Clearing the funding bottleneck for technology
Thank you everyone I met at the Globeostasis meeting in San Diego on 9-11 and thank you Chris Fantozzi for organizing it.
This conference was about the bottlenecks that slow down progress in science, technology and finance. In my statements, I added that “There are two ways to get through a bottleneck: push your way forward to squeeze through, OR smash the bottleneck itself.”
So the question Chris raised was “What can we do to smash the bottlenecks that slow down progress?” In the area of financing science and technology, I raised some intriguing solutions outside the box that I think got people thinking. Here’s the highlights:
First, here’s a capsule summary of some of the bottlenecks affecting early stage tech companies:
- Investors needs reduced risk ==> (thus) not enough private capital is available for early stage firms.
- Larger venture capital firms need to make large investments ==> it’s difficult to raise capital in the $500,000 to $5,000,000 range.
- Each new product needs a new company ==> Not enough capital is available for all the new companies.
- Large percentage of early stage companies fail + addiction of investors to homeruns ==> Investors demand for large exits ==> companies with smaller markets or slower growth don’t get funding.
- Not enough grant dollars are available for worthy science and technology projects ==> Most grant applications are denied ==> more equity capital is needed to replace paucity of grant funding.
- FDA demands that human trials be held in the U.S. + FDA micromanages human trials ==> growing cost of human trials.
- Investors demand patent protection (as a barrier to entry) + high cost and slow process to obtain a patent from the U.S. Patent and Trademark Office ==> investment capital is hard to get.
- Insufficent number of well-trained U.S. scientists, engineers and developers with permission to work in the U.S. + difficulty in obtaining H1B visa and green cards (green card quotas per nation) ==> slow product development and greater capital requirements.
I welcome your comments on any of these bottlenecks (examples and suggested solutions, and tell us about others you’re aware of.) Here are my thoughts on the last one, about which I have a particular passion.
The cap on H1B visas is currently just 65,000 plus 20,000 for those with advanced degrees. This is a ridiculously low level considering the need for technical professionals in the U.S. Here’s evidence, in the press release dated January 27, 2011 from the USCIS:
“WASHINGTON — U.S. Citizenship and Immigration Services (USCIS) announced today
that it has received a sufficient number of H-1B petitions to reach the statutory cap for fiscal year (FY) 2011. USCIS is notifying the public that yesterday, Jan. 26, 2011, is the final receipt date for new H-1B specialty occupation petitions requesting an employment start date in FY2011. …
To continue the press release:
“On Dec. 22, 2010, USCIS had also received more than 20,000 H-1B petitions filed
on behalf of persons exempt from the cap under the ‘advanced degree’ exemption.”
Note the fiscal year 2011 ends Sept. 30, 2011. In other words, all available H1B visas were taken within the first 4 months of the current fiscal year.
To make matters worse, green cards (a lifetime visa) are even more difficult to obtain as they are subject to nation-by-nation quotas.
Yet there are hundreds of thousands of technical jobs (scientists, engineers, computer programmers) going unfilled, and millions of unfilled jobs in all areas requiring technical and management skillsets. In fact we have in the U.S. alone 3 million job openings today in search of suitable candidates, according a to a new McKinsey study An Economy That Works: Job Creation and America’s Future.
“There’s a tremendous mismatch in the jobs market right now,” states James Manyika, one of the authors of the McKinsey study. “It runs across skill set, gender, class and geography.”
McKinsey finds almost two-thirds of business executives say they have difficulty filling certain positions. The most common reason cited is lack of specific qualifications or experience.
What’s the consequence of this difficulty in filling technical and management positions? Either you can’t fill the positions at all or you have to pay a great deal. This raises the amount of capital needed!
Yet the candidates for these jobs are at our front door.
In academic year 2009/2010 (last data I could find) there were 690,923 foreign students attending college or university in the U.S., with 51.6% from five countries (China, India, S. Korea, Taiwan and Japan. 57.2% of foreign students are enrolled in management or one of the hard sciences (physical science, life science, engineering, computer science or math) — i.e. a total of about 400,000 foreign science and management students. (Data from Insitute of International Education — www.iie.org) Yet after graduation, there are only 85,000 H1B visas available.
What if the cap on H1B visas were eliminated? Is this so politically difficult?
Think further along these lines. If 3,000,000 technical and management jobs were filled with foreigners this year, would this increase or reduce the U.S. unemployment rate. You might think it’s at worse neutral, but actually it would reduce unemployement. This is because 3,000,000 jobs at an average pay level of say $70,000 per year plus benefits generates an increase in payroll of $210 Billion per year PLUS all of the equipment, supplies and business services needed to support these new team members. Then using the classic economic multiplier, 5 to 10 other domestic jobs are created for each new job filled by a foreigner – remember they need housing, transportation, clothing, food, haircuts, you name it.
Imagine if a green card were stapled to every college diploma granted to a foreign student in management, science, math, computers or engineering? This “crazy” idea was floated to me personally by a regent of the University of California at a private dinner last year. How crazy can it be?
What would these two ideas do to the need for capital in technology companies? It would reduce the amount of capital needed and make completing product development faster.
Tags: bottlenecks, Chris Fantozzi, FDA, funding, Globeosgtasis, green card, H1B, McKinsey, USCIS, USPTO
2 Responses To Clearing the funding bottleneck for technology
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I would like to add a few thoughts to the above blog from Rob Kramarz who I met this past Sunday afternoon (Sep. 11th) at the Globeostasis Event in San Diego, CA.
As a neuroscientist and founder of an early-stage biotech company called Innovative NeuroTechnologies, Inc. (INT) here in Irvine, CA that is currently focused in the further development of novel therapeutic strategies (i.e., biopharmaceuticals, stem cells, etc.) for Alzheimer’s disease (AD) and other related human tauopathies, I have been thoroughly frustrated in the past few years with the tremendous lack of funding/financing opportunities for early-stage and preclinical biotech companies like INT from traditional institutional capital sources (e.g., VCs, angel groups, etc.).
Clearly, a “valley of death” has been created in this space where VCs and pharma/corporate partners have looked for later-stage opportunities, such as Phase IIa or IIb clinical trials and beyond, for potential investment, in-licensing, and co-development opportunities. The federal government (i.e., the NIH) and other prospective grant funding sources (e.g., foundations, etc.), unfortunately, have not been very promising either due to the very bureaucratic and time-consuming process involved with the NIH grant funding process and the insufficient amount of funding currently available from these sources (i.e., SBIR/STTR programs) to adequately promote the drug development efforts of early-stage biotech/biopharma companies that are engaged in complex and multi-factorial diseases like AD. Simply put, diseases like AD presently have a global incidence and are a tremendous unmet medical need, which require long-term and sustained funding sources to effectively introduce novel therapeutics into clinical trials.
Thus, one prospective solution for early-stage biotech companies seeking to gain access to possible funding sources to promote the further development of their products is to turn to corporate partners in Asia, particularly China and India, and even go as far as to outsource the entire preclinical and early-stage clinical development efforts entirely in these countries. For example, since the Chinese government does not for the most part invest into biotech/biopharma companies in the US, these companies are forced to establish satellite offices or subsidiary companies in China to gain access to potential local (i.e., provincial) as well as federal sources of funding to further develop (and perhaps manufacture) their early-stage assets (whether it be preclinical drug candidates, medical devices, or other related technologies).
Unfortunately, outsourcing the work to places like China and India does nothing to promote or stimulate the local US economy, especially in the life science sector, which is progressing very rapidly in the past several years in this region of the world and declining rather dramatically here in North America (i.e., US and Canada). I personally know of countless number of highly educated (i.e., PhD level), qualified, and experienced individuals from the biotech/pharma industry who I have met at various networking, partnering, and investor conferences across the US in the past few years that are currently desperate to obtain any prospective positions within US biotech/pharma companies (start-up as well as more established ones), including entry level positions that they are clearly well over qualified for!
As Rob as mentioned in his blog, we clearly need to remove these potential “bottlenecks” that are presently hindering the growth and development of early-stage biotech/biopharma companies here in the US, and help these companies “leap frog” past the ever looming “valley of death” and into clinical development. As with the case for INT, we are currently maintaining a “virtual biotech model” for the company and looking to use various highly qualified and reputable contract research organizations (CROs) and contract manufacturing organizations (CMOs) here in the US like BioAtla (www.bioatla.com) and AnaBios Corporation (www.anabios.com) in San Diego to accelerate at the least cost possible the further development of our preclinical candidates for AD in collaboration with our internal management team. In addition, since they are aware that early-stage financing is extremely rare in the present economic environment, certain CROs and CMOs are actually considering doing contract work for small biotech companies like INT in exchange for equity and cash, depending on their level interest in the development of the project.
I strongly feel that rapid acceleration and cost effective measures to further develop preclinical candidates/assets into clinical trials is critical for the survival and ultimate success of early-stage biotech companies in these very difficult economic times since they drastically reduce the very high level of risk often times associated with the preclinical and early-stage clinical drug development process, and in turn will attract early-stage angel (e.g., Tech Coast Angels, Life Science Angels, etc.) and private investors back into this space.
As I have often stated, the days of VCs ever investing into early-stage biotech companies like when they did with Amgen, Genentech, and Genzyme in the late-1970s and early-1980s are long gone and most likely will never come back. Thus, early-stage biotech entrepreneurs like myself must, as Rob has mentioned, “think outside of the box” and move away from traditional models for drug development to ensure the ultimate success of their respective ventures, especially for extremely costly, complex, and multi-factorial diseases like AD that have an undoubtedly global incidence!
I will try to add more of my thoughts on this and related topics on this blog concerning the current and future state of the biotech/life science industry at a later time.
Sincerely,
Shawn Mojtahedian, Ph.D.
Founder, Director & Chief Scientific Officer
Innovative NeuroTechnologies, Inc.
smojtahedian@innovneurotech.com
Thanks for your thorough comment Shawn. Another way to reduce risk for investors, increase capital efficiency, and have more fun running the company is documented in the previous blog post – a Product Definition Company. Once a strong management team is assembled along with an infrastructure for product development, place a number of technologies into your pipeline, manage product definition until they are attractive to larger firms, and license at the earliest opportunity.