Suresh 1

Rajiv Suresh
Dr. Milana Trounce
PublPol 122 Biosecurity and Bioterrorism Response
27 May 2015
Final Paper: The Lack of Large Venture Capital Funding in Synthetic Biology
According to a recent report, from 2013-14, over $400 million dollars
was invested in synthetic biology companies.1 There is no doubt that this is a
significant amount and important for the advancement of the field. However,
there is an equally interesting phenomenon in the fact that many of the
major Venture Capital (VC) firms that are involved in technology startups
today have seemed to avoid companies that are directly involved in
synthetic biology. This is curious because many of the ideas against investing
in biotech, as a broader industry, are actually false. For example, often times
the true value of a biotech startup goes unrealized. A Forbes article by Bruce
Booth shows that Healthcare unrealized internal rate of return (IRR) a key
metric for evaluating a potential investment is typically understated. Booth
uses the example of Avila Therapeutics, a company that was held at roughly
the same share price for 18 quartersand then in six months was written up
to its ~6x exit value.2 For this paper, this means that traditional VCs could
actually view synthetic biology companies, a subset of the biotech industry,
1 Glasner, Joanna. Synthetic Biology goes for Scale, Center for Genetics and

Society, Sep 2 2014. Web. <http://www.geneticsandsociety.org/article.php?

id=8030>
2 Booth, Bruce. Debunking Myths About Biotech Venture Capital, Forbes, May 22
2013. Web. <http://www.forbes.com/sites/brucebooth/2013/05/22/debunking-mythsabout-biotech-venture-capital/>

Suresh 2
as lucrative investments. Booth also discusses the idea that the biotech VC
market has actually been growing. In the context of this paper, this means
that these large traditional tech VCs likely have a different investment
criteria from the healthcare VCs that have increased not only the size of their
funds, but also the amount they have invested in biotech startups.3 Again,
while this article discusses the biotech industry as a whole, these trends
likely apply to synthetic biology as a vertical within the larger industry. Given
these trends, the central question this paper looks to explore is: What keeps
VC firms like Andreessen Horowitz, Sequoia Capital, Accel Partners,
Benchmark Capital, Greylock Partners, and other similar firms from investing
in companies that are directly involved in synthetic biology?
To answer this larger question, this paper will explore four specific
questions:
1. What do synthetic biology or related companies in major VC portfolios
look like?
2. What criteria do these firms have in choosing companies to invest in?
3. Which synthetic biology companies have been successful in raising
their rounds?
4. Can we establish some intersection between the criteria these firms
have and the companies that have successfully fundraised?
Question 1 will allow us to see whether these firms have in fact avoided
companies directly involved in synthetic biology, and what they might think
are better investments in this space. Question 2 will expand on this by
establishing the general criteria they use when investing in companies.
3 Ibid.

Suresh 3
Exploring Question 3 will zoom out, in a sense, and take a look at the more
successful companies in the synthetic biology space from a fundraising
perspective. Taking this analysis along with the answer from Question 2 leads
to Question 4, where this paper attempts to find an intersection between the
characteristics of the successful synthetic biology companies and the criteria
of the largest VC firms. Understanding this can lead to a conclusion that
either synthetic biology companies have the characteristics that VC firms are
looking for, but they just have not been noticed, or that there is a mismatch
between the two. This then can lead to a hypothesis of what sort of synthetic
biology business could either get the attention of a major VC, or what
business model they would need to have to gain funding from a major VC.
Finally, in an extension to the core analysis this paper offers, the implications
that the answers to these key questions have on biosecurity efforts will be
discussed. With the importance of startup innovation, and need for funding in
the research and development of synthetic biology, such analysis could be
crucial for understanding how to bring synthetic biology to the forefront of
technological innovation.
I: What do synthetic biology or related companies in major VC portfolios look
like?
Again, a natural first step in identifying how to bring synthetic biology firms
into the portfolios of large VCs is to look at what these large VCs are
investing in now. Many of these firms are not directly involved in synthetic
biology, but instead are part of the larger biotech industry.

Suresh 4
Andreessen Horowitz has invested in a number of companies within the
biotech space. One of these is Benchling. Benchling has created a platform
that makes collaboration for DNA sequences easier. The hope is that such
collaboration can help solve issues like disease, clean water, hunger, and
more. In this way, the investment seems to align with the goals of many
synthetic biology companies to advance research and innovation in the
space to solve larger problems. However, this is not a company that is
directly involved with the innovating process, rather one that has, in a sense,
built a platform to help facilitate that. That being said, the company has
been relatively successful in not only fundraising, but also attracting large
name investors. Andreessen was part of the companys Series A funding
round of $5 million, but before that, Benchling was able to secure a seed
round from Y Combinator a prominent and extremely competitive incubator
in Silicon Valley.4
Andreessen Horowitz was also part of a $1.2 million undisclosed round for
Experiment.com. Experiment is another platform that looks to contribute
indirectly to innovation in the space. The way they achieve this is via a
crowdfunding platform for scientific research. While one category of the
different projects they support is Biology, their reach spans beyond this to
include Chemistry, Computer Science, Medicine, Anthropology, Engineering,
and more. Thus, while somewhat involved in contributing to the growth of

4 From Crunchbase. <https://www.crunchbase.com/organization/benchling>

Suresh 5
biology innovation, some of which is sure to include synthetic biology, this
investment more involves research as a whole.
Another Andreessen investment is SolveBio. SolveBio has developed
applications that leverage their own reference data to predict the effects of
slight DNA variants on a persons health. They make their own data easy to
access as well, allowing others to build clinical grade diagnostic
applications.5 Again, what the investment in SolveBio demonstrates is a
willingness to invest in services and software around biotech and synthetic
biology, without getting directly involved in the research and development of
the biology itself. One final key example, without belaboring this point, is
uBiome, a company that allows users to map and understand their
microbiome through comparison with standards that they build through
crowd science. What this investment demonstrates is not only another
service, but also one that is consumer-oriented, as uBiome markets directly
to individual users at this point.6
Similar to Andreessen, Greylock Partners has a company in its portfolio that
is built to support research and development in the biotech and synthetic
biology space, rather than be directly involved in it.

Warp Drive Bio has

developed a genomic search engine, which enables natural products to be

revealed based on their genomic structure. By identifying these natural
products, pharmaceuticals can be developed and brought to clinical trial
faster, since these naturally occurring elements will be more evolved than
5 From Crunchbase. <https://www.crunchbase.com/organization/solvebio>
6 uBiome Homepage. <www.ubiome.com>

Suresh 6
any synthetically produced elements, making them more ready for
pharmaceuticals.7 In this way, Warp Drive is a support to research efforts, like
Benchling, and is more of an enterprise solution.
Another major VC, Accel Partners, has invested in a company that is
directly involved in biotech R&D. Mitra Biotech is looking at finding specific
biotech tools to help distinguish patients for addressing personalized cancer
medicine. The fact that this company is directly involved in biotech
innovation makes it distinguishable from the previous companies mentioned,
and, in doing so, distinguishes Accel Partners from both Andreessen Horowitz
and Greylock Partners. This investment is one of their many investments in
companies based in India a characteristic that would not be as curious if it
were not the firms only significant biotech investment. This suggests that,
perhaps, investors are more likely to trust innovation and R&D abroad,
though only one example alone cannot provide the basis for such a bold
claim.
II: What criteria do firms have when making investments? What do they look
for?
The discussion in the previous section begs the question of what these
firms actually look for when making an investment. Of course, this is
impossible to know without sitting in on the discussions an investment team
at one of these firms has, but the general principles can be understood from
publicly available resources.

7 Warp Drive Website - Engine. <http://www.warpdrivebio.com/engine.php>

Suresh 7
For example, Andreessen Horowitz co-founder Ben Horowitz gave a
presentation on what the firm looks for when making investments at a
conference in Berlin in 2013. The slides to this presentation were then made
available through Business Insider.8 Horowitzs presentation focused on four
key pillars to a company they invest in: the idea, the entrepreneur, the
market, and the business model. He explains that the true breakthrough
ideas are those that seem crazy, and that their teams look for a brilliant
entrepreneur with a beserk idea. Additionally, this entrepreneur must have
brilliance and courage along with the breakthrough idea. Horowitz does
mention that for many this can be seen in the fact that they drop out of
college to pursue their company, though there are many other indicators of
brilliance and courage. When looking at the market that a company is
operating in, Horowitz says that they expect the market to be huge
naturally, a product in a larger market has greater potential for success than
a product in a very small market. Finally, Horowitz mentions the business
model, however he does not place the emphasis on this that one would
expect. He quickly denounces the expert view on the business model in
favor for one that is, frankly, more widely accepted in Silicon Valley that
companies should focus on building a product people love and then
monetizing that product.9 This places the emphasis not so much on
8 Blodget, Henry. Andreessen Horowitz: Heres The Magic Formula For Building

Massive Companies [Deck], Business Insider, Feb 1 2013. Web.

<http://www.businessinsider.com/how-andreessen-horowitz-chooses-investments2013-2>.
9 I claim that this view is widely held in Silicon Valley based on firsthand
experiences where similar sentiments were shared from VCs and other experts in
this space, like Sam Altman of Y Combinator.

Suresh 8
maintaining the integrity of the original product and the original vision, but a
more user-centered approach to building a viable business. The view that the
user-centered approach should come first makes sense given the number of
successful consumer products that have come out of Silicon Valley in recent
years, and the resurgence of user-focused Design Thinking in product design.
Another resource that helps give some insight into how large VC firms
make their decisions around investing in a company comes from Sequoia
Capital.10 On their website, they present a very clear guide for building an
effective investment pitch. While this is not as clear as Horowitzs
presentation, this guide does show us what they think is important to include
in a short presentation. The guide focuses on the following key areas: the
companys purpose, the problem that the company is trying to solve, the
specific solution the company offers, why it is important for the company to
come to market now, the market size, competition and the advantages their
solution offers, the business model (in a more traditional sense), the team,
and the financials behind the company. Ultimately, this guide is much more
straightforward, standard, and technical than Horowitzs model, though
many of the principles remain the same. We can see common threads of the
importance of a brilliant idea that comes through the purpose, problem,
solution, and why now for Sequoia. The importance of the entrepreneur
in Horowitzs model is seen in the idea of the team for Sequoia, and the
business model that Horowitz refers to as being user-driven can be seen in
10 Sequoia Capital Writing a Business Plan.

<https://www.sequoiacap.com/grove/posts/6bzx/writing-a-business-plan>

Suresh 9
Sequoias ideas of the solution, and of course, the business model they
refer to.

III: What synthetic biology companies have fundraised successfully and what
is their model?
Looking at other synthetic biology companies that have done well in terms of
raising funds through multiple rounds can help give a sense for how other
synthetic biology companies might be able to move towards gaining the
attention of major VC firms. One company that has been able to fundraise
relatively successfully is Juno Therapeutics. In fact, Juno IPOd in November
2014 after two Series A rounds of $120 million and $56 million, respectively,
and a Series B round of $134 million.11 While none of the major VC firms
were a part of any of these rounds, Juno did have a prominent investor
behind them in Bezos Expeditions, founded by Jeff Bezos, founder and CEO of
Amazon. More broadly classified as a biotech firm, Juno focuses on the
development of clinical stage platforms, building on existing cancer
immunotherapies to develop two distinct and complementary platforms. Juno
has brought together three of the worlds leading cancer centers in order to
create a pipeline of these breakthrough immunotherapies. Their model
focuses on the development of these therapies, and according to their
current pipeline, their current projects are all either in Phase I Clinical Trials
11 From Crunchbase. <https://www.crunchbase.com/organization/junotherapeutics>

Suresh 10
or are Pre-Clinical.12 The assumption would be that these would then be
marketed to current and future cancer patients.
Another company that has been relatively successful is Twist Bioscience.
Twist specializes in synthetic DNA production for specialty chemical
compounds and drug development. They have raised in two major rounds a
Series A of $9.1 million and a Series B of $26 million, as well as a debtfinancing round of $10 million.13 Again, they have done so without any of the
large VC firms contributions. With a product focused on allowing for better
drugs and biodefence, biodetection, and genomics work, their product is
essentially an enterprise-oriented product, with sales likely going to
pharmaceutical developers and research institutions.
IV: Can we establish some intersection between the criteria these firms have
and the companies that have successfully fundraised?
After looking both at the criteria for investment and the companies
that have raises successfully, we can attempt to look at how the two of these
intersect to provide a basis for an overall hypothesis for how synthetic
biology firms can look to gain the attention and funding of large VC firms.
Given the intersection between the criteria for Andreessen Horowitz and
Sequoia Capital, this paper will look to Ben Horowitzs general ideas as the
major guidelines, with details filled in from the Sequoia Capital model.

12 From Juno Therapeutics Webpage <http://junotherapeutics.com/>

13 From Crunchbase. <https://www.crunchbase.com/organization/twistbiosciences>

Suresh 11
In general, it is relatively safe to say that the idea behind most
synthetic biology firms is a breakthrough idea, especially given the young
nature of the field itself and the new technology involved. Additionally, many
synthetic biology firms have products with significant applications, like Junos
revolutionary approach to cancer immunotherapy. Another assumption that
could be made is that the team and entrepreneurs are brilliant, as they
are leading a new field, and that they are courageous, given that they are
forgoing stable, industry jobs in research or pharmaceuticals in order to
pursue a new company. Take the founders of Twist Bioscience all three have
PhDs, and have a collective work background that includes the Director of
Applications and Chemistry R&D in Genomics at Agilent Technologies,
Physicist at Lawrence Livermore National Laboratory, and a post-doc fellow
at NASA-Ames.14 Clearly, there is a diverse team with incredible expertise in
the field. When looking at the market, we can see that the market for
companies like Juno Therapeutics or Twist Bioscience are quite large, with the
number of people who are diagnosed with cancer around 13 million in the
United States in 2012, and the wide variety of potential customers for Twists
synthetic DNA products.15
The tension lies in the business model. Yes, new technological
advances have allowed synthetic biology to be somewhat flexible, to the
point that products can be adapted to fit a customers standards. Thus,
14 Twist Bioscience Webpage Founders.

<http://www.twistbioscience.com/#gofounders_>
15 Cancer statistic from Surveillance, Epidemiology, and End Results Program
Stat Fact Sheets <http://seer.cancer.gov/statfacts/html/all.html>

Suresh 12
Horowitzs suggestion of building a user-centric product before monetizing is
doable. However, the issue is that the money that is required to research
what users really need and develop such a product is generally higher in
synthetic biology than it is in say, software. In software, if a focus group tells
a company that a product needs to change its features, it usually means a
change in some lines of code, and maybe a few more man-hours put in to
make these changes. In synthetic biology, if there is a change, while the
technology is capable enough of making the change, the steps leading up to
making the change (acquiring the proper materials, determining how to
execute the change, etc.) are more involved. These high costs, both time
cost and financial cost, make it difficult to have multiple pivots in a product,
and this is likely why these large VCs have decided to get involved in
software and services around the industry without being directly involved in
it. This makes synthetic biology companies somewhat inflexible. Additionally,
the product might not be able to scale to a large audience until it is final, and
so the waiting period for the return might be longer, though, as mentioned in
the introduction, this should not impact the final value and IRR of the
company.
What does this mean for synthetic biology companies, in terms of how
they can attract the attention of large VC firms based on the criteria
established in Section IV? There are a few recommendations based on the
above discussion. For starters, they must have a large research team that
can help pivot the product quickly. They also should emphasize the flexibility

Suresh 13
that is offered by the new and developing technology in synthetic biology,
and the fact that the teams expertise will be able to overcome any
technological barriers they may face this is generally something that many
startups face at some point or the other, and the knowledge and expertise of
the team is what allows a company to persevere through these issues. The
reason it is important for these companies to emphasize this point is that
people generally believe that such issues could be especially detrimental to
biotech companies, since, as Bruce Booth mentions, a common myth is that
when biotech companies blow-up, they blow up big.16 Another key point is
that the markets are actually quite large of these companies, and the
benefits can span many different markets. This demonstrates that once a
product is brought to market, it can be highly lucrative, so the end goal is
very valuable for an investor.
Ultimately, the ingenuity of most products in this market goes without
question this, combined with a large market should get the attention of the
VCs. What matters is the deeper points of how the company frames the
business model, how they have made themselves dynamic, and how they
have protected themselves from high costs.

V: What does this mean for biosecurity?

Now, let us assume that the above hypothesis does not succeed in altering
the status quo, and that synthetic biology companies have to continue to

16 Booth, 2013.

Suresh 14
look to other firms for funding, instead of the large VC firms. What does this
mean for biosecurity efforts? Well, on the synthetic biology industry side, it
limits the amount of research and the number of products that can be
developed to help in biosecurity efforts and public health applications. Even
though the amount of biotech funding is increasing, having more of it would
be beneficial for the research, and for the development of more efficient and
cheaper technology. This could help lead to the development of new
biodefense mechanisms.
This also means that there is greater pressure put on the public sector
and other partnerships to drive biosecurity innovation in this space forward.
Firms like In-Q-Tel, the investing arm of the Department of Defense, become
much more important, especially because they are more concerned with the
mission of developing technologies that have specific defense applications.
They are well placed to push synthetic biology research forward in a way that
benefits biosecurity, which would mitigate some of the knowledge losses that
come from the lack of large VC funding in this space.
VI: Conclusion
Overall, there is a shocking lack of funding from major VC firms in the
synthetic biology space. Given the revolutionary nature of this space, this is
extremely surprising. Though major VC firms like Andreessen Horowitz have
investments in biotech companies that have built services and platforms
around biotech and synthetic biology, the successful synthetic biology
companies have largely had to rely on other sources of funding. Through

Suresh 15
analyzing the investment criteria of some of the largest VCs in Silicon Valley,
and understanding the successful synthetic biology companies, this paper
lays out a hypothesis for how a synthetic biology company can gain the
attention of, and funding from, a major VC. This hypothesis centers on
having a dynamic team, remaining willing and able to pivot the product, and
specific messaging that emphasizes the large available market and the
expertise of the team. Given the status quo, there are significant implications
for biosecurity, primarily revolving around the research and development of
revolutionary products that could be crucial in response to an attack or to
prevent the spread of disease. It also makes the role of public institutions
more important in some ways, specifically in helping develop such
countermeasures. Ultimately, while the lack of major VC funding can be
overcome, there are other mechanisms through which synthetic biology can
continue to grow as an industry until at some point, these firms take notice
and begin to take part in this important, revolutionary movement.