Y Combinator is known for backing highly successful technology startups such as Airbnb and Dropbox. Now the incubator is looking for opportunities in biotechnology, an industry that was considered unfit for the model as recently as 2008. And with a new wave of bootstrapped biotech companies, we can expect to see riskier—and perhaps more fruitful—efforts at curing and preventing disease.
Startup incubators came about to address a shift in the software business: New companies now need money less than they need guidance. Server space and processing power can be had cheaply, so launching a startup is often as cheap as the cost of keeping its brainiacs fed and housed. ”At our end,” Y Combinator founder Paul Graham wrote in 2008, “Money is almost a negligible factor. The startup usually consists of just the founders…their living expenses are low. But at this early stage, companies need a lot of help. Practically every question is still unanswered.”
So Y Combinator entered the scene to offer aspiring entrepreneurs a bit of money—these days, $17,000 for a 7% share in a tech startup—and a lot of business savvy and support. Until now, that model hasn’t been applied in the world of biotech. ”You’ll notice we haven’t funded any biotech startups,” Graham wrote. “That’s still expensive.” The problem is the infrastructure required: labs and credible experiments are punishingly expensive to run; they can take years to yield results; and revenue streams are uncertain.
But now, current Y Combinator president Sam Altman contends, the time is finally right to launch new companies into the biotech sector, where new approaches and efficiencies are reducing the costs. One such efficiency is Science Exchange, an online marketplace for scientists to sell piecemeal lab work to researchers who don’t have the time or space to do experiments.
While Science Exchange, which benefited from Y Combinator funding, is software-based—so in that sense more of a tech company than a biotech company—Elizabeth Iorns, Science Exchange’s co-founder, sees more traditional biotech research as the next frontier. Iorns, who has a Ph.D focused on cancer research and teaches at the University of Miami School of Medicine, was hired recently as a part-time partner at Y Combinator, to serve as a life sciences expert for investments in biotech research.
Biotech companies really aren’t so different from software companies, Iorns said in an interview with Nature Magazine. She cited as an example the Immunity Project, a California-based crowd-funded company working to develop an HIV/AIDS vaccine. Just as Amazon Web Services allowed a switch from investing in physical infrastructure to cloud services, she said, it’s now possible for biotech companies to “access the entire technical infrastructure that’s required” with “basically no investment.” Indeed, Iorns’ own startup allows biotech companies to run experiments and access equipment without paying tens of thousands to build a new lab facility. And the California Institute for Quantitative Biosciences, she said, now rents lab access for $1,000 a month. She expects this platform to become increasingly common.
The latest round of Y Combinator startups, which they are still reviewing submissions for, will receive $120,000 each, instead of the $17,000 given in previous cycles. Altman hopes this will encourage startups that require more upfront investment than a software company, biotech or otherwise. This, Iorns pointed out to Nature, is around what a biotech company developing a medicine would receive with a Small Business Innovation Research grant from the US National Institutes of Health. She hopes Y Combinator will support companies working on novel treatments and vaccines, though some scientists criticize such efforts for operating outside of the typical research structure.
“If the traditional science community wants to say these things aren’t going to work,” Y Combinator president Sam Altman told Nature, “they can keep doing that. That’s what used to happen with software companies. The Immunity Project may fail, and the next 30 things we fund may fail—and the whole model is such that that’s OK. We can have 31 failures and one success, and the model still works great. That’s how we’re designed.”
But now, instead of that single success being the next Angry Birds, it could be a medical innovation that saves thousands of lives.