Bruce Booth, a partner at Atlas Venture wrote a post called Unleashing Biotech Innovation With The Currency of Entrepreneurship. He makes a case that emerging translational R&D models that center on academia are likely to fail because they do not include equity ownership.
Since reading the post, I’ve been pondering the question: Is equity ownership in the startup the fundamental currency of entrepreneurship? My initial reaction was that to think of all the ways that the value of equity is indeterminate and therefore not of much value. I also considered alternative paths that would increase the chances of making money (e.g. a distributed risk model such as VC investments in multiple companies or working in an industry with a clearer route to the exit). Eventually I came full circle to my theory that entrepreneurs believe what they are working on will work – they believe their opportunity is the 1 in 10,000 or 1 in 1,000,000 that will succeed. But still equity as a driving force for entrepreneurial behavior doesn’t feel like a good fit.
I agree with Bruce that these models won’t work but there is something missing. Every day entrepreneurs make decisions – consciously or unconsciously –that impact their business. This responsibility – owning your decisions – is a key part of an entrepreneurial culture. When things are going well, responsibility can be thought of as making a difference or having an impact. When things aren’t going well, “actions have consequences” is a much more likely take away. And as an entrepreneur, there is relatively little shelter from the consequences of your decisions. This sense of responsibility for outcomes – to stakeholders from patients to shareholders to employees – is an integral part of driving entrepreneurial risk taking behavior. I am still pondering but: Is “decision ownership” of the startup the fundamental currency of entrepreneurship? The potential to bear the brunt of failure feels like a more compelling driving force.
My comment over on lifescivc.com was:
I wonder if it is more about protection from the downside (walking away from failure) than participation in the upside (equity turned to cash).
“Dann, stehend unterm Tumtum Baum,
Er an-zu-denken-fing.”
I work for a small biotech started about 6 years ago, we survived the 2008 downturn and avoided VCs. The company was funded with the personal wealth of its (straight out-of the grad school) founders. The founders also got number of their friends and relatives to invest. So they will never hype and dump because it would burn their relatives and friends. Despite having solid finance, enough to run clinical trials, they would rather buy instruments (used ones at that, often at an auction) for the labs rather than mahogany conference room desk or fly first class on a business trip. In other words, they treat company expenses in a sober manner because they have a great deal of their own money already sunk in the company and they dont need to impress themselves how big shots they are.