We are in the dot-com era for biotech.
Introduction:
For the last 25+ years, we have been living through one of the greatest technological revolutions ever, the Information Age. From Web 1.0 to Web 2.0 to Mobile to Web 3.0, the best startup founders and investors have ridden these waves to impact billions of people and make billions of dollars.
We are now in Biotech 1.0. Molecular biology went mainstream in 2020 with COVID virus sequencing and vaccine development done in days and treatments distributed globally in months. 10+ years ago, software was eating the world. Now biology is eating the world.
What’s next? We are now in the first frenzy of the next scientific revolution. We should remember the lessons of the internet booms and busts and use this knowledge to launch and invest in the best startups of the biotech era.
Remembering Web 1.0:
The internet was not invented in 1994.
Depending on who you ask, the internet was invented in 1969 (when Bob Taylor established ARPANET), 1983 (when Robert Kahn and Vint Cerf launched TCP/IP), or 1989 (when Tim Berners-Lee invented the World Wide Web).
But April 4, 1994 was the Big Bang moment for the internet. That’s the day Marc Andreessen and James Clark founded Netscape, the first mainstream graphical web browser. 16 months later, Netscape went public, starting the dot-com era.
Timing Is Everything:
Timing is crucial to startup success, both for founders and investors. Amazon.com was founded by Jeff Bezos on July 5, 1994. It could not have been as successful if it launched even 1 year earlier. If Amazon was created 10+ years earlier, it would have failed completely.
The best time to invest in a new technological revolution is not at the beginning of the era, it is right after the Big Bang.
As Carlota Perez explains in her book Technological Revolutions and Financial Capital, all great technological revolutions have two key periods – an installation phase and a deployment phase:
The US is already deep into the maturity period of its internet revolution. Even India, which largely came online through smartphones, is now over 50% online. It’s time to find the Next Great Surge.
The Next Great Surge:
The next revolution has been in its installation phase since at least 1990, with the creation of the Human Genome Project. That NIH-funded project cost $2.7B and was completed in 2003. By 2015, the 1000 Genomes Project was complete, and sequencing costs were approaching $1,000 per genome.
Entering Biotech 1.0:
In 2020, we had the first Big Bang moment in biotech. On January 9, 2020, Chinese health authorities announced the discovery of a novel coronavirus, 2019-nCoV. Two days later, the full sequence of the coronavirus genome was published online. Just two days after that, on January 13, 2020, the design of the Moderna COVID vaccine was complete. Now over 12 billion vaccine doses have been administered worldwide. The COVID vaccine was the first mainstream global application of biotechnology.
The technological and regulatory breakthroughs of mRNA vaccines opened a path to treat many more conditions, including cancers. BioNTech, which developed the mRNA vaccine distributed by Pfizer, now has eight different cancer vaccines in clinical trials. As the costs of genome sequencing and cell programming continue to fall at rates faster than Moore’s Law, the benefits of new biotech products, platforms, and technologies will go from frenzy to maturity in the next 25 years.
Biology is now programmable. We know now the genetic code well enough to not just read it, but also to execute new applications. This ability was unlocked by the technological revolution – now new biotech startups can easily spin up AWS instances and use multi-omics to simulate, down to a single cell, how their new therapeutics will affect different people. It took us 30+ years to learn the code and 50+ years to get the computing power to do what we can now.
Timing The Frenzies:
So what should we expect next in biotech? In Carlota Perez’s framework, we’re in the first frenzy period of this revolution, with intensive investment in biotech:
“This financial frenzy is a powerful force in propagating the technological revolution, in particular its infrastructure, and enhancing – even exaggerating – the superiority of the new products, industries and generic technologies.” — Carlota Perez, Technological Revolutions and Financial Capital
This is only the first frenzy in biotech. I call this 1994 in biotech because, like in web 1.0, we now have globally scalable, highly-centralized applications. To get to Biotech 2.0, we need to democratize access to these technologies. This will require new platforms available to the masses, with costs approaching zero for programming new applications.
Riding the Waves:
Each successive wave of technology builds on past generations and gets bigger. The PC wave started in 1984 when Apple launched Macintosh. The internet was built on the PC wave. Then smartphones put the two together and the mobile revolution will end up 5X+ bigger than PC ever was.
Why are many of the best companies built in recessions? It’s implied that being born in lean times makes these companies stronger, but a core reason these startups succeed is because they’re timed right for the next frenzy. Airbnb was founded in August 2008 and Uber was founded in March 2009, which perfectly positioned them to thrive in the smartphone frenzy.
Who Won The Web?
PC incumbents still hold the top two spots in tech. In 1995, Microsoft passed IBM as the #1 tech company by market cap. They kept that position until 2010, when Apple surpassed them. Now the top four tech market leaders are Apple (founded 1976), Microsoft (founded 1975), Google (founded 1998), and Amazon (founded 1994).
Kleiner Perkins was at the forefront of both the tech and biotech revolutions, investing the first $100K into Genentech in 1976 (for 29% ownership) and the first $5M into Netscape in 1994 (for 25% ownership). They also invested $8M for 13% of Amazon in 1995 and $12M for 12% in Google in 1999 when each company was one year old.
Who Will Win Biotech?
Who will be the biggest science companies of the coming decades? Just like with the internet, we should expect the future leaders of the biotech industry to be a mix of incumbents and startups.
Platforms have $1T+ potential; applications have $1B+ potential. The Apple, Microsoft, and Google of science will build the platforms that give millions of people access to genetic and cell programming. This will unlock the tools to create thousands of new applications from medicine to manufacturing.
DNA : Cells :: Software :: Hardware. Right now, we’re writing code to run in existing human cells. The mRNA COVID vaccine is a perfect example – that mRNA molecule contains the code that human cells can use to create a spike protein that triggers the body’s immune response to protect against specific strains of coronavirus.
Biotech companies will create novel super-cells with boundless applications. As Alan Kay said, “People who are really serious about software should make their own hardware.” The best biotech companies, like Apple, will excel at the entire multi-omic stack. Synthetic biology startups Ginkgo Bioworks (YC S14, NASDAQ: DNA) and Solugen (YC W17) are now programming cells to produce anything from food and medicines to petrochemical alternatives.
Who will be the leading seed investors of this biotech revolution? Accelerators like Y Combinator and IndieBio fund $500K investments in seed-stage biotech companies, but we still need micro VC for science, starting with pre-seed investments of $50K-250K for idea-stage research.
What’s Next for Science?
- We are early in the Y Combinator era for biotech. YC is now focused on biotech. Will VCs follow? We need more investors willing to back scientific founders at the idea stage. Biotech companies need to fundraise like YC startups.
- Scientists should run their own companies. The next generation of biotech startups will operate more like software companies. More angels and VCs need to invest in “young hacker” founders. I call this idea Scientist CEOs.
- Biotech startups need to return to the Genentech playbook. PhRMA loves to promote that it takes their companies 10+ years and $1B+ to bring a new medicine to market. But Genentech famously started with a $100K investment in 1976 and had synthesized human insulin by 1978. The next Genentech will be founded this way.
- What platforms will spark the Biotech 2.0 frenzy? If 1.0 is One-To-Many, 2.0 is Many-To-Many. Who will create the platforms that give the power of creation to millions or even billions of people? More than two-thirds of biotech VC funding from 2019-2021 went to startups with platform technologies. This will unlock the second biotech boom era.
This is Part 1 in a series of essays comparing the new biotech revolution to the current tech revolution.
- Part 2 is titled “YC for Biotech”, on bringing the original Y Combinator model to biotech.
- Part 3 is titled “Scientist CEOs”, arguing why scientists should run their own companies.
- Part 4 is titled “Biotech 2.0”, on how to build and fund the future of biotech.
- Part 5 will be titled “The Next Genentech”, on the search for the next great biotech company.
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