Canada’s agbiotech nursery gives teething lessons

Australasia’s venture capital-starved biotechnology industries probably need a fairy godmother like Canada’s Foragen Technologies Management.

Founded in 1997, Toronto-based Foragen has now played fairy godmother, midwife and wet-nurse to 14 agbiotech startups and spinouts: seven each in Canada and the US.

CEO Dr Murray McLaughlin told last week’s BioFestival 2004 agbiotech forum in Melbourne that Foragen grows by “foraging” for small agbiotech companies with innovative IP and good commercial prospects.

Foragen started out with C$42 million in seed capital, and focuses on investments in the $500K to $3 million range, in the areas of human and animal health, alternative bio-products and materials, and bioprocesses.

Its success has come from a “patient capital” business strategy. It typically takes a 40 to 60 per cent ownership stake in the client company, then raises development funds by selling shares until its own stake dilutes to 10 to 20 per cent.

With its reputation for building successful biotech companies, Foragen’s fairy godmother touch can now add instant lustre to the companies it takes on – albeit, after a rigorous process of selection and due-diligence

Addressing the ‘Spinning out new biotech companies’ session, McLaughlin cited Einstein: “The only sure way to avoid mistakes is to have no new ideas”.

XHEAD: Fatal errors He then recited a litany of the fatal mistakes that tyro companies make.

“The main reasons that start-ups fail are inadequate funding, lack of management experience, and inability to deliver results,” he said. Most seed funds provided a package that maximises a new company’s chances of succeeding. Foragen’s key criteria for investing were: the technology, the team, and the market potential.

“The common mistakes here are improper disclosure, lack of proof of concept, lack of understanding of the products the company will be selling, or the development plan fails to manage risk.”

The people assessment began with an assessment of whether Foragen could work together with the company’s principals – “We’ve walked away from very promising technologies because we felt we couldn’t work with the individuals,” McLaughlin said.

Common mistakes included lack of constructive dialogue, unrealistic goals and timelines, a tendency to threaten rather than build trust. Some would-be entrepreneurs from the scientific community failed to assess the business opportunity, often lacking an understanding of a product’s true market potential and failing to calculate the full cost of materials against the price and to identify direct and indirect competitors. McLaughlin said Foragen typically discounted company’s assessments by around 50 per cent.

McLaughlin stressed the importance of creating a company that inspired creativity and encouraged innovation. “You put aside ego. You mix people up so they don’t get into ruts – if you move people around, they get interesting new ideas.

“You create a climate in which people don’t fear failure, that discourages leader complacency. You hire outsiders, and you have to be prepared to let go of your favourite ideas.

“You should not underestimate the science. You fight negativity, constantly ask ‘what if’, blend patience with passion, experiment like crazy, and stop the bickering.”

Food for thought

McLaughlin said there were huge opportunities for new agbiotech companies with new and interesting technologies.

Renowned US futurologist Faith Popcorn predicted that by 2015, farmers and suppliers would tag all food with ‘ethical biographies’ describing the farm where the food had originated, how the animal was fed or the crop was sprayed, and the pathway from farm to market.

Dr Fergus Clydesdale, chair of the Department of Food Science at the University of Massachusetts predicted that by 2015 people would use simple home blood tests to determine their risk of illnesses like heart disease, asthma or cancer, and then go shopping in virtual supermarkets for foods to reduce these risks.

Consumers were now demanding ‘wellness’ as well as nourishment from their food; food also had to be reasonably priced, and to taste great. “You have to meet all these criteria to be successful, but taste is No 1,” McLaughlin said.

“Food trends and challenges are changing lifestyles. We’re living longer, and by 2025 there will be more people over 60 than children in industrialised nations. Our food choices impact on our wellbeing – so the need for a balanced, healthy diet will become even greater.

“There are more than 6 billion people on Earth today, and at least 9 billion by 2025, so we need new, sustainable ways to produce quality food. “We need to secure a healthy, high-quality food and animal feed supply, improve plant yield potential, and increase the amount of useful plant matter.

“We need to reduce the environmental impact of agriculture, and improve the genetic diversity of crop plants. We need to develop more renewable materials and more efficient biofuels.

“Biotechnology will play a role in every one of these challenges.”