Episode 129: How to Fund Your Biotech Startup in Today’s Competitive Ecosystem

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Serving the entire Gulf South, but recorded in the heart of New Orleans. Welcome back to Bio from the Bayou. I'm Dr. Elaine Hamm, the executive in residence at Tulane School of Medicine, and today I'm joined by James Zanewicz, who started this podcast, and we are going to be talking—

Howdy, howdy.

Howdy, howdy. Do they say howdy, howdy in San Diego?

I don't know. They do now. They look at me weird, but you know.

Well, today we're going to be talking about current ecosystems and my favorite topic, funding trends, because a girl got to get some money. So today we're talking about the biotech ecosystem founders are actually facing right now, where capital is still available, but not even distributed, where partnerships probably matter now more than ever, and where your strategy has to be sharper if you're gonna get funded.

And whether you're building on the Gulf Coast or on the West Coast or somewhere in between, a lot of the same pressures are showing up. The investors are more selective, timelines are longer, and the founders need a much clearer path towards those milestones, capital, and differentiation. And I know Elaine knows this pain more than most people because she's also a CEO. Raising money.

Yes. Oh, but as a CEO, you're CEO now too, and you're also always raising money, but in a different way, but probably feeling the same pain. It is a tough economic environment out there. Although I did have someone ask to come back when I had phase 3 data, and I was like, girl, absolutely not. Like, I'm, I've hoped to sell this company.

I don't need you yet.

Yeah.

Yeah.

I'm not gonna need you.

Please.

What feels most different about the biotech markets right now? And what do you think founders need to understand about that market and that environment that they're actually building in now? The reality.

Gosh, I think one thing is with decks have always been really important, but they can't just be vision. D-E-C-K, Elaine, decks.

Oh, is that what you said?

Oh no. Oh no. Saw her face and I'm like, no, we should probably start that one over.

No, uh, that's staying in 100%.

Oh, I'm, I'm keeping it in. Don't worry.

Because thanks, Dad.

You're the best traitor.

Dad.

He's like, Elaine pays my salary now. You don't.

Bye-bye. That's true.

Facts. Anyway, getting back to—

What's different?

It really comes down to your pitch deck. There we go. And that founders, they can't really just rely on vision. They need that really clear path to value creation, and that has to be even more hyper-focused than it was before. That's one of the things I've seen, but you're out there actually doing this right now. What are some of the things you've seen this year?

Our science is good, and I've never really gave that a second thought. Our science is solid. It's amazing. I've really had to more focus on marketing and my salesperson. I've gotta be more salesy and being able to rise above a lot of other really good science out there and how we really are differentiated. But it has made me become a lot more about Relationship building too. I mean, I realized, oh, that book, that old book from, what is it, the '20s or '30s about how to win friends and influence people. I mean, they're not wrong, and it really takes relationships to get companies funded. And I wish I had started 10 years ago when I was— before I started raising money. But honestly, being able to differentiate yourself in a clear, crisp, passionate story. with relationships that you've already built, I think is more important now than ever.

And that's because the investors are clearly being more selective. I mean, we've seen that it's, it's harder to get meetings. Once you're in the meetings, it's harder to break through. What are we seeing out there that the investors are prioritizing most when they're looking at early-stage biotech companies, which most are? I mean, you talked about strong science, like you have to have that.

Yeah, that's a given. I think the other piece is thinking about, because a lot of, well, so, so there's 2 things that I'm seeing. Investors are either very reluctant to deploy capital because they only have so much left in their fund, or they're out there raising money themselves. And so, we're probably talking to some of the similar people. And so, they're out there fundraising and they may love me, but they're not gonna close their fund until Q4 of next year. So, that makes it challenging.

Which also makes you the competition in a way, even though you're their future partner, potentially, you're the competition in this moment, which is a weird dynamic.

It's a weird dynamic, but I will say something that I try to do. Again, it goes back to that relationship building. One, I think that it helps, like, we're all in the same boat. And so, like, I feel their pain of just, like, of having to pound the pavement too. They get it. And I wanna make their job easy too. I want to help them have an amazing story to sell their current or their future LPs as well. And so, that's what I try to put myself into their shoes. And then, I also try to introduce them to people that I know, family offices, maybe it's the Native American tribes, some other different fund opportunities that they may not have thought of before. And I try to help leverage my relationships there too. As I think about investors in early-stage funding, they wanna have the most de-risked thing ever, which isn't necessarily different these days.

Mm-hmm.

But they wanna know when they're gonna see an exit and get an ROI, because that's what their LPs care about. They wanna know when they're gonna get their money back. And if you don't have a clear story on that, you're sunk. All right, you are in a really well-put-together ecosystem in San Diego on the West Coast. What are you seeing founders struggle with as they, I mean, obviously capital is a big piece of it, but what's something that your organization Connect, for example, has looked for ways to help their founders in this current, very challenging market?

I think this is interesting. It almost comes down to kind of like geography in a way. Like, does it matter? And yes and no, 'cause you have your regional ecosystems and your traditional hubs. And geography matters for concentration because of that concentration of labs, talent, clinical networks, workforce, partners. But you can build credibility outside of those hubs, I think, a lot easier than in the past, potentially, because when you're a region like the Gulf South, like you still have good talent, but you can partner with a region like San Diego and have access to those things, but have that at a lower burn rate, equally strong institutions, perhaps some really tight-knit community where support, because the community is smaller. Many things that people I think will look at in terms of geography, both in San Diego, we're like, oh, it's big, or in the Gulf South, because, oh, it's smaller. Those negatives are often your strengths, and it really is turning into that. And honestly, as we've talked about doing more and more, is tying those communities together because Let's be honest, no one's gonna choose between San Diego and New Orleans, but they're gonna choose them at different stages of their careers, different stages of their company growth for different reasons. And to have those partnerships where we're actually making it easier for them to work with both is so incredible. All right, so let's move on to capital mixture, 'cause we all want diversity of funding. How do you think about that mix between venture capital, strategic partnerships, Non-dilutive funding, perhaps philanthropic capital and international capital lane, and any other capitals. Like you could throw in a capital P or T, or if we're on Sesame Street, C is for cookie. It good enough for me. Or cash.

C is for cash. I was like, girls, C is for cash and cash is king. And I don't care how I get it. But no, in all honesty, like I, I think you can't just go after one source. You have to diversify. And I don't think that's anything brilliant for any of the founders listening. We've always thought about non-dilutive funding. Non-dilutive funding is complicated though now with the NIH going through so many different changes. SBIR and STTRs are in the process of hopefully being reauthorized.

Fingers crossed for this week, right?

Fingers and toes crossed.

Which will be in the rearview mirror when this comes out.

Oh, I hope so, because we got some pretty good scores that I hope are coming through. But you have to be prepared for pots of monies to fall out from under you and have something else that you're gonna look to and be able to acquire so that you don't lose momentum with your company. And so we look at foundations. So the disease indications that we're in, we look at the foundations for things like that. We look at some really interesting strategic partnerships. So there's groups out there like Five Horizon Capital that they help provide CRO support to help provide funding as part of a quote investment, which I think is a really interesting way to sort of think about capital in a little bit different way of vertical building for them. And then thinking about how do you involve your customer? For me, it's pharma. Thinking about creative ways to find money from them. And something that we've talked about on this show before where they're not gonna do a license agreement, they're gonna sponsor an FTE in our lab. Just thinking about money in a little bit different way and finding a way to create this quilt of cash. Ooh, a cash quilt. That'd be awesome.

Oh, but you can't spend that. You can just keep yourself warm at night.

I don't feel like it would keep me warm. I feel like I would get really awkward paper cuts. And so I, maybe, maybe we put a pin on that cash quilt, but it is a good metaphor of the way that you have kind of have to stitch buckets of capital together as a way to move the company forward. I have the luxury of having other jobs, like the job at Tulane, that allows me to go part-time at my company so that we can spend the money on science and not on me, which hopefully is one thing—

So, it's a patchwork, it's a patchwork quilt of funding.

Exactly. All right, so for companies that, you talked a little bit about this, about sort of that international capital. So, for companies that are considering international funding or doing cross-border collaborations and partnerships, Or, oh, they want to run a clinical trial in a different country. What opportunities are real, and what are the mistakes that they should avoid?

It's so hard right now, though, because the world and the geopolitical climate. And there was a day where I'm like, they opened doors to capital, trials, manufacturing, and market access so easily. And just right now, it's hard to figure that out. People are really— they're hesitant in cross-border collaborations, especially with North America. I think you can still have those interesting conversations, but they may be converting less often to those executable opportunities. It can impact what kind of domestic funding you're able to get. And so those are things you all have to factor in and figure out. It's a possible benefit in many ways, but also a possible wrinkle. It might be that thing that causes that tear in that patchwork quilt of cash at some point, or it comes unraveled a little bit, or it could be the thing that holds it all together and is your centerpiece. And it's just, it's much more complicated than it was before, which is not really an answer. It's my— I went to law school twice, and my answer is, it depends.

Ooh, that is good. It, it, it, well, but it does, it does depend. Like, let's be, let's be real. I've seen really incredible founders. I think of like Alex at Atsilico Medicine, and he has a lot of international partnerships, and he navigates that incredibly well. But then I have my own sort of concerns as I look at sort of federal funding of like, if I have attachments to other countries, will that ding me in terms of getting federal funding? So, it's a really hard, complicated matrix that we all have to be cognizant of. And I think that's sort of the big takeaway is like, you just have to be aware that there's a lot more challenges where there weren't in the past and just to how to navigate that. I mean, have conversations with your board and get real help from those that are around you from a strategic perspective.

All right. So Elaine, you are a founder.

I am.

And so it is better for founders to give founders advice than the guy who runs the OG ecosystem thing and Well, I have some experience now with running things, nowhere near as much as you. So if an early-stage biotech came to you right now, other than being like, don't do it, what would you, what would you tell them? Or how would you advise they think about milestones, narrative, capital planning, all the things we've talked about? What advice would you give? And what would you say, okay, here's what you should focus on first? It was probably very different than the advice you got, or even what you did when you were first founding your company.

Yeah.

So what is The most current, spend your time here first.

I think the biggest thing is to come up with incredibly crisp milestones and a very strategic plan on how to execute them so that you aren't gonna be wasting capital and time, which time translates to capital. And that when you talk to investors, they know exactly what they're gonna get for their money is X, Y, Z. We're gonna hit this milestone. And when we hit this milestone, that makes us more acquirable, or that makes us more positioned for an IPO or something to that effect. I think you just have to be extremely capital efficient more so than ever and not go down too many scientific rabbit holes or side indications that you're interested in pursuing. You have to be very, very cognizant of where your burn is more than ever. I'm constantly thinking about that piece of it and just making sure that— I'm very fortunate. I have an incredible CEO with the company that I started, Cadence Bio. We have doubled our milestones and doubled our runway, and it is because she is very stingy with our cash. And like, we are always constantly looking at that budget and how we're spending our money. And I think that that's key. Mm-hmm.

It's almost then prior, you would see the benefit of having all these possible opportunities or options for your technology. And now it's great to have those in your back pocket, but if you talk about them, it starts to get, I think what you're thinking, people are gonna think, oh, are they gonna get distracted and waste my money on these things that are not their focus?

A trillion percent. That's it exactly. You have to be focused. You have to be, think of the end goal and work your way backwards and don't do anything else that can distract you from achieving your end goal. So that's how I graduated from grad school too. I was just like, okay, here's what I need to graduate. It's this. And then I work my way back and don't do anything that doesn't result in a paper that's gonna get my dissertation, that's gonna get me graduated. So I think of the, I think of it the same way.

So you have to be scientific and operational in a way that was always important, but now it was critical. And you have to have that scientific ambition with financial discipline.

100%. And that operations piece that you just said is so key because it's the boring part. It's my, bread and butter. I love it. But you have to think about picking the right shipping company to ship your compounds so they don't get stuck in customs or that they don't end up in the wrong lab. So it comes down to the minutia because, again, time is money. And if something is waiting on a dock somewhere for a month or even a few days and the samples get warm, I mean, that can be devastating.

Mm-hmm.

So you have to think down to the postage stamp of how this is gonna go down in terms of executing your experimental design so that Everything runs on a very tight schedule.

So, and speaking of time is money, it's the same for startups as it is for podcasts. And Ian knew where I was going. He just gave me— I knew.

I saw. I saw. I love it. Well, there's still real opportunity in biotech, but this market is gonna be one market that rewards focus, as I said, preparation and hyperdiscipline.

I think what we've talked about is, and this is where I've learned so much from you in this space, as well as our founders here in San Diego and across the globe, is Capital's there, but the bar is much higher. And if you know how to plan, how to position milestones, you're much better able to weave your story to move forward.

Perfect way to end this. Well, as always, we will have our contact information and informational links posted in our show notes. Make sure to check them out to learn more. Thank you once again for joining us from BIO from the Bayou.

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This podcast was edited by Resonate Recordings.