M. D. Anderson Cancer Center
Date: April 2008
Duration: 0 / 17:36
At this point the last speaker today and I'm sorry for all the
speakers that I'm cutting you off, but that's the only way we get done
in time. So you know, the last speaker is Evan Melrose.
Evan Melrose has been in venture capital, has an M.D./M.B.A. I mean
there's a pattern here as well I guess, you know, I received many of
those now in this round here alone. He has been working with the
San Francisco venture capital firm. He is now managing director of PTV
venture which is a local Texas-based, Houston-based venture capital
firm. He worked before in some capacity with NIH. He was in
the Medicare reform I understand and he's part of our TUC. He is
a member of our TUC who looks at these proposals and helps us from the
point of view of a venture capitalist. So with that said, thank
you very much for coming and he's gonna give you the point of view of a
venture capitalist.
Thank you Oli.
So my disclaimer on my talk is that
having both medical degree and a business degree really means I have no
credibility. [Laughter] Not a lot of credibility because
physicians look at me as if I'm a business person and I've gone to the
dark side and business folks look at me that I'm a physician and I'm
holding the numbers of the spreadsheet upside down so sometimes having
a dual cross-training is a liability and not an asset. So just
stepping back for a second, you know, I think it's important to reflect
where we are in life science. And I think in general, think about
all of the discovery that's going on in the last 10 years. And
what looks like will be coming down the pathway over the next 10
years. This is a meaningful time, you know, in our history and I
think, you know, a hundred years from now or a thousand years from now
when I look back at what were the important times in, you know, in
history I think, you know, the last decade and the next are gonna be a
big chapter, a big book mark in that book and you know the tools we
have today and microarrays and microfluidics and the work that is going
on with the genome you know are truly revolutionary and the volume, the
tools we have, you know, who would have though that we could, you know,
have a data mining cluster, you know from industry that Anderson could
use to arm and focus on discovery or the tool kit that we have today to
do the work that you guys do in your labs today. The pace at
which things are going is unbelievable and so I do think stepping back
for a second we're at a meaningful inflection point right now and I
think that's important as we look at all of this opportunity in front
of us. The other thing is that, you know, I think it truly is
commendable what the organization both the UT system and the folks here
at Anderson are doing. And if you look at everyone who's come to
talk to you today, it's a small ecosystem here in Texas and it's very
collaborative. We are all in the same boat together where at if
we had a Venn diagram as Oli pointed out earlier, we're all at
different places along the same time line, but we're all in the boat
together and the best thing that could happen for anyone of us is that
everyone else is successful together because you know we're not in San
Francisco and we're not in Boston, we're in Texas and because of that
we have fantastic resources in the academic institutions and you know
the greatest asset here, even at a hundred dollars a barrel isn't in
the ground it's in the halls of the institutions like the UT system and
you know I think the one thing that you should take away of nothing
else from the talk today is that there are a lot of resources in the
community, both in it's institution and then the community, you know,
for you as an entrepreneur to take your research and turn it into
something commercial and that extend all the way across the board to
all my friends that spoke to you earlier today. So with that,
just briefly, if you wanna give credit to I was looking for some good
slides to share with you at venture capital 101 and a colleague who
actually is an IT investor spoke to a group of electrical engineers and
so and he posted and shared some of his slides online as well, so I am
using some of his slides today and wanted to give a little price credit
for that. So just that for those who can't read this venture
capital's early roots it says I called my invention the wheel but so
far I've been unable to attract any venture capital. So just a
little bit of my background, as Oli mentioned I'm a physician. I
still practice clinically to keep my skills up. I also went to a
business school and I've been on faculty at a handful of institutions
and in each region where I've either trained or been on faculty,
they've all have similar initiatives at the time. Pennsylvania
had the tobacco settlement dollars instead of their life science
greenhouse initiatives, State of Indiana which Indiana University
with one medical school in the state started the
life science initiative and most recently in California there were
issues with the University of California system in San Francisco moving
to new campus. If you move to a new campus, how do we generate
the same type of collaboration, when you don't have three posts sharing one
hood and now you have a lot of room in between students, in between
faculty and also this funding gap exists everywhere so we're not alone
with this funding gap. There's a pendulum in financing biotech
companies and right now the pendulum is over here. At some point
it will come back to the middle. But there clearly is a pendulum,
so every region feels some pressure on financing early stage
opportunities, kind of the pre-clinical or proof of concepts and that
doesn't make a difference whether you're in Houston and El Paso or in
San Francisco. The gap exists everywhere. Certainly there
are places where it's even more challenging but the gap exists
throughout the business. So just briefly PTV scientist, we invest
in life and material science opportunities. It's really
biomaterials, it's medical devices and we have about 250 million
dollars in our management, 20 portfolio companies and then we have a
fairly deep team. There are three managing directors, two operating
venture partners who joined us out of industry. We have two
entrepreneurs and residents with us. We currently have one
associate. We're gonna have another one joining us as soon as he
finishes defending his dissertation at Rice here very shortly and then
we have 13 scientific advisory board members and venture partners, all
part of the PTV team. Really all representing meaningful
experience either in industry and also, you know, folks from academe
and the institutions around the state. So what is a
venture? What is venture capital? What do venture
capitalists do? So we raised dollars from institutional investors
and individual investors. So these are the big pension funds, the
kind of the pillars of, you know, the big family offices that would be
the pillars of Houston or Dallas or the big towns around Texas.
We invest in new and rapidly growing companies. We buy stock in
the companies and we take a board seat which means we get in the boat
and help row the boat. The hardest work for us isn't finding the
opportunity it's getting involved with the company and the management
to add value after we made that investment. We take high risks
and expect high returns. You know we don't get paid until our
investors get paid. So we're looking to maximize the return for
our investors so that we can see something meaningful down the road for
us. We make money by selling the companies or taking them
public. So important and this was touched on earlier VC segment,
the world in different ways, some do healthcare, some do IT, some do
clean energy, there are big funds and small funds and folks have
invested in different stage and it's important to know that when you go
to talk to a fund and make sure that that you never point out that you
are approaching the right fund, that that would be appropriate for you,
otherwise you're wasting their time and your time. This is in the
slide deck, but really this just illustrates interactions between
venture capitalists and the banks and the entrepreneurs. So the
value added investor, we sit on the board, we help with the technical
and the market assessment. Usually we help build out the
management team if it's not already in place. We help with any of
the partnering and you know most importantly is the company in many
cases looks for additional operating experience. So you may have
a company, we've started companies, we started a company out of
technology from UT and being Galveston. There's a
gastroenterologist at Galveston that developed technology for doing
surgery through the mouth, so endoscopic surgery going through the wall
of the stomach where they could take out an appendix or gallbladder
with no incisions on the abdomen, so turning an endoscope from a
diagnostic instrument to a surgical instrument. So we started
that company with 1 employee, it's now 22 engineers out of Ethicon and
we recently scooped them out of our office so we could get our file
room back and our kitchen back because that had become a machine shop
and the hood area for all the life science work that they were
doing. So what if you see one? It really depends on stage
but on early stage where we invest. You know we're looking for
you know a strong team, this maybe a strong scientific team.
Folks that have demonstrated you know deep technical strength and
knowledge of the opportunity. Maybe a strong management team if
that's in place, it's not in place in all companies. You know the
market we're looking, you know a meaningful rapidly growing market and
there are clearly examples of opportunities that are good technology
but the market is not right for that technology. Business model,
we need to know how you're gonna make money and most importantly the
technology, you know, what's your intellectual property, you know how
can this be protected? So, playbook you know, be committed to
what you're doing. Hire a great lawyer. There are plenty of
good resources you know and there are attorneys, there are firms here
in town that have been very active in life science that would do work
without charging fees upfront and to further fees until you get pass
the milestones of funding from ETF or for from the angel community or
will have a sliding scale on fees because they wanna get involved with
clients at the earlier stage. But often times, an attorney can
advise you on some of the things we talked about today like convertible
debt and explain to you why that's important and what that means?
You gonna want to figure who you want to raise capital from, pick 4 or
5 firms that you are interested in getting an introduction for that
partner. And then as I spoke, I have gone over earlier you wanna
prepare an executive summary in a power point presentation. And
most importantly, the goal of a meeting is just to be able to get them
to take it to the next level to take a follow on meeting with you, to
do a little bit of work, that's the goal of a meeting. In
approaching venture folks, it's really you know, it's a people business
so it truly is about who you know. The best way to approach
someone in ventures is from an introduction, you know, if you don't
know someone...if you don't know a venture capital, find someone that
does. And you know here, living here today you're gonna wind up
with, you know, a whole network of folks who are all accessible, who
are all happy to take phone calls, happy to take an e-mail. And
one thing, again, you need to get Texas in a market here because it is
very collaborative. The current project you're working on, may
not be the one that I may invest in or Mark may invest in or someone
else may invest in, but we all take the time to try work and give some
constructive feedback 'cause that maybe the next go around, the next
cycle that TRC investor, ETF investor I invest in the
opportunity. Some tips don't take rejection personally, again as
you know, the odds are against you for the capital is very, very
difficult to raise for all of us. It's hard when I go out and
raise the capital, you know, for my investors it's hard when
entrepreneurs come and raise capital from us. So, you know, but
you're just looking for one, you know the first ,you know the first
investor, you're looking for the first person applying a flag on the
ground. Every venture capital is interested. You really
wanna push him to take the next meeting, make the calls, read the
publications, do the research. Don't waste time trying to change
the mind of someone who says "no". I've seen entrepreneurs
spending off a lot time, you know, focusing on in trying to change a no
to a yes when they would better use their time going and looking at
some other investment opportunities. And usually, most shops will
have single answer from the firm so it doesn't work your spending time
getting one partners says no, then going around and asking the other
two, or three, or four partners for a different opinion. Usually
a no is a no. Many cases in shops like ours, you know, we've
tried to get some constructive feedback, so that there's some
milestones to hit and come back to us, because of a certain stage that
which we invest. And there are a lot of venture firms out there
that focus on life science, so just find one that's a good fit.
So, flexible financing, raising capital for new companies is always
challenging especially the first round. Licensing terms, you
know, conservative licensing terms are necessary. This is
something that, you know, the institution here has been very helpful
with it and involved with and something that you can go to. They
are very seasoned folks at the institution that really helps spear this
and can direct this with you. You know, if terms are aggressive
on the front end and they just get revisited down the road so as a
colleague said to me once before" make sure you own a piece of the
donut not a donut hole". You know, you wanna grow the pie for
everyone? The institutions here are proactive and at the end of
the day, make sure that happens. Consider convertible debt.
We don't really have time to talk about this today but you know, it's
hard when you start a company. Is my company worth a thousand
dollars, a million dollars, a hundred million dollars?, What's my
company worth? When you do convertible debt, you don't need to
address that, you're just borrowing money. And you can put a
sweetener in there so that people, your friends, your family that are
supporting you now, that they're protected no matter what the value is
the company down the road. Because the last thing you wanna do is
go out, raise money from friends and family and then raise around at a
dollar a share, hypothetically speaking that a year from now have to be
worth 50 cents a share. Now all your friends and family just lost
half their money in your company. That doesn't feel good for
anyone so the best way to protect everyone is doing what everyone's
reference here today, this thing called convertible debt. When
you're first starting out a company, highly having a to look at
that. One thing I had on here is that not all technology, you
know, good technology doesn't mean company, good technology may mean
license. So, just two or three e more points and I'm running out
of time and there's additional info in your power point deck on
business plan and how to write a business plan and I suggest that you
can take a look at that after the presentation today. This power
point, you can all see Simpson, you promised that you wouldn't tell
anyone that I turned down Bill Gates. And again venture capitals
are always looking for the next opportunity and they're always
interested, it's just a matter of getting to take a look and flip over
the next card. What I wanna do is skip through the start-up and
business plan process 'cause Debra mentioned that, I know you had that
in other sessions. What I do want to point out is that there are
some meaningful resources here in the community. You know venture
capital fills the void in market place between commercialization and
basic research. Our typical investment size on the front end is
as low as 100,000; more typically 500,000 but some more in the
multi-hundred thousand range up to, you know, we may have 10 or 15
million, you know, in a company depending on the stage and size of
investment. So, yeah it is important to go through the process
when you're doing proof of concept with the group like TRC or possibly
TIF. Next stage, ETF. You need operating experience and you
need to really polish the company, turn it into a real business, your
resources like Martin and Alfa Deb have. And then we're on the
next stage and then there are other investors at the later stage
venture folks that we passed the baton to. So, it's all continues
on local resources here. Chris Cafeli's office, Tech
Transfer Office here; certainly, the work that the Oli and Stan
do. BioHouston, you know, Jacqueline Northcut, BioHouston is a
great resource center for companies here in town. Rice Alliances
networking events so that I would encourage you to take a look at and
get involve with and then the Houston Technology Center that offers
support in mentoring. Here is a couple of web sites that just
have information about venture capital and people who write in and ask
questions on how do we raise money? What was your experience
like? I wanna point out the bottom one in my last slide here.
It's just a screen shot of this, have never met the gentleman that has
this web site. I have looked through the materials before when we
had a course in Biochemistry ECSF. We also directed a post stocks
and faculty to this web site. There's a book here, free download
called "Entrepreneurs Guide the Biotech's Start-up". And it's a
worthwhile resource to look at. Don't profess that everything in
there is necessarily accurate or up to date but it's a great free
resource that was written by someone and post it online and it had
meaning contributions from other entrepreneurs and venture
capitalists. So, it's worthwhile the demo that resources.
Just take a look at it, it says evalexa.com. And with that, I'll
wrap up. Thank you.
[ Audience Clapping ]
© 2007 The University of Texas M. D. Anderson Cancer Center
1515 Holcombe Blvd, Houston, TX 77030
1-800-392-1611 (USA) / 1-713-792-6161