Fight Aging!

There are a number of young startup biotechnology companies presently working on the basis for rejuvenation therapies. Many of the interesting ones are focused on senescent cell clearance, the class of therapy that is arguably closest to the clinic. Some of those, like Oisin Biotechnologies, are supported by our community: seed funding from non-profits like the Methuselah Foundation and SENS Research Foundation, and angel funding from some of the same folk as put up matching funds for the yearly SENS rejuvenation research fundraisers. Typically, however, after the initial declaration of intent these companies go silent. Unless you're an insider, the next thing you'll hear will be some way down the line, a declaration of either success or failure following the initial few years of research and development. Why is this the case? Don't companies want greater public exposure? If you've ever been involved in a small startup, the silence won't be all that surprising. But since most of us haven't, it might seem a little inexplicable. What is going on here?

There are two reasons as to why this silence is the usual state of affairs for the first few years of most startup companies. The first reason is that talking to the outside world is a low priority task for most classes of company in their earliest stages. The big risk is not that no-one will know that you're striving to prove a thesis in business or research, but rather that you'll simply fail, or fail to achieve the goal within the runway provided by current funding. Unless publicity is a prerequisite to avoid near-future failure, and for most companies it isn't, then it will tend to drop off the bottom of the to-do list. That work vanishes along with every other non-essential task, and usually quite a few tasks that would be considered essential in a more sedate environment. The typical state of action in any early stage startup is that there is far too much to accomplish, too few people to accomplish it with, and the clock is ticking loudly on the way to seemingly impossible deadlines. This is just the way of things. No matter how carefully you scope the work at the outset, it always multiplies. Successful teams narrow the focus considerably and quickly jettison nonessential work. For biotechnology companies, "nonessential" covers pretty much everything except the actual labwork and the financial and legal work needed to run a company and raise funding.

The second and more important reason for silence relates to the government regulation of fundraising. If you've ever worked inside an early stage startup, then you'll have noticed that when raising capital, half of the founders and executives essentially vanish for months. Raising venture funding is a full time job, one added to the other full time job of actually running the startup. It is the regulatory rules, and not the workload, that keeps the company quiet, however. In the US, the Securities and Exchange Commission (SEC) rules regarding venture investment are baroque, and there is a layer of convention and precedent atop the regulation as written that guides companies to only a few of the many possible options for organizing the process, but the bottom line is that selling part of an early stage company to investors via an open, public solicitation is very hard to achieve in a cost-effective manner. The disadvantages in terms of time, risk, and transaction costs far outweigh any possible advantage. Thus founders opt for private fundraising efforts, working through their personal connections to reach potential investors.

It isn't hard to see the regulatory capture at work in this situation; the existing regulations on public versus private fundraising are a large part of why the venture community exists in its present highly networked and nepotistic form. Unfortunately, any sort of public disclosure of progress during the fundraising process might be considered solicitation by the SEC, resulting in possible censure or legal action against a company and its founders - and so companies go quiet when fundraising. This is starting to change a little with the new crowdfunding rules introduced this year, but they bring their own significant disadvantages, not least of which being a lack of convention to guide expectations regarding what SEC bureaucrats will and will not consider actionable violations. The SEC is the epitome of selective, capricious enforcement of unclear rules, which is why convention and precedent have become so important, and why founders err on the side of caution when it comes to public communications.

The idealized view of a successful startup is that it kicks off with a little seed funding from the founders, using those resources to obtain evidence for the initial thesis in some way. Then on the basis of that evidence, assuming success, the next stage is to obtain further funding, raised in a friends and family round. That funding is used to improve the evidence to the point at which institutional investors would be willing to join in - and hopefully by that point, the evidence is something along the lines of revenue from actual customers, or a working prototype therapy proved in mice, or similar. Then the company opens what is known as a series A round, solicits professional investors, raises much more money than was obtained from founders, friends, and family, hires staff, slows the pace a little, and starts to look more like a regular company thereafter as it moves towards profitability. Following series A there is typically more public communication and a lengthy gap before any further funding rounds. This is the idealized view, however. In reality, there might be any number of discrete or opportunistic fundraising events prior to series A. Over this span of time, the company founders are typically making a range of new connections in their industry and in the venture and angel community, and any sort of recent publicity for the company would constrain the ability to turn those connections into funds that can be usefully applied to ensuring the company succeeds.

So, frustrating as it might be, public silence is the way of things for early stage companies for the foreseeable future.