Founder CEOs are both change agents and drivers of innovation. Now, more than ever, it is imperative that purpose-driven venture capital recognizes and unleashes their potential, says Sree Kant, Founder and CEO of BAKX Therapeutics.
Researchers at Purdue University have shown that founder CEOs—who are deeply familiar with their company and the markets they operate in—are more innovative than their competitors and create more value than firms run by professional CEOs.
Founder CEOs, Purdue’s researchers revealed, drive a 31% increase in the citation-weighted patent count, and they are more likely to take their firms in a new, innovative technological direction.
Management consultants Bain & Company suggest founder CEOs deliver sustainable growth for their companies by imbuing them with a sharp sense of purpose, an obsession with details and culture, and by their own willingness to take on responsibility for risk and costs. And these traits pay off. Founder CEO-run companies are up to five times more likely than their competitors to be top quartile performers.
Nowhere is it clearer than in the biotech industry that founder CEOs are both drivers of innovation and value creators. But entrepreneurship—and early success—in biotech are convoluted.
Most private biotech companies raising monster B and C rounds today, or those that have gone public in the last few years, are not founded by entrepreneurs, but instead by venture capitalists or professional biotech-building shops.
There are a number of reasons why: the astronomical costs of developing new treatments, the opportunity cost for late-stage career founders thinking of entering biotech, and the dependency of future fundraising on the involvement of big-name venture capitalists and syndicates, whose early investment is perceived as a source of validation.
These obstacles mean the industry, investors, and the public at large could miss out on the ideas and innovations of those best positioned to push science forward.
Less diversity of talent, ideas, and innovation—fundamental for bringing a drug to patients—is a result of the prevailing status quo in biotech investment.
Making a drug that changes lives requires a focus beyond the next round of financing or an IPO. Without a founder CEO laser-focused on this larger goal, an emphasis on different metrics—valuations and fundraising, rather than great science—could limit true innovation, and hence long-term value creation.
Scientific founders and entrepreneurs want to build and run companies. But given the inherently messy nature of early-stage drug discovery, small seed funds or funding tranched by milestones restrict a founder’s ability to drive real innovation. If they are given access to resources which acknowledge their vision and potential of the science, the biotech field will become more innovative and deliver more life-changing drugs and treatments to market.
Pharmaceutical companies, who have a longer-term incentive to make drugs, are excellently positioned to lead here. By partnering with founder entrepreneurs through innovatively structured early-stage deals, pharma can lead a move toward outcomes-based investment in biotech led by true innovators and disruptors.
Venture capital, too, has a role to play. Enterprising and purpose-driven VC activity, which focuses on partnering with founder CEOs, can drive positive long-term therapeutic outcomes—and potentially deliver even better return on investment than that of companies run by professional VC shops.
This emphasis on innovators and entrepreneurs can be supported by industry organization leadership and visionary biotech and science journalists, both of whom are uniquely positioned to leverage their positions of influence to shine a light on the science that matters—not just the companies who are raising the most in funding rounds.
Ultimately, while painful, downturns like the one we’re experiencing now can create the conditions for change. Bear markets force a focus on good science and good ideas. They can also drive a rethink of the formulaic “2 years to IPO from start” company building approach to biotech that has dominated in recent years.
Fewer companies may survive. But those that do will be based on innovative science, a unique value proposition, and committed teams of entrepreneurs who care as much about the long-term impact of the companies and generating lasting value as they do about the near term.
Sree Kant is Founder and CEO of BAKX Therapeutics.