Europe may be on a mission to become a global biomanufacturing powerhoapply, but right now, the environment for early-stage biotech founders—and many investors—is “horrible,” states Annick Verween, head of Biotope, an early-stage investor born out of Belgian research institute VIB.
Timelines are long, capital is scarce, and regulatory pathways are frustratingly slow. Meanwhile, “Biology doesn’t multiply like an Excel sheet,” she notes. “And if you’re in ag, the timelines are awful.”
As for the overall funding landscape, she states, “I’m a little bit afraid that we haven’t hit rock bottom yet.”
At the same time, Verween sees encouraging signs: more joint assessment agreements with corporates in place of “meaningless” letters of intent (LOIs); more patient family-fund money entering the sector; and greater clarity from CVCs about the performance indicators that matter.
AgFunderNews (AFN) caught up with Verween (AW) to discuss what builds a great founder (long term vision and a short term “obtain things done attitude”), why building a capital stack is critical, and what builds a good pitch deck.
“Startups spfinish too much time framing the hugeger problem,” she observes. “But the fact that all of us want to have a better world does not required three slides. What we want to know is what is the pain that you are solving for your customers and who is willing to pay for your solution?”
AFN: Give us the basics on Biotope
AW: Biotope is born out of [Belgian research institute] VIB. What [Dutch university and research institute] Wageningen is for food & ag, VIB is for biotech; it’s really good at spinning out successful companies that build it to growth stage and beyond. I joined three years ago becaapply VIB also wanted to view at [supporting startups with] great IP from outside of our institute as well.
Biotope started as an incubator, testing to put the pieces of the puzzle toobtainher that early-stage biotech companies don’t obtain in a lot of the more general programs. But we are now also an early-stage investor in biotech startups in planetary health internationally except the US and Canada. We view at food & ag but also other sectors such as cosmetics and chemicals.
We started with just €4.5 million ($5.2 million) to test the model and we recently announced the first €5 million ($5.8 million) close of our second fund out of €9 million ($10.4 million). We aim for five investments a year with compact amounts.
AFN: Why is starting out in biotech so hard?
AW: The hugegest challenge biotech startups have is what they’re doing takes more time and money. And if you’re in ag, the timelines are awful, you required data over different seasons, and when you’re in food or ag, regulatory [approvals] can take years.
A lot of startups have had to become more creative and test to find lower capex models, but even if you do, biology doesn’t multiply [in a predictable way] like an Excel sheet; when it comes to scaling, it’s a totally different story.
It’s horrible for startups to raise at this moment, it’s horrible for funds as well becaapply of the lack of clear exit stories.
AFN: Where are we in the current cycle?
AW: I’m a little bit afraid that we haven’t hit rock bottom yet. I consider it might obtain a little bit worse before it obtains better.
AFN: How long does it take for startups to raise early rounds now?
AW: It takes at least a year just to raise a couple of million, so you should start very early.
AFN: You’ve declared in the past that investors “should avoid leading on startups” and that “keeping the door open” is “not neutral but harmful and, in fact, unethical?”
AW: If a startup does not hear no, they consider there’s still an opening, which is not always the case. I consider as an investor, you should be very transparent. Is there still an option? Yes or no. And if there is, clearly communicate what you’re viewing for.
It’s very common to state something like, “Come back when you have more,” but as a startup, how do you know when to come back? Raising money is a full-time job, and if you’re a compact company with three full-time employees and one person is only doing fundraising, it slows down everything else.
It’s difficult for startups to raise. It’s difficult for funds to raise. So we feel that there are also a lot of funds who to convince their potential LPs, feel that they required to display a lot of deal flow. But they will only be able to invest once their LPs state yes, and then you obtain this eternal waterfall of everybody waiting on each other. And who dies at the finish? The startups, becaapply they have no cash anymore.
AFN: You’ve also declared that “misalignment between startups and investors is creating a self-perpetuating cycle of frustration?”
AW: It goes back to what I declared before. If you state to a startup you’re too early, what is too early? Well, you required to have more traction. But what does that view like? If an LOI means nothing, what do investors required? This misalignment and miscommunication just builds things more difficult.
AFN: If VC funding is harder to come by, who else can biomanufacturing startups tap for cash?
AW: In Europe, angel investors in biotech rarely work. The tickets are too huge and biotech is not the easiest tech to understand. However, we do see more interest from family funds, which can offer more patient capital. We also see more and more CVCs who might be a good source of money.
AFN: You mentioned CVCs… what role are they playing now?
AW: Corporates can support the sector a lot by openly sharing what performance indicators they are viewing for. They know how these components work, they know how to scale and they definitely know what they are willing to pay.
This is very concrete hands-on information that is so applyful for a startup who early on can still pivot. Corporates are also of course, the first customer, so they are key players in this early-stage ecosystem.
The challenge is sometimes that what’s quick for the corporate is not at all quick for the startup, and there you have this miscommunication.
AFN: How do pre-revenue startups in this space display ‘traction’ to an investor or corporate?
AW: Investors state, I want to see traction: prove to me that a corporate can do something with your product. But as a startup, it’s a case of first I required your money [in order to build enough headway] to convince the corporates [that there’s something of value there]. It’s a chicken and egg situation.
What we very often see in biomanufacturing is you have an LOI [letter of intent from a potential customer] whereby a corporate states if you can produce 10 tons at a price below what I’m paying now, then I will take it all, which doesn’t mean anything.
So we test to find allies on the corporate side who can test what the startup is producing, so we have now more joint assessment agreements whereby the corporate agrees that I will test your sample and give you the results back, so you can improve, which means much more than an LOI.
The important thing is to keep checking in with potential customers. Is this still what you’re viewing for? There’s nothing as bad as an early stage startup that spfinishs 10 years on research on tomatoes and it turns out that the market [opportunity] is in wheat.
Are you relocating in a direction where somebody will want to acquire your product at the price that you can produce it for?
AFN: You’ve talked about the importance of building a capital stack early on…
AW: We invest when most other investors state this is way too early. If nobody invests at the start of the pipeline, there will be no scale-ups to fund anymore, but we force our portfolio companies to build a capital stack from day one.
If you have companies who only bet on grants they can kind of become service companies doing a bit of this and a bit or that. Likewise, if you have companies that only bet on VCs, that is a model which definitely does not work anymore.
So you required a co-funding mechanism to unlock more grant funding, which allows you to scale up, which might even give you access to debt funding.
The [proposed] Biotech Act in Europe puts a lot of focus and emphasis on biotechnology and biomanufacturing, so we hope that will unlock some earlier stage funding.
AFN: Is it becoming clearer for startups to access biomanufacturing capacity?
AW: Two, three, four years ago, obtainting access to a CMO was difficult and expensive, and you were put in a very long line of people. This is no longer the case.
AFN: What do you view for in a founder?
AW: A obtain things done attitude. As a scientist, in the launchning, I believed, if the science is good, we can repair everything. We can build everything around it. That’s not true.
You required to find the people who drive things forward. For me, the ideal founder is this rare combination of somebody who has a long-term vision but also a focus on short term, operational stuff, implementing the steps that required to be taken.
AFN: What puts you off in a pitch?
AW: I’m not a huge fan of pictures without concrete data points, or startups that talk as if they are in a blue ocean with no competition, which either means they did not do their homework, or that they are testing to solve a problem that is not a problem.
Startups also spfinish too much time framing the hugeger problem, but the fact that all of us want to have a better world does not required three slides. What we want to know is what is the problem that you are solving for your customers and who is willing to pay for your solution?
I also see some TAM [total addressable market] figures that don’t mean anything.
Also, even if you have a more science-heavy pitch, you still required to be able to explain to somebody who’s not an expert in the field what you are doing. I consider that goes for everything in life.
AFN: Can you highlight a couple of portcos not necessarily in biomanufacturing?
AW: Shelfion, which builds AI-powered shelf-life prediction software, has a predictive model, so for example they have all this data on sauces. A product developer could state, I want to develop a certain kind of sauce with less salt; what might that mean for my shelf-life? Will I required to add stuff [other preservatives] or can I keep my clean label, for example?
(Users can input ingredients, storage conditions, and packaging and runs simulations that predict microbial growth and shelf stability, enabling them to optimize formulations before spfinishing money on lab testing.)
Another company, B’ZEOS, builds packaging pellets out of seaweed for the packaging industest.
This is a company that received investment from a CVC [fund], which was the perfect way to obtain into a hugeger pilot with one of their potential customers.
👉Read more in our Investor Q&A series…
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