Gm! SynBioBeta is here.
[Welcome to Issue Number 31 of The House Brazeryen, where we break down the latest #startup, #biotech, and #ScientistCEO-related news for you fortnightly, in roughly 5 minutes. Brought to you by Brazen Bio, Brazen Capital, and brainsurgerydropout.]
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CONFESSIONS OF A SCIENTIST-CEO: Brazen AF Capital
by Shawn Carbonell, MD, PhD — I spent the past two years avoiding becoming a venture capitalist only to become a venture capitalist.
Let me clarify… as someone who is extremely grateful for having successfully translated their bench science into a novel first-in-class, clinical-stage drug, I have long been looking for ways to pay it forward and scale impact.
To remind all y’all, I was never able to raise “real” venture capital for my previous startup—OncoSynergy—despite pitching dozens and dozens and dozens of funds. But, somehow, we raised over $20M from angels over the course of a decade (as relayed previously).
So, when I cofounded Brazen Bio in 2021, I still had a massive anti-VC chip on my shoulder and attempted to help early stage bio founders in nearly every way except providing cash financing. We did social media, events, and even a super dope coliving incubator with laboratory access, the Brazen Incubator.
The incubator model worked well and three of the four startups have since raised significant funding. It was a very unique and differentiated product. The issue was it was a shit-ton of work and—worse—we were solving for a problem I had a decade earlier when there were no lab benches for rent, no biotech curricula, few online resources, and no biotech startup community.
This is no longer the case.
Indeed, our friends at Breakout Labs in SF had also recently abandoned the on-site lab incubator model in favor of a pure venture capital play (now Breakout Ventures).
BRAZEN BREAKDOWN
So, my dear friend Monica Berrondo, PhD and I are now goddam VCs at our first fund, Brazen Capital.
But! We VC differently. Next issue, I’ll review the ways…
INFLECTION POINT FINANCING IRL
Friend of BRAZEN and CEO of Vibe Bio, Alok Tayi, PhD, is moderating a rockstar panel at synbiobeta—Inflection Point Financing: Bridging Capital, Tools, & People to Accelerate R&D…
In the fast-paced world of biotech startups, success or failure often hinges on securing adequate funding at critical inflection points in the development process. However, obtaining investment at these pivotal moments can be incredibly challenging, and many promising startups struggle to survive without it. Join our panel of industry experts as we explore the dire need for inflection point funding and discuss opportunities for addressing this critical need. We'll examine the risks and rewards of investing in early-stage biotech companies and explore how we can create a more supportive ecosystem for startups. We’ll also discuss the high-value milestones and essential experiments needed to de-risk the company for institutional (traditional) investors.
BRAZEN BREAKDOWN
The panel is on Thursday, May 25 from 12:30 to 1:15pm and includes our very own Monica Berrondo, PhD—GP at Brazen Capital and other BRAZEN homies including Ethan Perlstein, PhD of Perlara and Diego Rey, PhD of Endpoint Health.
Space is limited (and if you aren’t in Oakland this week, see the carveout below…)!!!
VC CORNER: The Dilution Solution
by Scott Alpizar, PhD — Last issue we broke down two types of dilution protection, anti-dilution and non-dilution. I have some beef with non-dilution protection, so I want to highlight why non-dilution can be a problem. Let’s get right to it!
BRAZEN BREAKDOWN
Remember, non-dilution protection means the shareholder can’t be diluted until a given amount is raised. With that context, I’ll set the stage:
Let’s assume your company is owned by yourself and a co-founder, each with 37% of the company. The university you license your technology from has 6%, with non-dilution protection up to $4MM in equity funding. You also had a pre-seed investor who has 20% of the company.
You’re looking to raise your Seed round and have an investor offering $4MM at a pre-money valuation of $6MM. This means they want 40% ($4MM on a $10MM post-money valuation). They also want to set up a 10% option pool.
I’ll save all the tables and numbers and we’ll focus mostly on the founders. You and your co-founder would each end up with 17.32% of the company in this scenario. Without non-dilution, you’d both be at 18.5%.
But that’s not a huge difference! So why do I think it’s a problem? Here’s the twist. Maybe your pre-seed investor caught wind of the university’s non-dilution and wanted it as part of the terms for their investment. After all, why should a university get better terms than them? So, their 20% is now protected too. Who takes the brunt of that? You guessed it, the founders (you!). You’re each down to 12%, less than a third of what you started with.
I also made this simple—you’ve now hit the non-dilution threshold in this case. There are instances where you may need multiple rounds before you’ve reached it. This also only gets worse if you have convertible debt or SAFEs converting into the round—they need to get their equity from somewhere (again, you)!
Non-dilution protection is not incentivizing for the founders. I don’t think anyone should have it, and I’m especially against universities having it. In many cases, they take no risk—they don’t typically put in funding (and the ‘resources’ used were likely covered by the researcher obtaining a grant and giving some to the university). On top of that, they also get royalties down the line.
My best advice is to fight tooth and nail against anyone having true non-dilution protection if you can. At worst, keep the threshold as small as possible, and try to include grant funding and convertible debt so that you can hit the threshold faster. Otherwise, you’ve worked your ass off for your company to be successful and to raise money, only to be punished by taking all the dilution yourself.
😋 BRAZEN SNAX
👌🏽 The first bionic pancreas FDA cleared for diabetes management
🫱🏻🫲🏽 Academic-Industry collabs for students/trainees reviewed by Nature
🧠 Maximally invasive neuroscience: brain electrodes implanted for pain
🧬 A vote for science outreach (and the STEM influencer) during training
🐙 Cephalopods challenge the central dogma of biology: RNA editing
🤖 Do we need an FDA equivalent for AI?
🌱 Crop scientists are engineering for the elusive virgin plant birth
⏰ TikTokCrak: GODDAMMIT Hank Green has cancer
🔪 CARVEOUT
If you can’t make it to the synbiobeta panel in person, check out this Forbes article on “Inflection Point Financing” by Alok Tayi, PhD of Vibe Bio.
🙏🏽 A DOSE OF GRATITUDE
We are grateful for the contributions of The People’s Scientist—Hank Green—and wish him strength through his chemo regimen. #FuckCancer
🙃 BRAZEN MEME
✍️ FEEDBACK
Feel free to tweet all thoughts, questions, and insults to us. Bring it. No, really. COME👏🏽AT👏🏽US👏🏽BRUH👏🏽
And let’s continue the conversation on LinkedIn: @brazencapital and @brazenbio.