Life science founder and angel investor, Marc Cote, discusses his experience in investing, as well as developing startups. He has valuable thoughts for founders and investors.
Highlights:
Sal Daher Introduces Marc Cote
Marc Cote’s Founding Experience
“...That's when I joined Boston Harbor Angels, and that was back in 2012. Shortly after we co-founded Synchroneuron saying, ‘What better way to get an investor perspective, than actually sit with a bunch of investors and actually put some of your own funding at risk?’...”
How Synchroneuron Developed
The Placebo Effect Vs. the Drug Itself
Today’s Treatment for Tardive Dyskinesia
“...The model that you had of bringing in a professional CEO doesn't exist anymore. Right now, the market for biotech executives is so strong…”
The Challenge of Attracting Talent to Startups
Advice to the Audience
ANGEL INVEST BOSTON IS SPONSORED BY:
Transcript of “Founder & Angel”
Guest: Marc Cote
Sal Daher: I'm really proud to say that the Angel Invest Boston Podcast is sponsored by Purdue University Entrepreneurship and Peter Fasse, Patent Attorney at Fish & Richardson. Purdue is exceptional in its support of its faculty for its top five Engineering School in helping them get their technology from the lab out to the market, out to industry, out to the clinic.
Peter Fasse is also a great support to entrepreneurs. He is a Patent Attorney specializing in microfluidics and has been tremendously helpful. Some of the startups which I'm involved, including a startup came out of Purdue, Savran Technologies. I'm proud to have these two sponsors for my podcast.
Welcome to Angel Invest Boston conversations, Boston's most interesting angels and founders. Today we are really privileged to have with us, Marc Cote. Welcome, Marc.
Sal Daher Introduces Marc Cote
Marc Cote: Hey. Thanks very much, Sal. Glad to be here with you today as well.
Sal Daher: Marc is a founder. He's an Angel, former Corporate Executive, Founder of a life science company, and longtime Angel Investor at Boston Harbor Angels. Also is a coach to executives and life science companies, life science startups. That's his main activity right now. I thought I would have Marc on because he has seen defense from this side, from that side, from underneath, from above. He's been on all sides as an angel investor, as a founder.
He's raised money. He's been on the other side of having money raised from him. He's advised people who are raising money. He's been in a large corporate setting as well, so he understands that environment. He's a very thoughtful person, so I thought I would have him on because I think he has thoughts that would be valuable for angel investors and for founders. Anyway, Marc?
Marc Cote: Sal?
Sal Daher: Thanks again for making time.
Marc Cote: No. Absolutely. Glad to be here today. I have tremendous respect for what you've done and the support that you provide, not only to the angel, but the founder community as well.
Sal Daher: It's a side effect of this terrible curiosity that I have, to figure out, "What makes these people tick? Why do they do this?" I'm a very curious, a very busybody. Terrible busybody. This terrible vice has a happy offshoot, which is very frequently people say things that are really valuable.
This podcast has inspired quite a few founders to go out and found startups. I also understand it's also inspired quite a few angels to start investing. That makes me really happy, and I think it makes it all worthwhile. Since we're talking about founders and so forth, tell us about your founding experience with Synchroneuron.
Marc Cote’s Founding Experience
Marc Cote: Yes, absolutely. Maybe just to give a little perspective. Before founding a company, oftentimes you have founders on the West Coast, they might come right out of school or out of a particular program and start founding a company. I, actually, didn't found my first company until about 24 years into my corporate career. Having worked for some large corporations, some private equity-backed organizations, took the first four-way into business ownership back in 2010 with a couple of colleagues with a drug development consulting firm.
What that allowed us to do, I had more of a business, financial, operational, strategy background. My scientific partners were drug developers. We would help biotech companies who had an early stage technology bring that into IND, enabling studies, and into the clinic. Oftentimes, we would come across the invariable three men and a molecule, or a scientist who had a particular technology, but in many cases, they had never developed a drug, started a company, raised money for a company.
We had been developing drugs, running companies for a number of years, and so we happened to come across one very brilliant founder. He had some technology that we thought had some pretty good prospect with patients. We partnered with him and, actually, formed a company, formed Synchroneuron. He had actually been running the company as an LLC and had some angel investments, but not being a drug developer or somebody who was, actually, able to raise investor money or institutional money, hadn't really progressed it very far.
Sal Daher: Can you tell us a little bit about what the drug was and how it worked?
Marc Cote: Sure.
Sal Daher: What the breakthrough was?
Marc Cote: Yes. What was interesting is, it may not have been so much a breakthrough, but really a creative use of some existing technology in drugs. Our scientific founder and the original founder for Synchroneuron was a neurologist, psychiatrist, and mathematician. A remarkably brilliant man, Dr. Barry Fogel. He had been treating some patients that had been afflicted with indication called Tardive Dyskinesia. It's, actually, involuntary movement disorder. Unfortunately, it's a side effect for patients who maybe had bipolar or schizophrenic conditions who were taking other drugs. A side effect of some of those other antipsychotic medications was this involuntary movement disorder, almost like a very severe tic or Tourette's. In many cases, even though they might have stopped taking the underlying drug for their treatment, the residual effect or the side effects Tardive Dyskinesia would oftentimes continue on.
Barry had, actually, been treating a number of his patients with a drug that had been on the market, but had not been very successful, and actually had poor bioavailability. It means you had to give patients a lot of this drug in order to have any therapeutic effect, so much so that it started to create GI and other issues for these patients. The thing was, he had some very good anecdotal and, actually, video patient recordings of those who were on the existing drug getting better. Just taking three grams a day of an existing drug just was not practical or feasible, and created too many GI issues.
Sal Daher: Gastrointestinal issues. Yes. Stomach issues.
Marc Cote: Yes. Right. Gastrointestinal issues. That's right. Exactly. My scientific colleagues within our drug development consulting group had a lot of experience with formulating drugs or reformulating drugs. This wasn't your typical new novel technology that was going to have complete use in the intellectual property space, but it was more repurposing of an existing drug. We figured it would be a much shorter timeline to approval. Instead of a full NDA, it would be more of a 505(b)(2), which is a short route to approval.
Sal Daher: There was already a file in the FDA.
Marc Cote: That's right. Exactly.
Sal Daher: Basic profile of the drug and its side effects, and all that.
Marc Cote: Exactly. That was pretty well known, but what we knew that we needed to do was reformulate it so that patients wouldn't initially have to take as much drug in order to get the same therapeutic benefit. Actually, our team searched around for a while to come up with some technology, and ultimately we had a pretty good idea of what we could potentially use in order to reformulate it in an appropriate way.
Sal Daher: How is it that they were able to improve the bioavailability? We've had people on the podcast and have invested in companies that aren't working precisely in this, making drugs more bioavailable.
Marc Cote: That's right. Yes, so I'm not the science guy, so I'm not going to get into all the details.
Sal Daher: No. No. High level, just because it's successful.
“...That's when I joined Boston Harbor Angels, and that was back in 2012. Shortly after we co-founded Synchroneuron saying, ‘What better way to get an investor perspective, than actually sit with a bunch of investors and actually put some of your own funding at risk?’...”
Marc Cote: Absolutely. What we knew that we needed to do was, actually, to create an extended-release form of the existing drug. As opposed to the drug all getting into the system at the same time, putting it into a particular format, in this case, it was a capsule format that would, actually, break down in the gut over time. That way a patient wasn't getting a full-load dose upon the administration of the drug, but that it would leak out into the gut or into their system over a period of time, really that extended-release.
We found that that was very, very important because what it did, it reduced the GI issues that were associated with the full dosage of the predecessor drug, and also started to provide some of that therapeutic benefit as well. The thing is, we knew that if we were going to look to bring that any further, we were going to have to raise some significant institutional money.
We were actually going for about a seven or a seven-half million dollar series A, in order to not only do the formulation, but ultimately to plan out and enable the IND enabling studies, and then ultimately get to a Phase I clinical trial in healthy normals where we could actually make sure that the profile of our drug was still safe as well before we got to our Phase II. At the time none of the founders had actually raised any institutional money, and I hadn't either as a co-founder of that.
We didn't really have that investor perspective. I said, "Okay. Well, what do we do? How do we get that investor perspective before we start going out there and doing dog and pony shows and pitches to a bunch of different folks?" That's when I joined Boston Harbor Angels, and that was back in 2012. Shortly after we co-founded Synchroneuron saying, "What better way to get an investor perspective, than actually sit with a bunch of investors and actually put some of your own funding at risk?"
At the time I was focusing more on a lot on the life science deals and I, actually, got involved in a number of deals in that first year, and really saw, "How did the investors think? What were they asking the due diligence? What were some of the concerns? How were the founders answering some of those questions and thinking about those things?"
Sal Daher: This is really interesting. I guess, the pace of the development since the founder, since Dr. Fogel had been playing around with this for a while. I guess you had sufficient time to go out for a year and act as an angel investor for a year and get a little bit of gray hair on angel investing and understand how people looked at this and how they thought.
Marc Cote: Exactly.
Sal Daher: How did the funding come together?
Marc Cote: Yes, so after getting a little bit greater understanding in terms of how the investors think, we had lined up a number of meetings with institutional and venture investors really to put forward our proposition. One of the things that was really helpful for us is, Dr. Fogel had gotten permission from one of his patients to actually video the patient, taking even just the original drug at baseline or at start, and then several months later after taking the drug.
Now, we knew that this particular patient was having some GI issues, but she was willing to actually have the videotape shared to really help us as really the proof line of the effectiveness of the potential drug. We knew that we're going to have to reformulate it. Just doing the pitches by themselves and talking about what we expected, we got limited uptake. Once we were, actually, able to share a video, people could really see that there was a difference between baseline and on treatment, several weeks, several months later.
That was incredibly important for us. Unlike some investors who see hundreds of institutional investors, we are pretty fortunate. It was more a handful. Because we had some relationships with some investors out there, they also saw that we had real experience developing drugs. My scientific colleagues had been doing drug development, not only in pharma, but in a consulting capacity for probably a couple of decades, so we had proof of concept.
We had not only proof of concept, but we also had proof of our ability to develop drugs. Then I had about a 25 year financial background. We knew that bringing this team together, not only would we have some of the scientific in innovation, the drug development, but also the business and financial perspective where we could really run a company. That gave the investor some confidence that we are a team that they could bet on.
Sal Daher: This is very important to highlight because angel investors, they're not venture capitalists. Venture capitalists are extremely rational. They make a very rational calculation based on all sorts of data, cash flow, and all this stuff. If it matches the pattern that they're looking for, they have like a template that they're supposed to match, so their mandate. If it fits their mandate and it has all the right attributes, they have to invest, even if they don't like the people. [laughs]
Marc Cote: I'm not sure of that, but possibly.
Sal Daher: They have to, because if they don't, their competitor down the road will invest in the company and do really well, and they're left out. It's very arm's length, more or less. Around the edges, there's a little bit of emotion, whereas with angel investors, it is entirely about making a connection with the angels, a personal connection and the angels believing in you. Not that angels are irrational. Angels want to make money, but angels are making a judgment about the character of the founders first and foremost, and the potential, because there is not enough information to do a rational decision at that point.
Marc Cote: Right.
Sal Daher: It's an entirely subjective decision, which is a rational decision, but it is subjective. They're reading the ability of the players. They're looking at the space to see if it'll work and they're betting on the jockey.
Marc Cote: Absolutely.
Sal Daher: Tell the rest of the story. Ultimately, how did Synchroneuron end up?
How Synchroneuron Developed
Marc Cote: Well, interesting. You mentioned the jockey, so I just want to talk a little bit about the jockey. I mentioned that Dr. Fogel was the original scientific founder and he had an LLC that he had been developing this technology within. He had not been the CEO of a by Biotech Company previously. Brilliant man, but it was a concern of the venture capitalist of having Dr. Fogel, who is the CEO and really the head science person be the CEO of the company.
The VC approached and said, "We are interested in investing, but we may need to shift leadership if you really want us to be your backer. We, actually, did have to shift. Dr. Fogel was open enough to wanting his idea to move forward, and therefore turn over the CEO role to my former business partner, who was the CEO of the consulting company that we were running as well.
That's, I guess something that CEOs or founding CEOs and co-founders need to be aware of. Sometimes there may need to be a change. An outside investor may want a change in leadership or in the leadership role where that co-founder might need to take a Chief Technical or a Chief Scientific Officer role, or maybe an advisory role, as opposed to a leadership role in the management of the organization. That's what happened with us as well.
Sal Daher: Right. Well, this is area that's been well-studied. As a professor who used to be at the Harvard Business School, who studied this transition from technical founder to CEO, to professional CEO. The question was put in terms of, do you want to be king or do you want to be rich?
Marc Cote: Yes. That's right.
Sal Daher: You can be king of a very small hill or you can be very rich and have a small share in a huge, huge company that can be a big success. This is a dilemma for founders. Founders, if they want to see their vision, realized, they have to understand that at some point, it may be necessary to step aside. I know one founder that I would love to have on the podcast. I'm an investor and really interesting company.
I'm not going to mention names because I can't divulge the name of the store. This is someone who has been a repeat founder, has been tapping this technological vein that is massively, massively successful. He hasn't become rich. He's had multibillion-dollar exits, and he's had single-digit percentages of these assets.
Because he wanted to continue in his academic career, and he wanted to retain the intellectual property. That's another variation. I mean, he's a wealthy man today, but he is not a billionaire. Some of the VCs have backed this did extremely well. There are all sorts of variations on this, but anyway. This is interesting. You're the CEO of the consulting company, after consulting that you were working with came in as CEO, and ultimately--
Marc Cote: That's right.
Sal Daher: What's the rest of the story?
Marc Cote: Yes. Actually, we were successful in closing a seven and a half million dollar Series A. We, actually, raised money just from one institutional investor. What's interesting is, when things were going well, it was really easy. There was just one investor there. You didn't initially need a syndicate to be convinced in terms of adjusting. We had very good progress with our formulation, our reformulation, our IND, and even our Phase I trial. Then to get to Phase II where you're really testing the efficacy of your drug in patients--
Sal Daher: Let's just unpack this, IND, Investigational New Drug.
Marc Cote: That's right.
Sal Daher: The plan for your clinical trials.
Marc Cote: That's correct.
Sal Daher: It has to be approved by the FDA. Okay. Then Phase I, which is mostly about safety, and you get some information about dose, tolerance, and things like that.
Marc Cote: That's right. Exactly.
Sal Daher: Phase II, unless it's oncology, but if it's not cancer, you begin to get a glimpse of efficacy in Phase II, and then you go for a full clinical trial in Phase III. Please continue.
Marc Cote: Our seven-half-million dollar Series A really got us through the end of Phase I. We had a reformulated drug, we knew what the formulation was going to be. We had some Phase I clinical trial data in terms of its safety, as well as what is it doing in the body as well. To advance to Phase II, which is really where you get the proof of concept in terms of, "Does your drug work in patients?" We knew that we were going to have to raise probably another about $10 to $20 million.
Things progressed well. We were, actually, able to do that with our existing investor as well. They, actually, anted up in a tranched way, the $20 million Series B. Then we actually progressed to Phase II. Unfortunately, we were somewhat limited in terms of the number of patients that we could dose as part of our Phase II trial, as well as the dosing duration, as well as the follow-up, because everything comes down to a budget in the end. I mean, literally, if you could dose more patients and dose for longer periods of time, you might have a greater power to study so that you'd have a greater likelihood of potential success if your drug worked well.
Sal Daher: If the signal is extremely strong in a small study, you might capture the effect.
Marc Cote: That's right.
Sal Daher: If the signal is not tremendously powerful, a small study could be inconclusive.
The Placebo Effect Vs. the Drug Itself
Marc Cote: That's right. What we found is, in our Phase II, we had three arms. We had one which was just receiving a placebo. We had another dosing regimen where patients would be receiving drug once a day, and another regimen where they received drug twice a day, morning and evening. Everything was blinded. We were only dosing for a four-week period of time. We thought that since this was an involuntary movement disorder that placebo effect just wouldn't play in because this is involuntary. Sometimes when you give something to patients, whether it be a drug or even a placebo, just the fact that they're receiving something, it's a placebo effect which provides a benefit.
Sal Daher: Psychosomatic.
Marc Cote: Exactly. We thought, since this was completely involuntary movement disorder, that we wouldn't expect a placebo effect.
Sal Daher: The placebo effect would not be very strong.
Marc Cote: That's correct. Exactly. What was interesting is we saw some of the blinded data and we could see different trends were there was maybe no response, a little response, and a favorable response. Like, "Oh, this has got to be the zero, the once a day, twice a day. This is looking great." It's still blinded data, we really don't know until the clinical trial, what population, or and has been achieved.
We unblinded the data towards the end of that Phase II trial, and low and behold, our drug missed its P value or the statistical value that's necessary to show that it's efficacious with the clinical trial endpoint that we had designed. That was an enormous disappointment because we were so excited by the blinded data thing, "Oh, it looks like there's three segments here."
We found that there was some really mixing and matching of results. Patients on placebos, sometimes responded. Patients who were twice a day, maybe didn't have twice as strong a response. We looked over that four-week period of time, what the response rate was. Then we also looked at seven weeks, we had patients come back as part of the clinical trial to say, "Okay, what was going on."
That wasn't a clinically defined endpoint that we're going to use in the study. In hindsight, we should have done a few different things. If we had more money, we would've dosed for a longer period of time because four weeks was not enough time to wash out any placebo effect. Secondly, we would've liked to have more patients per arm. There was only 30 patients per arm, the 0, 1, 2, and 3. Unfortunately, that didn't wash out any of the placebo effect either.
At the seven-week period, we, actually, saw a positive effect that would've been statistically significant, but we didn't claim it in advance as a clinical endpoint for measurement. What that meant is that we could not use that Phase II clinical trial as a pivotal trial to move to what a Phase IIB or a Phase III trial, which meant that it was potentially going to be another $10 million to actually conduct another follow up trial.
Sal Daher: It acted as a proof of concept trial rather than a pivotal trial.
Marc Cote: Yes, exactly. At that point our venture investor had never invested really in the CNS space. It's a much more subjective space to say oncology--
Sal Daher: Central Nervous System.
Marc Cote: Exactly. It's much more subjective in terms of the evaluation, the rating, the patient treatment than, say, oncology. Did the tumor go away? Did the tumor shrink or not?
Sal Daher: Yes. There's no doubt there.
Marc Cote: As a result, since the venture investor had made some investment, wasn't familiar in the CNS space, they decided to hold any further contribution of further tranches. At that point we needed to see if we could go out and find another investor to potentially come in as a lead to help us move on to another Phase II trial that would be properly powered to prove the efficacy that we believe could be in existence.
That's where the challenge comes from. If there had been a syndicate of investors, they may have chosen to collectively move forward or not, but in this case where there was only one investor, it was really difficult to influence them, to change their mind based on what they had seen given their experience or lack of experience in the CNS therapeutic space.
After having gone out there a few more times to try, we were unsuccessful in, actually, moving that forward. We learned a tremendous amount. It was an amazing experience, but unfortunately, it's a stranded asset. Unfortunately, patients aren't necessarily seeing the benefit of what we thought we could have brought to them.
Sal Daher: The Tardive Dyskinesia space today, how is that problem addressed today?
Today’s Treatment for Tardive Dyskinesia
Marc Cote: About the same time that we were developing these drugs, there was a couple of other companies. One was, actually, purchased by Teva and another one was Neurocrine. They have subsequently come out with some treatments for the treatment of TD patients. Because up until that time, this is probably 2015, 2016, there had not been any treatments for TD patients. Fortunately, they have something. The mechanism of action, it's a little bit different.
Ours I believe would've been a much safer administration. Some of those other treatments have what's called the Black Box Warnings, which may create suicidal ideation and other concerns in patients. Ultimately if the patients can benefit, a lot of the drugs may have side effects like that that you just need to be careful about. Learned a tremendous amount, Sal, but unfortunately, a stranded asset. At one point in time, we thought that we had multi-multi million dollar valuations, and ultimately, it just didn't come together.
Sal Daher: This is a point that Jeff Arnold-- You know Jeff Arnold, right?
Marc Cote: Absolutely. No, great guy. Really knowledgeable in this space.
Sal Daher: He talks about all these gates that you have to pass through in order to succeed when you're looking at an investment and evaluating the likelihood of all these things happening, this is one of these things where it's repurposing of a drug. It looks like if there's enough of it that's bioavailable, it works because that's--
Marc Cote: That's right.
Sal Daher: It need to work, is a lot of experience, but the design of the study wasn't adequate to pick up a subtle signal.
Marc Cote: That's right.
Sal Daher: It might have picked up a glaring signal, but not a subtle signal. Anyway, after that experience with being a co-founder in this life science company, what was your next step?
“...The model that you had of bringing in a professional CEO doesn't exist anymore. Right now, the market for biotech executives is so strong…”
Marc Cote: Well, so Synchroneuron was a bit of a stranded asset. We tried for probably another year or so to see if we could get some additional funding. It just didn't materialize, so ultimately that company wound down. Intellectual property went back to Dr. Fogel, but he hasn't necessarily been able to move that forward either. Very challenging space, especially now that you have two other pharma companies that actually have drugs in the space. It's potentially a less attractive proposition to try to move that drug forward at this point.
What we did is we, actually, went back to our consulting company. We were still continuing to run that on the side while working with some other companies. Because one of the things about these early stage biotech companies, they don't always require a full time commitment from the management or leadership team. You're running clinical trials, you're running toxicology and or other tests.
It's very linear and stepwise. If you only have one program, does not always require a full-time team. We were supporting Synchroneuron more on a fractional basis and still running our drug development consulting firm and working with other companies to help them advance their drugs towards the clinic as well. Then, actually, in 2016, 2017, my scientific partners were coming up on 70-years-old and they were looking to retire, and that's when I said, "What do I do next?"
What I really realized is I loved working in that leadership realm, helping the other leads in the organization think about the strategy, the vision, how they move forward, how did most effectively raise money? Still continue to be an angel investor with Boston Harbor Angels and sat on the board of a portfolio company or two over the years.
Ultimately decided that working as a business and executive coach with a lot of these life science leaders who are more scientifically trained could be really rewarding, not only for them, but ultimately for me as well. That's what I do these days, Sal. I work with a lot of life sciences folks who are brilliant scientifically, but helped bring some of that business perspective from my experience and work as a coach these days as well.
Sal Daher: That's a really necessary thing. The model that you had of bringing in a professional CEO doesn't exist anymore. Right now, the market for biotech executives is so strong.
Marc Cote: Exactly.
Sal Daher: It's very hard to get somebody into a startup when they can go to a well established biotech and earn really well, and be doing very, very, very impressive work, [laughs] and not have any downside risk, which is what you have in the biotech startup space. At the same time, there is an explosion of new technologies that are accessible with a few million dollars.
That's $7 million that you raised from that VC, that would be more than what's needed to get a lot of these biotechnologies off the ground. We're not looking at a therapeutic, we're looking at a biotechnology that is perhaps an enabling technology to an existing technology. Just 10X results for some particular technology.
Those, because there's so many opportunities, there's so many academic founders, if you can put together the academic founder and someone with a bit of gray hair, a bit of experience in this, you can have tremendous results and the company can be founder led. The founder that I referred to before, this brilliant chemist who has come up with all these molecules and all this stuff, he is now involved in a company where he owns a major share of that. That's going to be, at least, founder owned.
Marc Cote: Nice. That's sometimes rare.
Sal Daher: There's this whole movement in the direction of founders running their own companies because of a necessity. There's a scarcity of available talent. Also, very often what can happen is someone who comes from a big biotech firm stepping into a startup situation, it doesn't translate.
Marc Cote: Very different.
Sal Daher: They can be extremely frustrated because [laughs] of the lack of resources and the nonsense they have to deal with, and so forth. They're not miscible. It's oil and water. It requires I think, a specialized-- I think that your background that straddles being in the large corporate world, having dealt with a life science company in the VC scale, I think you can bring really valuable understanding to this space. Brings me back to the saying in scripture, "The crops are abundant, but the laborers are few." There's just not enough people. The technology is there, the technical founders are there, but the business experience isn't there. Very promising. Very promising. Marc, we've covered Synchroneuron, which is a really interesting story. This whole narrative, which was ultimately not a financial success, but certainly a situation which caused a lot of learning.
Marc Cote: Absolutely.
Sal Daher: Let's talk a little bit about what thoughts you have from your angel investing that might be helpful to angels and to founders.
Marc Cote: Some of that, not only from the angel investor perspective, but–
Sal Daher: Was Boston Harbor angels an investor in Synchroneuron?
Marc Cote: No. We only had one institutional investor.
Sal Daher: Just one institutional investor.
The Challenge of Attracting Talent to Startups
Marc Cote: It was a very tight cap table. Through being a member of Walnut and MIT, you learn a tremendous amount. Seeing a lot of different founders and how creative they could be as well. These days, in addition to not only working with some of the angel companies, but also I've been volunteering my time with the Mass Life Science Center for the last few years as well, as an Executive Coach for their Next Gen Initiative.
That's an initiative that they identified. Only 3% of institutional funding went to female-led companies. They've put this program to help female founders. I've been doing that program with them for the last four, five years now, and really see a lot of the challenges that they face. You talked about talent. That's really one of the challenges that a lot of these founders are facing these days. Is really the difficulty in attracting talent to some of these early stage companies.
How do you go about doing that? Because in many cases, if you're a talented scientist, you may have opportunities from more established biotech or pharma companies to join them. If that were to happen, we'd never have enough resources for these emerging biotech companies. As a founder, how do you create a compelling story? Not only to attract investors, to potentially support you, but ultimately to attract talent that wants to join and or work, because in many cases they may be paid less.
They may have more options and maybe an opportunity and equity, but you just never know. How do you find those people that are passionate? One of the things that I think is really important for founders of these early stage companies is to identify their purpose in their story and their passion, and how that can really inspire investors as well as prospective employees to want to join them on that journey to enable this, whatever it is they're trying to accomplish.
Sal Daher: This is very consonant with the advice of Sean Kevlahan, who was the very successful founder of Quad Technologies. I've had him on the podcast. Do do you know Sean?
Marc Cote: Actually, I don't know Sean.
Sal Daher: He exited Quad to Bio-Techne. It was using a technology for disconnecting these magnetic tags on cells. Which ultimately became polymer, which could be easily dissolved and was part of the structure connecting the cell to this magnetic tag and it could be dissolved very easily. Ultimately what it became was a way to spur the multiplication of CAR T-cells.
The technology became useful in the expansion of CAR T-cell that had already been engineered, and they just wanted to multiply the number of CAR T-cell for cell therapy. That created a lot of value. The point there, what Sean Kevlahan said, that it's extremely important for the academic founder to be able to explain the value of a start-up in a way that a large constituency of investors can understand.
Marc Cote: Absolutely.
Sal Daher: You're addressing a different facet of it, that also an audience of employees, of potential employees scientists, who they may want to hire, can understand the value proposition. Being able to communicate that is extreme-- The message, fashioning that message is extremely important.
Marc Cote: Absolutely.
Sal Daher: I've seen it, for example, someone who does this extremely well is Armon Sharei of SQZ Biotech. Sean Kevlahan does this as well. I'm working on a theory that, brilliant chemical engineers because chemical engineering is an engineering field where you have to know about a lot of different sciences.
Marc Cote: Absolutely.
Sal Daher: It's also a very practical thing because it's all about production processes, and so forth. Producing these things based on science. They tend to be multifaceted. For some reason, I've run across at least three brilliantly communicative chemical engineers. I'm thinking of a fourth one, my friend, Ali Densir, who's also a chemical engineer. I don't know why that is.
Being able to fashion that message in a way that can be understood by this audience is really, really important. A lot of founders forget this. They are caught in their heads. They think they're explaining things, but they're not. Do you have any suggestions as to how you can fashion, you can better improve the message?
Marc Cote: Well, I guess one of the things that I always suggest to the founders, the executives I work with is, "What is your purpose? Why are you doing what you're doing? Why does it matter?" Not necessarily matter because it's really cool science, but in the end, "What problem does it solve?" Or, "What does it enable?" Or, "Why should people care?"
Then ultimately, if you can weave that into a story of some sort as to why it might be relevant for you. I know there was one woman founder I was working with, she was developing a new diagnostic to better identify different types of cancer. That's because when she was a teenager, her brother had cancer, had different issues, and wasn't initially treated properly from the start.
She saw him go through lots of pain and said, "I never want to see that happen to anyone else again." Went and got trained as a scientist and now she's running an early-stage biotechnology company that actually enhances the effectiveness of some of these diagnostic tools to appropriately identify the treatment for different types of cancer. She's not going to give up because of how personal that is to her.
Sal Daher: Right.
Marc Cote: If you can show and demonstrate to investors and others that you are committed to this, you're not necessarily looking to do it just for financial return, but there's maybe some personal connection or passion or motivation, I think that goes a long way and will actually enhance your story and your effectiveness as well.
Sal Daher: Very interesting. It was extremely valuable what you're saying here.
Marc Cote: For some reason, if you don't, so I think back to Dr. Fogel, Synchroneuron, he saw patients suffering for decades with these movement disorders, to the point where they wouldn't initially leave their house because they were so embarrassed by the stigma of these movements, of these involuntary tics, and so forth. He was like, "I never want patients to have to deal with that again." Or, "I never want to see somebody go through what my brother went through."
There's another woman founder I know. She's developing a treatment for children with ear infections and ear issues. In the end, she's like, "Look here, here's one of these patients." She just happens to be my three-year-old daughter. She's not going to give up.
Sal Daher: No. If you are someone prone to ear infections as a kid, it is just a miserable thing.
Marc Cote: Absolutely. That's why, and if you don't have that story, figure out why are you doing what you do. If it's just about financial, you're going to be somewhat limited in terms of how you're able to attract people.
Sal Daher: Right. Very true. At this point, we've had some very interesting, invaluable discussions. Take a moment and think what thoughts you want to impart that you want to transmit to this audience of angel investors, of founders, people who are thinking of founding companies. Feel free to take the mic and give your thoughts.
Advice to the Audience
Marc Cote: Yes. I guess maybe if we start with say founders. One of the things about founders is it's so important to what build a team, and the team doesn't necessarily have to be employees, but those around you, scientific advisors, influencers, leaders, mentors. Build that team around you because that can be invaluable in helping you navigate the waters ahead. You don't necessarily have to go it alone, and I would recommend don't go it alone. Leverage those around you.
Try to figure out, "What is your purpose?" Back to your story. Back to our story a moment ago, why are you doing what you're doing and why should other people care? As well as, you don't necessarily have to have an idea on what your exit is, but you should have an idea about where you're going. What is it going to look like? Because people are going to ask you, "What is the vision that you have for this? What is it going to enable?"
Sal Daher: Is it a strategic collaboration? Is it an exit? Are you, actually, going to build a market? Very, very important. Now, just getting back to form a team, which you said is really, really true. I just wanted to speak up for getting a co-founder if possible. The case of biotech, it's not that applicable, but there are areas where if you're going to be commercializing something and so forth, having someone with a background in business development and so forth, can be really, really helpful.
Marc Cote: That's right.
Sal Daher: Doesn't apply to the biotech. Co-founders and biotech, I don't know that there's data that shows that it improves the odds. With other types of companies, there's very massive data that having one or two co-founders hugely improves your chances of success. The point you're making here is really important. It's just beyond reaching out to co-founders. It's also reaching out to mentors, to board members, to formal advisors, and so forth. To have those resources, they'll try to go it alone. Marc Cote: Exactly. Because as you know, when you start bringing two heads, three heads, five heads, a half a dozen people who have experience together, you can be so much more effective, and ultimately, either save yourself a lot of time, create more connections, generate more opportunities. I guess those are a few of the key thoughts for the founders, as well as, you know what?
Be careful about giving equity too early on. Sometimes seeing you have somebody who's maybe the initial founder, they bring somebody in, they give them a certain percentage of the company, and then something happens. Suddenly you've given away some of that value. There's ways to work with an attorney to make sure that you--
Sal Daher: Then you have a complicated capitalization table.
Marc Cote: Oh, my goodness.
Sal Daher: It makes the next round of fundraising much more difficult.
Marc Cote: Exactly. Right. Make sure you're getting professional advice around your cap table and your equity distribution as well. Ultimately, once you raise money from your investors, make sure there is alignment in terms of, "What are their goals and what are your goals?" I mean, if your goals are something for say, five years, investor wants out in two, there's going to be misalignment there and there's going to be tension and issues.
As you were saying before some advice from other angels where it's fraught with challenges at every step of the way. The more thoughtful you can be, the better that you're leveraging resources around you, the more prepared you'll be for some of the challenges that will pop up. I guess those are some of my advice points for founders.
I guess for angels, my thoughts there, and one of the things that I do is I never invest independently of Boston Harbor Angels. I find that, 10, 15, 20 heads in the room that have experience in a variety of areas is way smarter than anything that I can bring forward. I can be part of that group as well, but literally the power of that diligence team and others and experts in that space can be so valuable.
Sal Daher: Once again, creating that team, it works for founders and it works for angels because you're making a judgment about person's ability, and so forth. A group of people are much better at reading a person's ability than one individual. This certain amount of crowdsourcing that goes on, wisdom of crowds that helps. Don't invest alone. It's one of the tourisms in angel investing. Start small, start slow, and don't invest alone.
There's another twist to it too. Once you make the investment, it makes sense to be part of an organized group because the follow ups, you need to have diversity. You need to have at least 20 companies, preferably 30, maybe 40 companies that you're invested in, so that you can have some diversification and not have some really odd results. When you're invested in that many companies, you can be very closely involved with a handful, two or three at most of those companies.
It really pays to be involved in a group which is going to provide the support to the company the company may need, which you cannot provide yourself. Then you can go in and out and be informed of the company and so forth, because of the members in your group. Trusted members in the group. That's another very strong rationale for investing as part of an angel group.
Marc Cote: Yes. I guess as an angel as well, before you go down this path, really think about what is your objective? What are you really trying to accomplish? I mean, if you're really trying to generate high returns, realize that it's high risk as well. Right? [laughs]
Sal Daher: That it's going to be a long time and you have to have a very, very strict risk control process. If you're going to make money at it, it's going to be overtime. Definitely, it's a very liquid asset. It's going to be over time and you have to have a very strict attitude towards risk control. You need to diversify and you need to think very carefully about follow on rounds.
Marc Cote: Exactly.
Sal Daher: Whether or not it's justified.
Marc Cote: Yes. Just some thoughts. Sure, there's plenty more as well as you've probably heard from others in the past, but yes, it's been a pleasure joining you this afternoon, Sal. Glad to be able to have this conversation.
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Sal Daher: Marc Cote, Angel Investor, former Co-founder of a life science company, and the former Business Executive, and now an Advisor Coach to Life Science Founders. I'm very grateful that you made time to be with us and share some of your wisdom.
Marc Cote: Oh, terrific. I love listening to your podcast, and hopefully, others could find some value from what we talked about today as well.
Sal Daher: Well, I'm honored that someone who knows so much listens to my podcast, and that I keep my mouth shut long enough to allow my really excellent guest to transmit what they know.
Marc Cote: Terrific, Sal.
Sal Daher: That's what my daughter, who's a critic of the podcast-- She's a coach, but she was a coach critic. She says, "Dad, talk less. Let your guest get a word in edgewise."
Marc Cote: Well, our families are always most critical of us as well.
Sal Daher: Exactly. [laughs] I couldn't have my kid brother handy, so at least I have my daughter-
Marc Cote: There you go. That's right.
Sal Daher: -to do that. This is Angel Invest Boston. Thanks for listening. I'm Sal Daher.
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Sal Daher: I'm glad you were able to join us. Our engineer is Raul Rosa. Our theme is composed by John McKusick. Our graphic design is by Katharine Woodman-Maynard. Our host is coached by Grace Daher.