Talented people make the magic happen in biotech. This is the second post in my “Twenty Years In Early Stage Venture” trifecta. Yesterday’s was on Science. Today we’re talking about the People part of biotech.
After a couple decades and scores of investments in the early stage venture business, I’ve been privileged to work with great people and incredible teams. I’ve also worked with some that were less than stellar. And I’ve tried to avoid working with others whose bad reputations preceded them.
Here are some observations on talent and teams:
- The power of luck! Many biotech executives (and investors!) are really one-hit-wonders who got lucky by being in the right place at the right time, rather than a result of their intrinsic greatness. Nothing wrong with this at all, but it’s good to acknowledge it. They showed up at the right time, with the right asset in a hot space, and managed to deliver an exit – wonderful good fortune. It’s a significant part of the stochastic nature of the business. Of course, “chance favors the prepared mind” and “hard work helps you make your own luck” – these axioms are very true. But given the high false positive rates – both of science and of exits – randomness plays more of a role in our outcomes than most practitioners acknowledge. There are several upshots once you appreciate the role of luck. First, embrace humility. Being humble and appreciating that the “gods of chance” blessed you is important. Second, the “celebrity worship” that happens in biotech (and startup culture in general) should be more tempered. Lots of folks can get lucky, but they shouldn’t drink their own Koolaid. Of course, once an executive has joined the rarefied air of those who have delivered several great biotech wins (or several drug R&D wins), then they’ve earned their “hero” status. Delivering long term batting averages far higher than industry’s typical rate is likely a real signal. That happens with some folks, but more typically luck only really strikes once. On multiple occasions I’ve worked with folks that were lucky in their prior deal; you’re absolutely thrilled to recruit them (yeah, we got a celebrity CEO!), only to realize they really weren’t that good. So be skeptical. Third, great and talented executives can easily be caught on the “wrong side of the dice” for prolonged periods – and that doesn’t make them bad executives. Testing a concept from start to finish can be a multi-year project, so each cycle (each throw of the dice) takes time. They generally get a chip on their shoulder after multiple bad outcomes, but they can still be far smarter and more competent than a Lucky Leprechaun executive – and very much back-able as an investor.
- Life is short… live by the NAR. The NAR is the No-Asshole-Rule. As I wrote in a 2017 blog on culture, “brilliance can’t overcome asshole behavior.” Sadly, we often face some element of the “dark triad” of psychopathy, narcissism, and Machiavellianism. All of these traits suffer from a toxic empathy deficit of some form. Even if an CxO executive or star scientist has demonstrated an ability to make money for investors (or make successful drugs), if they violate the NAR, I’d rather not work with them. Bad behavior reveals itself in everyday practice: people who treat their staff poorly, or are totally coin-operated for themselves (rather than their teams), or are inappropriately abrasive or condescending. Do I want to hang out with this person for a beer? If not, it’s a pass. Reference checks are relatively easy here too if you ask the simple question: would you actually work with this person again? A candid “no” is all you need to hear, and I’ve very much appreciated hearing it on multiple occasions. Early stage venture investing is a long-term business, with only a deal or two a year, so I’m locking in to work with these teams for many years. Doing this with violators of the NAR isn’t part of my program even if they are money-makers. Life is too short indeed.
- By the time you know you need a leadership change, you’re probably late. Hiring and firing a CEO is ultimately the most important job of the Board (and by extension the lead investors). More often than not, the signals that you likely need a CEO change are visible far before you finally make the decision: a lack of traction in telling the “story” externally; a lack of accountability or detailed focus on execution; or an inability to recruit and retain a stellar team, etc… By the time a Board has fully processed those signals, some damage is likely already done. Not always, as some transitions are smooth and CEO skillsets evolve over the lifetime of companies. But usually tradeoffs are being debated in the backroom amongst the board/investors along the way: “we’re on the cusp of a financing so we can’t change the CEO”; “we’re in BD discussions and changing the CEO could jeopardize those”; “we don’t have the cash runway to make a change right now”… And the list goes on. We’ve all made those tradeoffs and choices, shaped by “transitory” status quo biases. Sometimes its ok and works out, but almost never is it great. In the fullness of time, and 20/20 hindsight, there’s usually the clarity of “we should have made the change a year earlier” or some version of that. So if the signals are there, it’s best to address them head-on and “sooner” than one might otherwise default.
- Surround yourself with data-driven truth-seekers. This relates to the several of the Science observations – being skeptical and doing great science – but is important enough to emphasize again. Investors often think they want (and glorify) the hard-nosed entrepreneur who runs through walls; but sometimes science puts immutable wall-studs in the way. If the data say we should kill a program or shut down the company, we love it when the CEO/entrepreneur actually comes and tells us that’s their recommended call. I’ve had CEOs do that in the past: “we saw an on-target tox signal and although we could ask to pull the next tranche, we think we should shut it down.” There are many variants of that – but fundamentally it’s truth-seeking and data-driven. That’s what we want in our portfolio leadership, helping prevent us from throwing good money after bad. Another version of this is the presence or absence of scientific rigor and discipline in the face of weak or confusing data; a truth-seeker might just say “we don’t know why it didn’t work as we hoped” and lay out a clear go/no-go case as a consequence, whereas the hand-waver often says “we sort of expected this” and will rattle off a bunch of vague (unsupported) scientific reasons for why. Hand-wavers are always trying to survive and spin the data via a deep narrative bias; truth-seekers are trying to learn from the data and be disciplined even if it means a “no-go” decision. Those are fundamentally different. This happens both preclinically and clinically. This is why truth-seekers, largely devoid of confirmation bias (as much as that is possible), are definitely the type of executive/entrepreneur you want in your biotech portfolio. The time spent by a truth-seeking executive is the ultimate scarce resource, more scarce than our capital, and they know it (and we appreciate it).
- The best CEOs understand and are aligned with their current shareholders. There are so many conflicts of interest for a biotech CEO and their shareholders: how much to raise and when; how big of an option pool or evergreen issuance should we have; how big should our compensation increase be this year etc… Fundamentally, all of these come down to questions of dilution. Every biotech has to take significant dilution along the long journey of raising capital, and burning it, to advance drugs through to market. On the tech side, founder-CEOs often own huge chunks of their company and so are by definition (intrinsically!) aligned with their current shareholders. In contrast, biotech CEOs typically own in the mid-single-digits, and get reloaded to that “market rate” after every private financing (or annually for public companies). This dynamic creates misalignment: CEOs in biotech know they are getting reloaded so are indifferent to the amount of dilution, both the size of the raise and the price. Great CEOs, in my experience, recognize that misalignment, openly acknowledge it and work to manage the tradeoffs by prioritizing equity capital efficiency. They understand that a CEO represents current owners, not future owners, and so are both disciplined on raising capital and exploring alternatives to equity sales (like when asset dilution through partnerships is a better alternative). Dilution in biotech is like death and taxes in life, it will definitely happen – but a good CEO helps constrain how much of it we face while building a great company.
- Most CEOs are either openers or closers, rarely both. Openers are great at “selling the sizzle” and networking their way into discussions with important investors and decision-makers in pharma; they are great are schmoozing, in a good way, and have superb connectivity in the ecosystem. They are often great and inspiring scientists. Closers have the killer business instinct to get it done; they are relentless in pushing BD or investor interest into term sheets and onto closings. At times, they may appear too aggressive. Closers don’t let issues in deal dialogues fester, as they escalate quickly to CEO-level discussions. Openers often let the play come to them (“if we build it, they will come”); closers go make the play (“always be selling”). Most CEOs are typically one or the other, and either can be successful; but complimenting them with “the other” phenotype on their executive team is often an important element of their success. On rare occasions, a CEO exhibits both profiles – one of the styles of the exothermic catalytic visionary who can transform companies. It’s not easy to figure out who is what phenotype, but years of pattern recognition certainly helps. Great companies are almost always bigger than single individuals, even catalytic ones, so building a leadership team of synergistic skillsets is a major lever for value creation.
- Build lean organizations by encouraging teams to “earn the right” to grow. When resources are aplenty, it’s easy to over-hire teams and over-build infrastructure; these come back to haunt you during the leaner times. RIFs and lease renegotiations are never fun, and are always costly. It’s often best to staff up internal talent for the trough workflow demands, using flexible support for peak demand periods. It’s also best to understand how hiring fits with the biggest risks a biotech really faces: we once had a company hire an entire sales and marketing team a few quarters before its first approval… only to get rejected by the FDA. The restructuring nearly killed the company, and the price correction killed our investment. Companies should earn the right to hire big teams: as risk is discharged and pipelines mature, the company’s fundraising accelerates with the cost of capital going down. Scaling a biotech in this thoughtful capital efficient manner is the way successful companies are most often built; it’s a rare exception where prematurely scaling a discovery story with $200M out of the gate actually generates positive returns. But being too lean can hurt progress, too. That said, there’s an axiom in venture that “indigestion has killed more startups than starvation” – so avoiding over-extension before you’re ready to grow is key. Importantly, be vigilant about G&A bloat, too. A Chief People Officer often grows into an HR team, whether or not a company needs all that HR support in-house. We used to joke once you’ve hired an HR head in-house, you’re doomed as a startup; obviously that’s not true, but there’s a tiny kernel of truth in it. Other G&A functions are similar: the in-house GC often quietly takes on a few junior folks; finance teams quickly populate their FP&A groups, too. All of these functions have critical roles in biotech, especially in emerging public companies, but none create a real competitive advantage – real advantage comes from making real medicines. So keep the G&A to the barebones required minimum, be tight on growth, and focus any incremental spend on advancing the science and medicine. Being balanced – like a Goldilocks-level of hiring – is obviously the right approach, but sadly only appreciated in hindsight in many cases. I’ve been through far too many RIFs in tough markets to want more of them.
- Fractional leadership in a startup works until it doesn’t. Most of the seed-stage companies incubating in our offices have part-time leadership teams in place for various roles; for example, fractional CFO/accounting folks to track the spending, part-time CBO/BD support, or CMO/clinical consultants helping think about translation. We even have CEO/EIRs splitting their time across different seed-stage concepts at times. All this works for a while, especially as seed-stage risks like validation and reproducibility are being discharged. But running far with fractional leadership means no one is fully immersed in thinking about the startup 24 hrs a day and 7 days a week. This is the other side of earning the right to grow: with that in mind, as soon as “real money” comes in, perhaps with what used to be called a Series A (i.e., $20M+ financing), it’s time to get serious about full-time folks. CEOs need to be in 110%, and the same holds for CSOs and CMOs for early stage companies. It’s true, we’ve had fractional CMOs run successful Phase 1 programs for us in the past, but those are the exception rather than the rule: bring on a CMO as early as you can recruit a great one. Great singular talents hired early will often find enterprise-level leadership themes to contribute to… and an early CMO can drive the clinical execution planning that is so important for value creation (see Science blog). Once you’re ready to scale, get a full-time leadership team locked in – and preferably in person, in the office, unless you’ve truly perfected the virtual model.
- Leadership coaches/advisors are valuable for all types of performers. Running biotech startups, or teams within them, can be a very isolating and lonely job with few people to turn to. A Board ultimately evaluates the CEO’s performance, so being vulnerable by sharing fears and challenges with them doesn’t feel great for many. Direct reports also don’t really want to sense edgy anxiety from their boss. So this is where great leadership coaches come in: I fully recommend them for any CEO, includig both high performers and those struggling with the role, first-time CEOs and veterans. A good coach can be a great sounding board when no one else can play that role well. This concept also extends to having a small group of CEO peers as informal advisors; they provide a shared experience in the markets and can help any CEO grow. I frequently connect my CEO’s to other CEOs that might compliment their styles. Further, this same idea applies to other C-level roles in the company (CSOs, CMOs, etc); having a group of external folks in the same role to share learnings with, and vulnerabilities, helps to improve everyone’s leadership game. Atlas organizes CxO groups across our portfolio to help facilitate these interactions. And all this coaching advice probably also holds for VCs, too – maybe I should get one.
- Build authentic multi-faceted relationships with people in your biotech community. Professional-only relationships are great and important, but can be unidimensional and somewhat transactional at times: the LinkedIn bio network isn’t really very personal or connected. Instead, I’ve derived great value and pleasure from building multi-dimensional work relationships – around family, hobbies, sports, and beyond. I called this “work-life symbiosis” in a prior blog: “find ways of integrating your passions into the workplace, and use them to create community, connectivity, and followership. We spend far too much time at work during our lives to not bring our personal passions into it in a beneficial way.” To that end, I’ve built deeper biotech social networks around a few passions of mine: running (like Reach The Beach or RunningAtlas), fishing (Biotech Bait & Boats), hiking (the Atlas Hike in the Whites), and others. In my hometown of Wellesley, over the past decade I’ve learned there are over two hundred biopharma execs – and so I host a get together a few times a year to connect over drinks about our kids in the local schools, what’s going on in the town, and of course biotech itself. My Atlas partners also do the same around their hobbies and communities, and as a firm we do this through our annual Atlas Venture Retreat (which my partner JF Formela has spent 30+ years curating and cultivating as a premier relationship-building event). All of these things, and many more, help to build the longitudinal, trusted relationships that help scale our biotech ecosystem. Over time, I’ve become friends with many of the executives I work with. These close personal connections sometimes make it hard to make tough calls about leadership transitions, but it also can open up topics around honest trusted feedback that are otherwise difficult to tackle. As an early stage venture investor in particular, it’s our job to naturally convene the community around us and build deep connectivity – bringing the right talent to the right opportunities in our portfolio.
So many other themes to cover, so little time… at the end of the day, it’s all the talented people we get to work with that make biotech so special… and a fun industry to work in!
Tomorrow we’ll hit the final set of corporate and business observations!
