Scientific Startups: The Big Opportunity

As a healthcare mentor, I have been working with several scientific-based startups over the last seven years. Early-stage projects led by different scientific profiles, from healthcare providers to biotech companies, genomics, devices, informatics and so on, all have been struggling with a common factor: lack of funds.

Usually these startups come from labs (from med schools to bioengineering) in university settings where students and professors look for solutions to unsolved problems. Then, with their scientific models and techniques, they work with a strictly designed protocol. Here is where the journey begins. They have to search for grants and scholarships that can support the development of the project. For them to succeed, the ideas need to pass through academic filters, peer-review analysis and professors who dominate theory regarding the specific topic they work with. After rigorous methodological processes that involve the scientific method, and after many months ⁠— even years ⁠— of project development, they are ready for a thesis to be published. Almost 25,000 STEM (science, technology, engineering and mathematics) scientific papers are published in Mexico every year, placing us 28th globally, although we, as a country, invest only around 0.2 percent of GDP in science and technology. This is far below Brazil, which produces more than 80,000 STEM papers every year with a +1 percent GDP investment in knowledge-based development. At this point, with a paper ready to be published, the scientist does not have a clear idea what the next steps are. Then, time fades for them.

On the other hand, tech startups are growing in Mexico faster than we could have imagined only five years ago. Currently, seven Mexican startups are valued more than US$1 billion each, achieving the glamorous level of a unicorn, with more yet to come. These extraordinary entrepreneurial achievements are inspiring hundreds of young Mexicans to drop out of school and follow the Holy Grail: to develop some sort of tech app or service, look for a VC investment and become the next unicorn. Incredibly, millions of US dollars flow to these startups, making the entrepreneurial arena a place where everyone wants to be. Fintech, cryptocurrencies, banking, AI and e-commerce are the main trends in developing high-impact companies. Even though these are high-risk investments, the payoff is worth it, since ROI is usually in double digits. Running out of cash, a lack of market need, flawed business models and not having the right team are some of the risks VCs and startups are willing to deal with to reach the stars.

So, why is it so difficult to fund scientific-based startups? According to ASEM (Mexican Entrepreneur Association) only around 10 percent of their affiliated companies are STEM-based startups. In my experience analyzing these kinds of STEM startups, there are several common explanations:

1. Science-based startups lack proper market fit and customer discovery processes, so their solution commonly does not solve a real customer problem; instead, it is designed to deal with the problem or hypothesis developed in the lab.
2. Scientists do not have the business and commercial skills necessary to build a real ready-to-sell solution from their technical knowledge.
3. Scholars do not have the wording and narrative, the pitch, to talk with finance and business people. Because their pitch is based on the theoretical, they often miss the opportunity to summarize their discoveries and offer a real possibility of developing a product or service possible clients need.
4. To make business profitable, investors look for a short- or middle-term ROI.  Science is a long-term career.

So, let’s change the paradigm!

There are several core values that comprise the scientific mindset and can give VCs a good reason to decrease their fear of STEM-based projects: scientists have a strict and unwavering work ethic since they have to follow universally known research practices, they have a profound social responsibility since they come from educational backgrounds and they do not entertain malice to betray those values. Although there are some examples of fraudulent pseudoscientific companies ⁠— remember Theranos? ⁠— those are the exceptions.  Investors: don’t be afraid: get professional advice and go for them.

The knowledge-based economy should not be the sole responsibility of government policies but should be a common compromise of the private sector, through public-private alliances.  Since the government should provide the laws and norms to push scientific development, the private sector could build the framework to support STEM startups, public universities and scientific entrepreneur communities and help these young companies to acquire the business, commercial and financial skills needed to grow a formal enterprise.

Ugur Sahin and Özlem Türec founded a biotech startup in 2008. These German physicians were searching for a cure for cancer and other rare diseases through a recent mRNA (messenger RNA) technology. In 2020, when the pandemic hit the world, they used this mRNA technology to develop and test a new vaccine to deal with SARS-CoV2.  No more than six months later, the first vaccine against COVID-19 was a reality that changed the world. BioNTech today has a market cap of US$38.9 billion. Pfizer, the global pharmaceutical company, stepped up from a US$150 billion market cap in 2010 to US$204 billion in 2020 and reached US$331 billion after its strategic partnership with BioNTech.

Let’s take this big opportunity. STEM startups are already here. Today, and at least for the next couple of years, scientists need us. For the rest of us, it is clear that we need them.