Foreign partner could ease path through ‘valley of death’

Trying to keep his fledgling company in Canada is a challenge for University of Toronto biochemist Henry Krause, as he seeks to turn a laboratory discovery into an international commercial success.

Krause, 53, uses zebrafish, a small tropical fish with biological traits similar to those of humans, to study the effects of new drugs. He believes that his process will take years off the time needed to bring new drugs to market, and will lead to new drug discoveries.

But finding the capital to take his company, InDanio Bioscience Inc., across the “valley of death”—the period between initial incorporation and the first significant round of venture capital funding—is an enormous challenge. The answer to that challenge is probably to find a foreign partner to sponsor his research. But that could mean weakening his control of the new company.

Henry Krause, PhD

How hard is it for a scientist to become educated as a business person?

It’s a really long, tough road, more complicated than I thought. There’s no simple booklet that tells a researcher how to develop a business plan.

What is the big challenge you face in commercializing your research?

Up until this point, we were in the “valley of death.” There’s a lot of noise now about trying to take great ideas out of labs and save lives; bringing wealth to the provinces, universities and the country. You can get the initial funding to start making the business plan, but the next hurdle is to get big investors to put up the millions that, in our case, are required to furnish a lab and hire the medicinal chemists and clinical scientists needed to develop to the next level.

There isn’t a good formula for that yet. In fact, people tell me they think the only way it’s possible to develop is to sell our company, to look for a buyout from somebody from the United States or Asia.

What’s your answer to that?

That would be really sad.

Explain what you mean by the “valley of death.”

It refers to the time between initial incorporation and government seed funding [thousands of dollars] and series-one funding [the first significant round of venture-capital funding, i.e. millions of dollars]. The latter is required to complete proof-of-concept work, employ management, advisers, etc, and become a true business.

This interval is where most companies such as ours get lost in the shuffle. There are very few sources of financial and corporate assistance to move startups through this period of development. We’ve been very fortunate to have [Toronto business incubator] MaRS helping us out, but MaRS is still relatively limited in terms of finances and management, especially for a company like ours.

What public policy would you recommend to help researchers get safely across that dangerous valley?

There is some recognition that entrepreneurs require significant advice and guidance in the business and management aspect of their vision, but the resources available to help out are insufficient. The majority of funds and opportunities available are for simple, quick-return investments, such as a new medical device or software program.

How do you raise money in a world where people don’t want to wait 10 or 15 years for returns?

You have to have a patent or good promise of a patent. Intellectual property is the key that every investor is going to look for. We’ve got the patent in all of Europe approved. Parts of it are still being discussed with the U.S. Once that goes through, we’ll do the Canadian version as well.

What is the biggest hurdle facing a medical research startup such as yours?

We want to be a company that is able to discover and implement drugs that can help with many of today’s most prevalent, devastating and costly diseases. However, current dogma is that drug discovery is a very expensive and long-term process with a high rate of failure.

Our novel approach—starting the discovery process with live animals—would change those odds and numbers, but it is very difficult for potential investors to evaluate, because it has never been done before. The typical investor today, in Canada, is only likely to invest in the drug discovery process when a company has developed a drug that is already in clinical trials.

What public policy would you recommend to overcome that problem?

Federal and provincial governments are on the right track with their increasing efforts to accelerate and reward innovation within universities. However, they tend to be limited to the earliest stages and come with many restrictions that exclude later-stage efforts.

I would love to see an effort to recognize and support grander visions and ventures that currently fall in the cracks of what Canada’s investors are willing or able to support. Canada needs to start thinking bigger and more ambitiously.

In the past decade, Canada’s research community has seen a remarkable growth in numbers and quality. We now have many of the best and most productive scientists and research groups in the entire world. I think the innovation and investment communities are a couple of steps behind.

For researchers, what is a key lesson from your experience?

Get a better sense of what you’re getting into, and find somebody who’s been there who could provide advice.

This article has been edited for length and clarity.