By Roberta Alexander
On October 13, 2016, SDEE discussion was about beer, instead of drug discovery and biotechnology. The event was held at the Roth Auditorium at The Sanford Institute for Regenerative Medicine and attendees could sample several beers on the patio, looking at the beautiful view of the sunset on the ocean. Although the topic of the discussion seems unfitting with SDEE’s scope, there are several reasons why the event was focused on beer: 1. Craft beer in San Diego is made by entrepreneurs who face challenges similar to those faced by scientists in start-up biotech companies; 2. SDEE holds monthly happy hours at a local brewery, so there is definitely a connection!
Panelists at the event, which was moderated by Randy Schreckhise, were Eric O’Connor from Thorn Street Brewery, Matt Del Vecchio of Duckfoot Brewing Company, and Simon Lacey of New English Brewing, where SDEE members and friends meet for happy hours.
Where did the idea of starting a brewery come from?
Duckfoot Brewing Company was founded about 15 months ago but started, as an idea, years earlier, when Matt and his wife spent many weekends driving from New York City to Vermont to escape the stress of their lives in the city. Matt was a financial advisor not happy with his job and his hectic life in NYC. Although craft brewing was not very popular at the time, beer and snowboarding were passions that he wanted to pursue as career. While in the process of writing a business plan for a brewery catering to the snowboarding community, he was diagnosed with celiac disease, and his life became quite dark. The depression lifted when he discovered a brewery in Oregon that was making a couple of gluten-free beers using an enzyme to break down gluten. Thus, Duckfoot Brewing Company was born with the goal of making lots of different wonderful gluten-free beers, not only for snowboarders, but also for the celiac and gluten-free communities. Matt’s passion for snowboarding was the inspiration for the name of the brewery, as duck is a popular snowboarding stance. Although still very young, Duckfoot Brewing Company has a tasting room and self distributes its beer up to Los Angeles.
Simon Lacey’s story is not too different from Matt’s in the sense that he, too, was tired of his career and wanted to pursue his passion. Simon was a mechanical engineer who moved to San Diego in 1995 to work for Nokia. After a couple of lay-offs, he went to a beer convention in town in 2004 and fell in love with the business of brewing. He learned the ropes via internships and small jobs, and opened New English in 2007. He is British, so that is where the name of his brewery originates. Simon did not write a business plan, but knew he wanted to produce beer by local people, with local products, and for the local community. To keep the costs down during the recession of 2008, he ran the business by himself in the Old Mission Brewery using shared equipment, and in 2011 he finally moved to his current location in Sorrento Valley. Ten years and 3 full time employees later, he is currently working on a business plan. New English Brewery has 1 distributor and plans to expand distribution to Orange and L.A. Counties. Now that grocery stores understand that customers want craft beer, Simon plans to get some coveted shelf space in grocery stores. Canada and Scandinavia are on the horizon, too.
Eric’s story also fuses science with beer. He was the director of the flow cytometry core facility at the Sanford Institute for Regenerative Medicine until recently. Before that, he headed a flow cytometry core facility in the UK. This is where he rediscovered beers from England, Belgium, Germany, and the Czech Republic, where craft beer is actually called beer! Back in San Diego, he realized that the beer industry had flourished, and craft beer and food and beer pairings were now the norm. He became a home brewer and, eventually, bought a brewing license with some friends. Local bars and restaurant liked his beer, but he and his partners decided to raise some capital and expand beyond their cool place in North Park. They are building a facility in Barrio Logan and, although there have been some challenges, things are moving along nicely.
The Great American Beer Festival in Denver, CO is widely considered to be the Super Bowl of beer, with over 7,000 beers competing for 280 medals. Winning a medal is quite an achievement, and San Diego brought home 18 of them in 2016. Duck Foot Brewery won a silver medal with its Contender IPA with Fresh Chilis, and New English’s Zumbar Chocolate Coffee Imperial Stout, which uses coffee beans from the local coffee shop Zumbar, won a bronze. Eric did not win anything this year at the GABF, but his success in other competitions speak for the quality of his product.
Dark days in the brewery business
Brewing beer is not always fun. Frictions with business partners can happen in breweries like in any other start up. People put their savings in the business, money can be tight, and disagreements can ensue. Nonetheless, working through the differences and looking at the big picture can help create a great culture.
Non-human related problems can happen, too. Lactobacillus infection can be devastating for a barrel aged imperial stout and, if it happens, one just needs to throw away the whole batch, with big losses. In the long run, it is better to throw away one batch than to ruin one’s reputation by bottling a subpar product.
Investors may be necessary in a brewery like in any other business. Equipment and facilities are expensive, so brewers need capital if they want to expand. Sometimes investors are just friends and family, and sometimes one can meet them via networking. In other cases, investors come to you. One advantage of having a tasting room is that people, including investors, get to know you, your product, and your business, and may want to invest in it.
It may be challenging to create interesting content for the various social media outlets, and it can be a lot of work for a small business, but nowadays having a social media presence is a must. Eric used social media to advertise some funny beer competitions for cash prizes. These competitions may not have been a great return on investment for the brewery, but they created a lot of traffic and people had a lot of fun!
This article was originally published by Roberta Alexander on LinkedIn.
by Amy Duncan, Goldfish Consulting, Inc.
San Diego Startup week is an innovative weeklong conference that seeks to build an ecosystem of entrepreneurship in San Diego, provide resources for entrepreneurs, and amass a network of like-minded individuals to discuss common issues and share experiences. This year’s conference included a Bio/MedTech track with 15 events. I attended five of the Bio/MedTech sessions, held at the Sanford Consortium for Regenerative Medicine in La Jolla. Three of the sessions reverberated themes that included teams, partnerships, and licensing that I’ll cover in this blog.
Speakers and Panelists
Participants in “Starting a Biotech Company - JUST DO IT!!” included founders/CEOs Julio de Unamuno from LabFellows, Thomas Hitchcock from Xycrobe Therapeutics, Inc., Paul Laikind from ViaCyte, Zachary Zimmerman from Forge Therapeutics, Inc., Curt Becker from Molecular Assemblies, and Tim Mullen from Qusp Labs. Participants in “Licensing IP from UCSD and other Research Institutions” included Scott Forrest from BlackThorn Therapeutics, Paul Roben from UCSD, and Zachary Zimmerman. Participants in “Biotech Partnerships and Joint Ventures” included Greg Mckee from CONNECT, Jay Lichter from Avalon Ventures, Damien McDevitt from GSK, and Elizabeth Schwarzbach from Sanford Burnham Prebys Medical Discovery Institute. Participants in “What Biotech Investors Look For When Funding Startups” included Julio de Unamuno, Kara Bartone from JLABS, Stephen Connelly from BioMed Ventures, and Ron Shigeta from Indie.bio.
Building your Team
When de Unamuno asked whether the panelists preferred having loyal or independent team members, the founders unanimously agreed that loyalty and trust are fundamental. The panelists advised working your network to get recommendations for first hires, and that while having a rock star team member was clearly beneficial, they are difficult to lure. Founding team members are either senior level and in a financially secure position to take a pay cut and try something new, or desperately in need of a job. Once you build the lab and foundational data, you can leverage these assets to attract higher quality employees and prune those that don’t fit. The panelists underscored the value of people first, referencing the adage, “It’s about the jockey, not the horse.”
Bartone said one reason startups fail is when founders try to start a company part time, in off hours, or with no full-time employees. She said it’s hard to move a company forward this way. It was echoed throughout the track that few professors make it as a CEO straight out of the lab, and are typically unsuccessful at trying to be CEO and do the science at the same time. Panelists advise professors starting companies to find a business partner and maybe a post doc to run the science. Shigeta says his accelerator, Indie.bio, won’t invest in sole founders, citing that an entrepreneur needs to be able to talk at least one other person into joining them.
Being Coachable and the Ability to Pivot
In the early days of your startup, Shigeta says it’s common that no one knows anything about you, you have no track record, and you are your only asset. Investors look for “coachable” bright people who can take advice and step away from the science and be product focused. Shigeta encourages entrepreneurs to share their vulnerabilities and be open. Connelly underscored the importance for entrepreneurs to understand their technology as a product, where it fits, how it addresses an unmet need, and how it will move the needle. Bartone added that cheaper, me too, or slightly better won’t cut it. Shigeta said the product has to be spectacular. That being said, the final product probably won’t end up how it was initially envisioned. Being able to recognize when things aren’t going right and being able to pivot is critically important. All the panelists agreed that companies typically end up pivoting and pursuing different directions, further supporting the notion that you need a good, solid team to persevere.
Partnering with VCs and Biotechs
Typical VC firms are small with about four or five people. Getting time with a decision maker is hard to do. Lichter advises finding someone in the VC’s network and convince them to make the introduction. When you see a VC at a networking event, even if you’ve met before, Shigeta says the VC likely won’t remember who you are. Always be clear on who you are and be ready to deliver your quick pitch again.
The best way to establish a biotech partnership, according to McDevitt, is to talk to the people in business development at the company. Forrest and Bartone both raised the notion that you need to do your research on what areas and types of companies VCs and biotechs are interested in partnering with and investing in. For biotechs, they advised that you do your homework to understand their therapeutic focus areas and make sure your technology applies. Reinforce how your technology plays in their picture; indicate if it’s a new direction for them, a supplement or add on to an existing area, or how it grows one of their current franchises. Position your company on the role it will play for them, and how it will contribute to their growth, so they can pitch it internally. For VCs, know how much they are looking to fund. Know how much funding you need, based on the size of your team and phase of development.
Connelly says missing a good deal is what keeps VCs up at night. They don’t have a lot of time, so prepare a one-pager that describes your mission, the problem you are addressing, your proposed solution, how it’s different, how you plan to create value, the market size and non-obvious opportunities, and brief bios on the management team. Potential partners can look at the data later if they are interested. If there is interest, you’ll likely get invited to a follow on meeting covered by a non-disclosure agreement (NDA), but don’t feel pressured to reveal proprietary data. Even the VCs don’t want to open themselves up to liability.
If the investment community says “no” Connelly advises to be sure to understand why. Understand how each VC operates and what the motivations are. From a venture fund perspective, it’s all in the timing on how much money they raised and where they are in deploying the funding. If they just raised $100 million, they may want to fund an earlier/risky stage. If they’ve already deployed it and have some left over, they may not want to come in early and stay in the game long term. They may not have the money or buy in from their partners at that time. You may have to come back when the timing and funding is better, or when you have more data. But don’t stalk.
When it comes to universities and research institutions out-licensing technology Forrest and Roben said their strategy was to ensure their technology can succeed. Institutions wanting to safeguard their technology is the focus of the licensors’ program, not a small part that can be shelved or thrown away. They want to license to the partner “who’s going to love their baby the most.” The universities and research institutions are looking to partner with a team that has a plan, commitment and passion, and can execute. Forrest says it takes about 30 seconds to determine if the person is serious, experienced, and has a plan to take the IP forward.
Zimmerman noted that startups interested in licensing a technology typically want to test it out and see if it has legs, but can’t pay a lot of money for it, and investors aren’t interested in giving 5% to the university. To address this conundrum, he drafted up a letter of intent to obtain exclusive access to the university’s technology for 12 months. Zimmerman used the letter of intent as a tool to raise the seed round, which ultimately was used to pay the license fee, without giving away part of the company.
Finally, identifying the IP you want to license is not an exercise in simply reviewing a catalog of what’s available. Forrest said entrepreneurs need to either already know the professor behind the patent or be familiar with the area and understand its impact.
Words of Wisdom
Lichter said to plan for things not to go right, and that 95% of things we start will fail in this industry. Shigeta says that while you most likely will lose all of the investment, lose it responsibly and not painfully. Hitchcock said there will be anxiety starting a company, there’s no other way around it. The best way to diffuse stress, Mullen advised, is through talking about issues with the team. Laikind suggested that if an entrepreneur needs a support group, maybe that entrepreneur is not up for the task. Fortunately, there are conferences like San Diego Startup Week, organizations (SDEE, CONNECT and Biocom) and incubators/accelerators (JLABs, Indie.bio and Lichter’s COI Pharmaceuticals) to help entrepreneurs network, meet advisors, and establish a network of support to tap into along the way.