The insider: Venturing into business support

Many chemists are ideally suited to careers in venture capital, discovers Sarah Houlton

Many start-up companies and university spin-outs are chemistry-based, whether they’re in pharmaceuticals, materials science, or even green energy. But these companies can’t exist without funding, and this is where venture capital (VC) companies come in. In exchange for some form of equity, they provide the money and business support needed to get the company off the ground, and - hopefully - set it on the road to success. 

Chemistry knowledge can be a real advantage when deciding where to invest. ’We bring together great people with great science and great business ideas to make money,’ explains Apposite Capital’s Allan Marchington. His background is a PhD in organic chemistry from the University of Liverpool, from where he moved to Pfizer, then set up Cambridge Combinatorial. This was sold to Millennium in 2000, and he moved from there into venture capital in 2003. 

Looking for opportunities 

The job, he says, is multi-faceted. First they source the deals, then study the science, people, market and business model, and structure the deal in a way that makes sense for everyone. Afterwards, they stay involved. ’We spend a lot of time managing the investment, sitting on the board, advising and playing an active role,’ he says.  

Finding investment opportunities requires a lot effort, says his colleague Chris Hollowood, who went to an investment bank in 2001 straight after his Cambridge chemistry PhD, moving to Apposite and the VC world in 2003. ’We think about what areas we want to invest in, and proactively search for start-up companies in that area,’ he says. ’The richest source is our contacts - another VC firm or member of the management team we’ve worked with before.’ 

Due diligence is essential. ’You generally get a good feel in the first meeting,’ Marchington says. ’Are the people credible, do they talk common sense, are they honest about what the risks are, and is it in an area of market need? It takes a while! Chemistry gives an analytical basis to look at problems, and the mathematics is helpful when thinking about valuation, and the details of the financial modelling.’ 

The science filter 

Hollowood agrees. ’Science training gives you a way to address science problems, and go a layer deeper in your questioning than might otherwise be possible,’ he says. ’Our science acts as a fairly fine filter, but it does need to go through another filter before we invest, and we’re in a great position through our networks to find outside experts to tell us whether it really is a good idea.’ 

The next step is to structure the deal - how much money the start-up gets and when, and what the VC gets in return. ’That’s the creative bit!’ Hollowood explains. ’In some VC firms, people work in teams with one person structuring the deal, and another doing scientific diligence. Here, we work individually, and with consultants to help us when needed.’ 

It’s a process of negotiation, with potential risks and benefits being carefully balanced. For example, with a drug there are points such as clinical trials where the results could go either way. This is built into the deal.  

If all goes well, further money will be needed to move ahead. Later-stage funding involves larger sums, with risks and potential rewards both elevated. ’When such large chunks of capital are involved, we bring in other investors to spread the risk,’ Hollowood says. ’The later-stage deals we’ve done have all been syndicated in this way.’ 

Getting the best price 

The final step is to exit the deal, preferably at a profit. In the past, an initial public offering, or IPO, was normal, but the current state of the stock markets means selling out to a larger company is now much more common. ’We don’t blatantly go out to sell companies, as that will never maximise the price,’ Marchington explains. ’Instead, we try to build great companies someone might want to buy, and if they don’t we keep going until it becomes self-sustaining, or floats on the public market, though IPOs are getting harder and harder these days.’  

Both find their work incredibly enjoyable. Hollowood says they get to meet very smart people doing interesting things. Marchington agrees: ’There’s so much variety - each week you see companies spanning the whole spectrum of science, across chemistry and the biological sciences,’ he says. ’Keeping up with the changes in science makes it a lot of fun.’ 

Sarah Houlton is a freelance writer based in Boston, Massachusetts, US