payment. So the total amount $X is the Biobucks but Company B has only received the initial $X-Y amount until they meet all the milestones.
“As part of the research collaboration, Amgen will pay $50 million in upfront funding for the initial five programs with a potential transaction value of $1.9 billion plus future royalties, and will have the option to nominate up to five additional programs, at additional cost. For each program, Amgen will pay up to $370 million in future milestones and royalties up to low double digits. Amgen will also participate in a future financing round for Generate.”
Licensing: Licensing occurs when the owner of a technology (or other entity with rights to a technology), the licensor, grants a third party, the licensee, the right to utilize the technology in some fashion. Most often, the licensor takes on the financial, scientific, technological, and, as applicable, regulatory risks of developing the technology further. The licensor In-licenses the technology, while the licensee out-licenses the technology. In- and out-licensing occur at all levels of R&D, beginning with universities and continuing through startups, biotech, and pharma. Licensing agreements most often come with specific terms of use, though they can also refer to full acquisitions of assets / technologies.
Example: AMAG Pharmaceuticals and Norgine B.V. enter into exclusive licensing agreement to commercialize ciraparantag in Europe, Australia and New Zealand.
Licensing Agreement: Grants rights to use patents and technology to develop and commercialize new products. A license agreement can be viewed as serving three primary purposes: (1) defining the scope of rights being transferred between the parties, (2) defining the compensation for those rights, and (3) putting in place a structure for managing the risks that each party takes on in carrying out the agreement. To effectively address each of these, it is critically important that the parties understand both the overall objective of the agreement and the more specific objectives each party has in entering into the agreement, especially in a combined R&D and licensing deal.
Example: Licensing Biotechnology Property overview
Co-development: Partnerships structured so that both companies agree to predefined divisions of ownership, which can include geographic divisions. Co-development allows both companies to benefit from the upside of a successful product and often occurs between the asset originator who brings a desired technology, and the partner who brings expertise and/or resources to facilitate development.
Example: (2020) PhaseBio announces financing and co-development collaboration with SFJ Pharmaceuticals.
“The collaboration between SFJ and PhaseBio will support the global development of PB2452, which is designed to reverse the antiplatelet activity of ticagrelor in major bleeding and urgent surgery situations. Under the terms of the agreement, SFJ has agreed to fund up to $120 million to support the clinical development of PB2452 and to assume a central role in global clinical development and regulatory activities for PB2452 outside the United States. SFJ will fund up to $90 million of development expenses through the end of 2021 and up to an additional $30 million based on PhaseBio meeting specific, pre-defined clinical milestones for PB2452.”
Target to Market: Drug Discovery → Drug Development → Clinical Development
Stages of therapeutic development process leading up to commercialization.
Drug Discovery: Phase where research for a new drug begins, varying from the discovery / development of a new drug, to the discovery of a new target against which drugs are then developed. Some of the ways in which the early-stage discovery process begins include: large-scale synthesis and high-throughput screens; targeted, rational design against specific targets for which there is in-depth knowledge of the disease and biology; biology-led generation of compounds for characterization and testing.
Target v. Hit v. Lead: Phases of early drug discovery
Target: Can be a range of biological elements, such as proteins, genes, small molecules, or RNA. Targets go through identification then validation and include a multiple number of approaches including high throughput screens, expression profiling, literature searches, comparative genetics, molecular analysis, pharmacology analysis, and in vitro / in vivo disease models
Hit: Compound of the target validation that has desired activity and function in retesting. Phase where compound screening assays are developed, hit series defined, and hit-to-lead phase is refined. Confirmatory assays can include dose-response curve, orthogonal tests, and other secondary screens such as binding affinity, kinetics, conformational changes, and stoichiometry.
Lead: Generally optimization phase to maintain and enhance desirable properties of the hit candidate. Aims to improve absorption, delivery, potency, selectivity, etc. Lead optimization can include increasing affinities of the biological target and improving metabolic half-life.
Indication Selection: The process by which a disease or condition is chosen to initially test the efficacy of a novel product. Indications are carefully selected based on mechanistic understanding of the product’s action in that indication, alongside aiming to maximize therapeutic benefit, minimize toxicity and side effects, and make the most effective use of capital.
Example: Advanced melanoma may be a suitable indication for trialing a novel checkpoint inhibitor therapy as there is a proven track-record of similar therapeutics showing efficacy and established infrastructure for completing clinical trials.
Drug Development & Lead Optimization: Once compounds have been identified in the discovery phase, researchers pursue a narrowing of the candidate funnel and the development and optimization of lead assets. Key aspects of such lead optimization and selection include:
Medicinal Chemistry: During the lead optimization process, medicinal chemistry aims to understand the relationship between the chemical structure and the activity of a compound and analogs (SAR-structure-activity-relationship). Based on this knowledge, a compound's molecular structure will be improved by optimizing the molecules' downstream properties (SPR - Structure-property- relationships).
Example: Target properties that might be improved by modifying the molecular structure include solubility, protein binding, stability, and biological properties.
Initial Animal Efficacy Studies: The potential therapeutic leads and generated analogs must be assessed in relevant animal models to determine their efficacy (meaning how well the compound produces the desired beneficial effects to alleviate a disease or produce a specific outcome). The results from the animal studies should elucidate how the compounds' structural properties and molecule variations will affect efficacy.
Example: In animal models, protein binding, pharmacokinetics as well as metabolite profiles in plasma, urine, and bile would be assessed.
In Vitro & In Vivo ADME: Lead optimization also involves assessing a lead compound's pharmacological properties of Adsorption, distribution, metabolism, and excretion (ADME). Establishing benchmarks of those characteristics will inform the subsequent optimization of the compound’s structure.
Example: In vitro assays include determining the aqueous solubility, lipophilicity, microsomal stability, enzyme inhibition stability, permeability, and hepatotoxicity/cytotoxicity with suitable cell lines.
Pharmacology: encompassing both in vitro and in vivo assays, this step assesses the pharmacological safety margins and dosing regimes of a lead candidate and can be used to avoid side effects or adverse drug reactions.
Example: In vitro pharmacological safety assays are composed of non-cellular binding assays that establish the IC50/IC90 values (minimum concentration of the drug that is required for 50% or 90% of the maximum effect in vitro). Meanwhile, in vivo assays are used to characterize the ED50 value (drug concentration that produces the desired efficacy in 50% of the studied population or animal model).
Indication Expansion: the process of finding new indications for an existing therapeutic target, a common approach in drug development, especially after the successful commercialization of a drug with cross-indication potential.
Example: AstraZeneca’s Anti-PD-1 monoclonal antibody Imfinzi (durvalumab) was first approved for patients with advanced bladder cancer in 2017. Since then, Imfinzi has been tested in multiple mono- and combination therapy trials and received approvals in non-small cell lung cancer, small cell lung cancer, and biliary tract cancer.
Process Development: The collection of steps taken and optimized for the complete production of a product. For a drug, process development comprises optimisation of the design, pre-clinical and clinical testing, and manufacturing of the drug from the original concept to marketed therapeutic.
IND Application: An Investigational New Drug (IND) application is submitted to the FDA to obtain approval for administering a new drug or biological product in human patients. Beginning of clinical trials. Less than 12% of compounds that enter the drug discovery phase are filed for IND to start clinical trials.
Standard of Care: The most routinely chosen treatment option made by healthcare professionals for a specific patient condition. Standard of care represents the best treatment option at the time and is used as the benchmark against which novel therapies are evaluated for clinical efficacy.
Example: The standard of care for an active pulmonary tuberculosis infection is an extended course of antibiotics.
Clinical Development: Studies done in human patients after initial safety has been tested in animal models. Drugs must pass through the IND (investigational new drug) filing process before they can enter into the clinic. Clinical trials have predefined target endpoints (primary and secondary) that enable progression to the next stage. Trials are usually divided in three phases, with a fourth occasionally being required.
Drug developers are free to ask for help from FDA at any point in the drug development process, including:
Pre-IND application, to review FDA guidance documents and get answers to questions that may help enhance their research.
After Phase 2, to obtain guidance on the design of large Phase 3 studies.
Any time during the process, to obtain an assessment of the IND application.
Even though FDA offers extensive technical assistance, drug developers are not required to take FDA’s suggestions. As long as clinical trials are thoughtfully designed, reflect what developers know about a product, safeguard participants, and otherwise meet Federal standards, FDA allows wide latitude in clinical trial design.
Phase 1: Generally 20-100 healthy volunteers who test safety and dosage over the course of several months. Approximately 70% of drugs move to the next phase trial.
Phase 2: Up to several hundred volunteers with the disease indication test the drug at the phase 1 established dose for efficacy and side effects. Phase 2 studies can take place over the course of several months, to up to two years. Approximately 33% of drugs move to the next phase.
Phase 3: Establishes whether a therapeutic treatment is safe (adverse events monitoring) and effective (or more effective) relative to the current standard of care at a statistically significant level. Here, the number of volunteers can range from 300 to 3,000 depending on the indication / patient population, though certain trials (e.g. vaccination) will require tens of thousands of patients. Approximately 25-30% of drugs move to the next phase (NDA filing, not Phase 4).
New Drug Application (NDA): The NDA is a formal proposal by the drug manufacturer to gain FDA approval for a new drug. There are three major regulatory pathways and four expedited review pathways / designations that can be considered:
Three Major Regulatory Pathways:
505(b)(1) or “Stand-alone” NDA: Used for new drugs and must include all safety and efficacy studies conducted by the applicant
505(j) or abbreviated NDA (ANDA): Used for the approval of generic drugs and demonstrates biosimilarity to existing approved drugs.
505(b)(2) or “Hybrid Application”: Uses pre-existing studies and data (i.e. not conducted by the applicant) to expedite approval process. Typically reserved for modifications to previously approved drugs, including changes in dosage, delivery, formulation, and/or chemistry.
Expedited Development and/or Review: The FDA provides four pathways for accelerated approval to market. These pathways are designed for therapies that fill significant unmet needs for serious conditions.
Priority Review: expedites the FDA’s reviewal process, decreasing time to decision from 10 months to 6 months.
Breakthrough Therapy: breakthrough designation is provided to therapies which represent a significant improval over existing SOC.
Accelerated Approval: accelerated approval is given to therapies for serious conditions that need to be approved using surrogate endpoints.
Fast Track: fast track facilitates the development and review of drugs to treat serious conditions and fill unmet medical needs.
Phase 4: An observational study, phase 4 trials take place after a new treatment has been approved by the FDA and is on the market. The goal is to determine if there are rare unknown side effects, as well as better understand the long term implications of the drug. The drugs are available for use and patients can take the drug without participating in the phase 4 clinical trial.
Learn More: FDA - Clinical Research.
Clinical Endpoints: An event or outcome used to objectively measure whether the intervention given is beneficial. The endpoints of a clinical trial are usually included in the study objectives and define whether the program is continued and, eventually, approved.
Example: Some examples of endpoints include (overall) survival and complete response for an oncology treatment, or a reduction in LDL levels for treating a cardiovascular disease, or, more broadly, improvements in quality of life and relief of symptoms.
Adverse Events: Unfavorable changes in health, symptoms, or laboratory findings associated with a patient during or after but in direct relation to the provision of medical treatment. With regards to biopharma, adverse events are most often mentioned with regards to a clinical trial or specified period after the trial, and can range from mild to severe to life-threatening and include medication side effects, injury, psychological harm or trauma, or death. AEs are also called adverse effects and adverse reactions.
Example: AE’s include:
physical events; for example, rash
psychological events; for example, altered cognition
laboratory events; for example, elevated creatinine
Worsening in the severity of the pre-existing condition; for example, uncontrolled blood glucose levels
The U.S. Food and Drug Administration (FDA) defines a serious adverse event (SAE) as any undesirable occurrence that may result in any of the following outcomes:
Results in death, or
Is life-threatening (risk of death because of the event), or
Requires hospitalization or prolongation of existing hospitalization, or
Results in persistent or significant disability or incapacity, or
Results in congenital anomaly or birth defect.
Repositioning v. Repurposing: Drug repositioning is the identification of new uses or indications beyond the scope of the original intended purpose for existing drugs. Drug repurposing is the development and/or commercialization of new uses of a drug. These terms are often used interchangeably.
Example: Thalidomide was initially used as a sedative and prescribed to relieve nausea for pregnant women, but is now being used to treat multiple myeloma.
Reimbursement Strategy: In the context of medical devices and therapeutic drugs, reimbursement is when a public or private third party pays a provider for the costs of a treatment.
This third party could be an insurance company, or outside of the United States is usually the government. Having reimbursement opportunities can incentivize a healthcare provider’s willingness to use a treatment, and a developer to create and provide it. Reimbursement opportunities also de-risk development of new technology. If a developing medical device has few reimbursement opportunities, the developers may have trouble finding investors or securing funding for research & development or commercialization.
For medtech and biotech startups and companies, it is important to consider forms of income or payment while strategizing device or therapeutic development. This way, executives can plan financials with more precision and clarity of the end product.
Example: Reimbursement Strategy often consists of three steps to analyze reimbursement prospects: analyzing the landscape, planning your strategy (based on clinical data and economic models, reviewed with primary payers), and implementation planning and execution.
Outsourced Research: Pharmaceutical companies are increasingly outsourcing research activities to academic and private contract research organizations (CROs) and biomanufacturing to contract (development and) manufacturing companies (CMOs/CDMOs) as a strategy to stay competitive and flexible.
Contract Manufacturing Company (CMO): CMO’s are companies that take a pre-formulated drug and manufacture it, while CDMO (Contract Development and Manufacturing Company) do both development and manufacturing of the drug. Biotech and pharmaceutical companies often partner with CDMOs as a way to outsource drug development and drug manufacturing.
Example: The top 5 contract development and manufacturing companies (CDMOS; contract biomanufacturing organizations) are, in order as of Q1 2023, Boehringer Ingelheim Group, Wuxi Biologics, Samsung Biologics, Lonza Group, and Fujifilm Diosynth Biotechnologies USA Inc.
Contract Research Organization (CRO): In the life sciences, a contract research organization (CRO) is a company that provides support to the pharmaceutical, biotechnology, and medical device industries in the form of research services outsourced on a contract basis. A CRO may provide such services as biopharmaceutical development, biological assay development, commercialization, clinical development, clinical trials management, pharmacovigilance, outcomes research, and real-world evidence (RWE). CROs typically focus on either R&D support, or clinical trial management, though most will provide services across the board.
Example: IQVIA is one of the largest CROs in the world, with a large range of service offerings to help advance clinical research. A list of the top 17 CROs in Q1 2023.
Drug Hunter: An individual or team aiming to identify drug candidates with the highest potential to successfully reach clinical use as a therapeutic. A drug hunter will often operate within biotech or pharmaceutical companies overseeing drug discovery programs to find the best candidates and commit the necessary resources to realize the drug’s clinical potential.
Example: A drug hunter can be a chemist with a pharmacy background (think Vertex's Sabine Hadida, whose team discovered ivacaftor, lumacaftor, and tezacaftor). Drug hunters can be physicians like Charles Sawyers, who championed enzalutamide and apalutamide.
Generics & Biosimilars: Generics and biosimilars are typically less expensive than brand-name products and are often commercialized in alignment with the patent cliff of the brand-name drug.
Generic: A generic drug is a medication created to be the same as an already marketed brand-name drug in dosage form, safety, strength, route of administration, quality, performance characteristics, and intended use. These similarities help to demonstrate bioequivalence, which means that a generic medicine works in the same way and provides the same clinical benefit as the brand-name medicine. These generics are usually synthesized from chemicals (small molecules) and the products have the same active ingredient between each manufactured lot.
Example: Generics include chemical compounds like Atorvastin (Lipitor), a statin used to treat high cholesterol.
Biosimilars: A biosimilar is a biologic that is highly similar to, and has no clinically meaningful differences from, another biologic that’s already FDA-approved (referred to as the reference product or original biologic). Though biosimilars are replicates of their reference biological product that carry the same function, they have inherent variations because they are manufactured from living systems (e.g. animal cells, yeast, and bacteria). This means biosimilars:
Are given the same way (same route of administration),
Have the same strength and dosage form,
Have the same potential side effects, and
Biosimilars provide the same potential treatment benefits as the original biologic and are generally made with the same types of natural sources as the reference product.
Example: Biosimilars include monoclonal antibodies like trastuzumab (Herceptin) for treating breast cancer.
Post-Market: After a drug or product has been approved / commercialized & is on market.
Example: After a drug was approved the FDA requested to see additional data post-market.
Regulatory Bodies: foster scientific excellence in the evaluation and supervision of medicines, for the benefit of public and animal health.
Food & Drug Administration (FDA): US regulatory body responsible for overseeing the development of new products.
European Medicines Agency (EMA): European regulatory body responsible for overseeing the development of new products.
Regulatory Risk: The likelihood of regulatory approval being granted on a drug or biologic by regulatory bodies following a detailed assessment of the risks and benefits associated with the product. Regulatory bodies conduct extensive risk-benefit analyses on new drugs and biologics, including consideration of therapeutic benefit, uncertainties over benefits and risks, and strategies to mitigate the risks around the product.
Miscellaneous
Key Opinion Leaders (KOLs): Highly regarded experts in their field that carry significant influence in their community
Example: Leading professors in the field (Jennifer Doudna, Carolyn Bertozzi, George Church), Industry leaders (Albert Bourla, Emma Walmsley), Venture Capitalists (Noubar Afeyan, Vijay Pande)
Point of Contact (POC): Point of contact is the main person that is responsible for executing said deal, financing, partnership, etc.
Example: The lead investor is often the POC for the start-up with the rest of the investing team.
East Coast v. West Coast: Investing philosophy trend and stereotype of west coast investors being partial towards founder-led scientists starting and running startups, similar to the tech world of Silicon Valley, and east coast investors preferring a more traditional approach of having experienced pharmaceutical executives serve as the executives of startups to lead a company to success. Further, west coast investors have a greater appreciation for the integration of technology into traditional biological research to accelerate biological understanding and insight generation, while east coast investors are often more well-versed in the target-to-market nuances of drug development, clinical trials, and commercialization. Over time, these two groups of investors are, to varying degrees, beginning to recognize the benefit of the other's perspective.
Bio-Economy: The term bioeconomy refers to the share of the economy based on products, services, and processes derived from biological resources (e.g., plants and microorganisms). The bioeconomy is cross-cutting and encompasses multiple sectors, in whole or in part (e.g., biopharmaceutical, agriculture, textiles, chemicals, and energy).
Alix Originals…
WildTech: Back of the napkin startup / DeNovo company without any academic IP, most often founded by a proven technologist and / or serial entrepreneur.
Example: Elegen was ideated by Matt Hill, formerly VP of R&D at Natera. Matt recognized there was an opportunity to develop and apply novel microfluidics tech to synthesize thousands of custom DNA sequences, inexpensively and on demand, in days instead of weeks, at reduced cost and with increased accuracy. Instead of working with an academic or innovation institute to out-license or design the technology, Matt sought venture funding for the idea and brought the company forward.
Step-Wise Bio: Companies with robust platforms are uniquely positioned to pursue a step-wise approach to innovation, increasing their capital efficiency through partnerships that provide upfront, milestone, and royalty payments, while also enabling the development and validation of their platform. Once fully realized, step-wise companies can then verticalize their platforms for in-house therapeutics development and full realization of value.
Example: 64x Bio is building a platform that radically increases the speed and scale of mammalian cell line discovery to generate highly optimized and unattainable cell lines for the manufacturing of viral vectors for cell & gene therapies. Through their platform, 64x can establish partnerships with pharma companies pursuing cell and gene therapies for upfront payments, milestones, and royalties. Through these partnerships, 64x will continue to build and refine their platform, while gaining further understanding of clinical and commercial considerations for their own indication selection and therapeutic asset development.
Ecosystem Company: Ecosystem companies have the potential to transition indication spaces from the traditional one-size-fits-all approach to realize the promise of precision medicine. Beginning with data collection, ecosystem companies generate patient profiles that enable stratification within - and potentially across- indications. These profiles form the basis for companion diagnostics development and either the repurposing of therapeutic assets to this newly realized clinical path, or the development of novel and more targeted therapeutics.
Example: Endpoint platform allows them to generate patient stratification profiles & rapid companion diagnostics that pair with in-licensed therapeutics assets to follow new clinical paths. These capabilities allow Endpoint to build partnerships with pharmaceutical companies to rapidly advance previously de-risked therapeutic assets with patient subpopulations that have been defined as high responders, thus creating the potential for repeated blockbuster assets. The combination of therapeutics, therapy guiding tests, & an AI-powered patient stratification platform fueled by proprietary real-world evidence datasets has the potential to usher in the era of precision immunology.
Advanced Infrastructure: Platforms that solve significant and industry-wide challenges can be considered advanced infrastructure companies. In addition, it’s worth noting that advanced infrastructure startups that generate novel data rapidly have considerable potential as step-wise bio companies.
Example: Zafrens’ platform has solved a key issue plaguing the industry, the tradeoff between throughput and depth of analysis. Traditionally, players could either generate a high throughput analysis of a few cell attributes, or high quality multi-omics analysis at low throughput. Zafrens’ multi-plate microwell approach enables the full spectrum of assay capabilities at ultra-high throughput, enabling them to tie genotype or perturbation/intervention to a single cell’s phenotype at scale. Further, their system allows for plate/chip cloning which can further accelerate development times allowing for assays to be run in parallel and eliminating the need for repetitive cell culture. With these capabilities, Zafrens can massively accelerate a host of screening applications for the rapid development of high quality / high value assets across numerous modalities.
❤️ Huge shoutout to Alix Ambassadors: Alexander Evans, Paula Schultheiss, Hannah Dayton, Veronica Russell, Claudia Hill, PhD, Eric Hsu, Davy Deng, Reha Mathur, Min Joo Kim, Aaron Edwards, & Sung Yeon. 🙌 for putting this together!
Alix Ventures, by way of BIOS Community, is providing this content for general information purposes only. Reference to any specific product or entity does not constitute an endorsement nor recommendation by Alix Ventures, BIOS Community, or its affiliates. The views & opinions expressed by guests are their own & their appearance on the program does not imply an endorsement of them nor any entity they represent. Views & opinions expressed by Alix Ventures employees are those of the employees & do not necessarily reflect the view of Alix Ventures, BIOS Community, affiliates, nor its content sponsors.
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