After Genentech, Chiron and Genzyme, let just me do a simple analysis of biotech start-ups. The table which follows summarizes it all and I added Amegn but it is obviously a little tough to read. You can enlarge it however. So you can see data about the companies themselves, foundation year, IPO year, revenues and profit/loss at IPO, current status and then data on founders, their age at foundation, what they were doing before the creation and what they did after the start-up adventure. Then I provide a link on them.
So what is interesting about the companies themselves?
– On average, it takes them 3 years to go public. So the myth that biotech start-ups develop slowly is linked to the revenue/profit status, not the exit status.
– Indeed, when they go public, they have very small revenues and lose money. Compare to Apple for example, on the first picture.
– They are very similar to Internet companies of the late 90s: they go public very soon without revenues and still losing money.
– Finally, they are acquired by European players. This is in total opposition to IT companies where the only buyers are American (check for example slide 36 of the pdf I published in the past).
Now the founders.
– First, they are not young people. Compare again to the same document, slide 27 now. American founders in the slide are on average of 27 year-old, and Europeans, 33 year-old.
– Many had an academic career they did not have to leave. They may have taken sabbaticals but many went back to their academic life. It is obviously related to the previous point.
These 3 posts have shown my small knowledge of biotech but also the fact that they are interesting not to say major differences between Biotech and Information Technology.
Genzyme is the second topic of my biotech series. Same approach as with Chiron. Genzyme was founded in 1981, went public in 1986, in less than 5 years. It had two founders, Sheridan Snyder and Henry Blair. It should be added that Henri Termeer was instrumental in the company success. Snyder was 45 and an entrepreneur who after Genzyme will create again new companies. Blair was a researcher at Tufts and was 37. He would become an entrepreneur again.
Genzyme had some revenues but no profit when it went public. Oak was the main investor and both Advent and Rothschild had about 5-6% of the company. Interestingly enough, just like Genentech (with Roche) and Chiron (with Novartis), Genzyme has been recently acquired by a European pharma: Genzyme has been acquired by Sanofi-Aventis for $20B.
Biotech is a strange world for me. I am an IT guy and I have never really understood much about biology. The biotech start-ups are also very different from IT companies. It is well-known that it takes them years to reach revenues with products (not R&D revenue), not to say profitability (just like the semiconductor industry). It does not prevent them from going public early (just as Internet start-ups did in the late 90s!). So it is a strange mix of features of hardware and software companies.
In a series of documents on the biotech history, I could find the following quote related to Genentech: “Late in 1979, Tom Perkins pushed the idea of a public offering. Although the technology was young, and we were early on in the development of products, there was enough interest in the public to get a public offering done. This was a foreign concept at the time. While we had a couple million dollars in revenue–! think it was $3.5 million in revenues in 1979-there were no product revenues or profits generated from products. Whether or not you could take a company public that didn t have product revenue, didn t have commercialized products, and didn t have significant profits, was an unknown. In the mid to late seventies, if companies went public, they had revenues and earnings. You d have at least $10 million in revenues and at least a million dollars in profit, then maybe you could have one of the small high-tech underwriters take you public.”
Secondly, the founders are seldom the typical nerds with some great business vision (Gates, Jobs, Brin/Page, Zuckerberg) but often university professors/researchers. They do not have to quit their academic position and often take the title of chief scientist. (This also happens in the hardware academic spin-offs, with Atheros as an example I mentioned in a recent post).
As a first illustration of all this, I will just show some data about Chiron. My next post will be about Genzyme and I will conclude with general elements in the 3rd and final post.
Chiron was one of the early start-ups in biotech. It was founded in August 1981 and went public in May 1983… 2.2 years! It had three founders Edward Penhoet, William Rutter and Pablo Valenzuela who were respectively 41, 54 and 40 years old when Chiron was founded. Not kids in their early twenties! Their activity at time of foundation was professor at Berkeley, professor at UCSF, researcher at UCSF.
Here is my usual cap. table followed by the equity pie. Chiron at $1.5M and $0.8M in revenue in 1983 and 1982, there was no profit but a loss of $2.2M in 83 and $0.8M in 1982…
Chiron was bought in 2006 by Novartis and it is not the only biotech start-up acquired by an European corporation as we will see soon.
After my recent posts about Israel and high-tech innovation, I discovered I did know not very well the Check Point story. Start-up Nation did not provide much info and though you can find a lot on Wikipedia or on the Facts@Glance of the company. for example, I became a little frustrated when I discovered I could not find much about the company early days and IPO. I even had to buy the IPO filing through the SEC as the document is not public on the web and Check Point could not help me with such info.
There are a couple of very interesting points:
– the three founders had equal shareholding at foundation (and afer Check Point went public).
– Gil Shwed, one of the co-founders, is still the chairman and CEO. Another unexperienced and young entrepreneur who grew his baby through adulthood.
– Many women in the management of the company, Deborah Triant at the time of IPO, but even today Dorit Dor, Tal Payne and Juliette Sultan as the executive team page shows. (This may have to be linked to Israel culture again).
Gil Schwed, Shlomo Kramer ,Marius Nacht, the 3 co-founders and Deborah Triant (from the early web sites of Check Point)
Now the usual cap. table that I could build from the IPO filing and the shareholding pies at the end of the post.
– What is interesting is that Check Point did not raise a lot of money, mostly $600k from BRM in 1993. There were also some loans ($400k) and R&D ($160k) from BRM also which do not appear in the shareholding.
– The American VCs (Venrock and USVP) bought shares from BRM in a secondary financing, so there was no new money for Check Point.
– Check Point issued 3M new shares at IPO and existing shareholders (BRM and the 3 co-founders) sold 1.2M shares.
– Not the least impressive, it took the company 3 years only to go public and its 1995 and 1996 numbers are already impressive.
As usual, I hope this does not include too many inaccuracies or mistakes…
Something is going on. LinkedIn has filed to go public, many lesser known companies have succesfully done it and it is now Pandora. You can read a lot about Pandora’s filing so my contribution is limited to the following points:
– you can read below the cap. table of Pandora (and enlarge it by clicking or even download the picture, ask me for the excel file if interested)
– there were 3 founders: Tim Westergren, Will Glaser, Jon Kraft but only the first one is mentioned in the filing and the equity of the two other ones is unknown. I made the assumption that the remaining common shares belong to them, but it canot be true. It is just an assumption.
– Pandora has raised nearly $100M with its investors.
– Revenues are nice: $50M in 2010 and $19M in 2009, but the company never had a profitable year even if its recent quarters have been (about $1M for the July and october quarters).
– The company was founded in 2000, so it would have taken him 11 years to go public.
Will this be sufficient to concince investors? To be seen….
The much anticipated filing by LinkedIn was announced last week and I could do my favorite analysis, the capitalization table and equity structure of the start-up. My main frustration came from the fact that there is no information on the founders’ shares. LinkedIn has five founders and only Reid Hoffman shareholding is known. Wikipedia states that “the company was founded by Reid Hoffman and founding team members from Paypal and Socialnet.com (Allen Blue, Eric Ly, Jean-Luc Vaillant, Lee Hower, Konstantin Guericke, Stephen Beitzel, David Eves, Ian McNish, Yan Pujante, and Chris Saccheri).” Linkedin mentions them in its Founders web page. This just means their equity level is rather small… here is LinkedIn cap. table (assuming a virtual IPO date and price per share).
Another interesting disclosure is the full list of LinkedIn investors:
The new movie about Facebook’s founder, Mark Zuckerberg, is a great movie. It does not matter so much if it is a description of reality. You may watch it as a piece of fiction, and it would remain a great movie thanks to the actors and screenplay.
It is also great because it describes the start-up world in a very accurate manner. It is not a movie about start-ups really, but there are details which reminds me a lot of real-life stories.
The first lesson is that money and friendship seldom work together. The stories of Eduardo Saverin, the founder soon to be diluted, Sean Parker, the exhuberant founder of Napster and Plaxo and mentor of Zuckenberg and the short appearance of Peter Thiel are such examples.
It also shows the old world of Boston where people think ideas are crucial and the new world of Silicon Valley where what matters is implementation. It’s why Silicon Valley is the Triumph of the Nerds. It shows how right Paul Graham is when he says Silicon Valley is about nerds and money. You see the crazy, sad, exciting, depressing life of these hard-working people. You may like it or not, but it is mostly what start-ups are about.
I just looked for what some key people thought of the movie. So, for example, Eduardo Saverin said here: “The Social Network” was bigger and more important than whether the scenes and details included in the script were accurate. After all, the movie was clearly intended to be entertainment and not a fact-based documentary. What struck me most was not what happened – and what did not – and who said what to whom and why. The true takeaway for me was that entrepreneurship and creativity, however complicated, difficult or tortured to execute, are perhaps the most important drivers of business today and the growth of our economy.”
And Dustin Moskovitz said there: It is interesting to see my past rewritten in a way that emphasizes things that didn’t matter (like the Winklevosses, who I’ve still never even met and had no part in the work we did to create the site over the past 6 years) and leaves out things that really did (like the many other people in our lives at the time, who supported us in innumerable ways). Other than that, it’s just cool to see a dramatization of history. A lot of exciting things happened in 2004, but mostly we just worked a lot and stressed out about things; the version in the trailer seems a lot more exciting, so I’m just going to choose to remember that we drank ourselves silly and had a lot of sex with coeds. […] I’m very curious to see how Mark turns out in the end – the plot of the book/script unabashedly attack him, but I actually felt like a lot of his positive qualities come out truthfully in the trailer (soundtrack aside). At the end of the day, they cannot help but portray him as the driven, forward-thinking genius that he is. And the Ad Board *does* owe him some recognition, dammit.
Of course, this looks like corporate language, we should remember these guys have FaceBook shares! Talking about shares, there was another thing I did not like recently, the fact that according to Forbes, Zuckerberg would be richer than Steve Jobs. I had a discussion with a friend over the week end and he agreed with the statement whereas I disagreed. It may be a detail: but as long as Facebook is not quoted, Zuckerberg’s wealth is mostly paper value he can not really trade. I am sure he is already rich, he probably has already monetized some of his shares but not all of them whereas Jobs owns shares which are liquid. It may not be a big difference given the success of Facebook, but I have seen to many stories of start-ups where people thought the paper value of the stock was real wealth and the next day worth nothing…
When my daughter told me yesterday, she might at least explain her friends what her dad was doing. i.e. working in the world of start-ups, I thought the movie had at least reached that goal of reaching a large audience towards this important topic!
Final point, a recurrent topic in my blog: Facebook cap. table and shareholder structure. As Facebook is private, it is a challenge to know what’s true and what’s myth. I have still tried the exercice from what the Internet gives. One interesting feature is Saverin’s dilution from 30% to 5% whereas Zuckerberg went from 65% to 24%, not really pro-rata! We shall see when Facebook goes public, who wrong I was!
With my seventh contribution to the Créateurs newsletter, I stay in Switzerland again with two succesful SMEs. Enjoy!
There is a recurrent debate in the world of high-tech start-ups: and if the American model of fast growth supported by aggressive venture capital was not adapted for European or Swiss entrepreneurs? Two examples may contribute to the discussion: Sensirion and Mimotec.
In my contribution to Créateurs last time, I had focused on Swissquote, which has become a magnificent success story, without that venture capital, which is so much criticized these days. Mimotec is an EPFL spin-off with 24 employees and about CHF10M in revenues. The company provides micro technologies for the watch industry. Mimotec was founded in 1998 by Hubert Lorenz who told his start-up’s story during a recent venture ideas conference at EPFL. It is a clear example of organic growth, a steady growth even if not exponential.
Sensirion is probably more impressive. Founded also in 2008, it is an ETHZ spin-off and it sells pressure sensors, another field of expertise in Switzerland. In an article published for the MEMS 2008 conference, Felix Mayer, Sensirion’s co-founder and CEO, described the growth model of his company. Here is an extract: “The Europeans – especially the Swiss – do not go for the big thing! They rather start small and put one foot in front of the other. A characteristic of the European and Swiss mentality is not to promise high returns for a business idea based on an immature new technology. The European way is rather to start with the own money, to try to find customers, and to grow with the earnings. The Americans, as far as I can tell, follow the motto: “Shoot for the moon. Even if you miss, you will land among the stars”. This means: to go for the new big thing, write down a promising business plan, and raise money to realize it. Hunting for potentially high gains means, on the other hand, to take a higher risk. The United States have more of a high risk culture. However, if you fail, you also get a second chance. Europe is different in this respect”.
Mayer adds that because the financial means are lacking, the European entrepreneur will be more challenged to target the very big markets. Therefore he believes in an intermediate path which will not generate Google-like companies, but leaders in their niche. Thanks to the patient support from a business angel and then from its customers, Sensirion can be proud in 2010 of its 180 employees (the revenue numbers are not public as the start-ups is still privately held). I should however add that it took Sensirion six years before ti could fund its growth through its profits; its business angel was apparently critical to its success.
Is there a model that Europe may follow without just copying the Silicon Valley way? Yes, if we notice that very few companies could reach the size of Logitech or Actelion for example. Whatever the success of an Hubert Lorenz or a Felix Mayer, I cannot help expressing again the same thing I did in my book Start-Up. Why should not Europe ambition the same large success the USA experience in addition to our mid-size stories. Don’t you think the Americans do not have companies similar to Mimotec and Sensirion, in addition to Google or Apple? Criticizing venture capital might be an easy way and I prefer quoting an American entrepreneur on investors: “You can’t live with them, you can’t live without them” And let us not forget that Google has today about 20’000 employees and it was founded in… 1998. There is no doubt that our culture and financial support is not made to produce our own Google but I seriously believe that we should not be afraid of having large ambitions instead of criticizing an American model which also has great assets.
In full text, it is again
– Do parents know about educating a baby? so why do we say to founders to gain experience first?
– Do parents control everything it does, forever? so why founders are so paranoid about losing control?
– Would they give/abandon responsibility to teachers, doctors, “professionals”? so should not founders just hire the best people to increase chance of success?
A start-up is a baby which needs to grow and its founders should help it succeed (and yes your start-up baby is the most beautiful on earth… )
Finally, I usually add, maybe because I am a bit traditional, that I strongly believe single-parent families/companies are tougher for the kid so find a partner, never found a start-up alone.
What’s interesting with Wilson, is that he helps me enrich the analogy with parenting, so he sees the investor, not the founder as a parent. For me, the investor is a mentor, a godfather… so here are a few comments related to the analogy in his post:
– “I am committing to the care and feeding of the company until cash flow breakeven (the startup equivalent of adulthood)” (Wilson himself)
– “I worry like a parent with too many kids. Who is going to take care of all of these kids?” (Wilson again)
– “Parenting is a good way to put it. Unsure about the “pulling the plug” comparison though, doesn’t go very well with parenting!” (Loic Lemeur)
– “The super-angels and the angels, don’t try to play “parent”. They play friend. It’s a mutual benefit relationship, but the ultimate control is to the entrepreneur. Usually the friends and family who are excited about your seed round (when you leave their company), are not thinking about follow-on.” (Prasanna Sankaranarayanan)
-“do you think the “orphaned startups” will suffer because their “parent investors” remove themselves” (Adam Wexler)
-“an environment not unlike pre- or emerging-industrial third world nations. High infant mortality, the necessity of conserving scarce resources for those infants with provable indications that they CAN survive the initial impediments. It doesn’t mean that the parents love or value the survivors more, but rather that as a practical matter there are few options. […] if a ‘gifted child’ is to be sustained through the vagaries of infancy, then it’s important for both the company and the investor(s) to consider this up front. […] When, at the outset, it becomes clear that substantial investment in capital equipment, research and development, or extended operation at a loss is required if a ‘gifted child’ is to be sustained through the vagaries of infancy, then it’s important for both the company and the investor(s) to consider this up front. ” (Rich Miller)
– “We make fun of parents today who enroll their kids in the right kindegarden so they can get into Princeton, Yale, Harvard, but perhaps they aren’t so wrong if we applied that logic to startups….what do you need to do as an early stage company to ‘get into the right school’ when you come of age?” (Dave Hendricks)
– “But that’s not good parenting… if you want your child/portfolio company to succeed long term, you’ve got to consider where the road will take you, because the easy road/early exit isn’t a lock and is usually a lot harder than you think” (Reece Pacheco)
– “History: birthrate without control produces malnourished kids.” (Agilandam)
– “Short answer: A lower % of these “kids” will make it to their 3rd birthday.” (Andy Swan)
– “I thought you were going to make a separate point, that there aren’t enough acquirers — Google is active, Microsoft, Yahoo and others much less so — to adopt all the kids who don’t go public.” (Glen Kelman)
– “If programs like Y Combinator are getting our smartest kids to start companies instead of going to law school, McKinsey etc then that’s going to lead to good things for our industry and our economy.” (Chris Dixon)
– “Also… you say that entrepreneurs should find a one or 2 VCs and have a long term relationship with them. Isn’t this true for VCs too? Doesn’t it make sense to have the same investors lead the company from birth to adulthood and not one VC for the “toddler” period, one of the “child”, one of for the teen? If we take that analogy a little bit further, we know that foster kids who are taken from foster family to foster family usually don’t end up as “well” as the ones who get the same frame all along?” (Julien)
My sixth article in the newsletter Créateurs about high-tech success stories: Swissquote. I am leaving Silicon Valley after purely American stories with Adobe & Genentech, then followed by Europeans in SV (Synopsys, VMware) to talk about a pure Swiss success!
Mark Bürki and Paulo Buzzi are the two founders of one of the nicest Swiss (not to say European) success stories: Swissquote. No link to Silicon Valley, no venture capital, an exception to what I am used to promote. “Just a” local online bank launched in 1997 as a spin-off of a software service company, Marvel, which was founded in 1990. Bürki and Buzzi did not launch their start-up in a Garage like HP, Apple or Google; worse, it was in a cellar! The beginnings were not easy, salaries were not always guaranteed…
The USA played a role however. At a conference in Boston, the two founders discovered a new promising platform: the Internet. Sitting at a tiny booth, the founder of an unknown start-up, Amazon. Later, a contract with the IOC, the International Olympic Commitee, for the design of their web site, gave the much needed cash to Marvel. Marvel had also specialized in financial applications and Bürki could see the potential of the Internet for the consumer of stock and financial news.
With a Zurich-based bank as a financial partner, Marvel launched Swissquote in 1997. The beginnings were very encouraging and at that time, most investment banks were competing for the fast-growing start-ups to be quoted on stock exchanges. Swissquote went public in 2001 with less than CHF20M in sales and a huge loss. The future would not be as nice as the pre-IPO boom and the burst of the Internet bubble threatened the mere existence of the company. But Bürki and Buzzi were not part of the mass of entrepreneurs who disappeared as fast as shooting stars. Decisions were tough, many employees were fired but Swissquote survived. In 2009, its sales were about CHF100M with a net profit of CHF35M, and its market capitalization was nearly CHF600M.
In August, and then in November 2006, I had invited the two founders to share their entrepreneurial experience on the EPFL campus. They had explained the importance of a vibrating ecosystem, as they had enjoyed it in Lausanne during their studies, years before. “When we were students in computer science”, Bürki noticed, “the sixty or so students in the department belonged to about twenty different nationalities”, a diversity that can be found in the best technology clusters. Without any business training, they learnt how to manage a company with two hundred people. The two founders are convinced that you learn these things by doing. Two founders. Another important topic. Your co-founder can challenge you with the right questions that a lonely founder may not solve easily.
Bürki also mentioned the vital role of the dream by quoting, in a rather surprising manner, Che Guevara: “Be Realistic, Ask for the Impossible.” As a reminder of their beautiful years at EPFL and also as a sign of their success, Marc Bürki and Paolo Buzzi took in 2008 a typically American decision by creating an endowed chair in quantitative finance.
