Latest / The BioHub - by Avetix / Episode 210 - Dana Watt - Partner at Breakout Ventures

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Episode 210 - Dana Watt - Partner at Breakout Ventures · The BioHub - by Avetix

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Perfect. So I'll go ahead and start for
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us today. I'm joined by Dana Watt, partner
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at Breakout Ventures, a firm backing early stage companies
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across biotech, life sciences and industrial biology.
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Dana started her career as a neuroscientist before moving
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into venture, joining Breakout as the team we're raising Fund 2
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and now helping to deploy their third fund.
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Welcome to the Bio podcast, Dana.
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Thank you so much for having me. So just to start us off, would
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you be able to walk us through your background from
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neuroscience into venture and what led you to break out?
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Sure. So I started my career as a
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neuroscientist. I knew going into Graduate
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School that I didn't want to be a professor or API.
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So pretty early on in the process, I started looking at
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alternative career paths and just happened to be in Saint
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Louis at a time when they were investing a lot of resources,
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time and attention into their bio entrepreneurial ecosystem.
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And Scott swept up in that so wound up cofounding a company
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with another graduate student. We had raised enough precede
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financing by the time we were both defending our dissertations
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to have her go full time as the CEO, not myself.
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So I was looking for a way to stay in Saint Louis, step away
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from the bench, and continue focusing on career development
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and innovation and entrepreneurship and still be
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able to moonlight as a founder. So I took a job at Washi's
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Entrepreneurship Center working very closely with the tech
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transfer office to spin out university owned technologies
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into SPR and STTR funded companies.
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So we did that for a couple of years just manually.
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I was like sitting in a lot of P is offices on LegalZoom setting
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up LLC's and getting dunce numbers.
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But eventually we decided to put together a holding company
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approach to that to make the whole process a little bit more
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efficient. They're still around.
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It's called Platform STL. So we put that together within
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the walls of the university on boarded the CEO.
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So my time at Wash U is coming to its natural conclusion at the
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same time that my company was running out of runway.
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So I knew I needed a next job. I thought eventually I want to
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go back and be a founder again. And if I was going to do that, I
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really better understand VCA little bit better so I could
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build something that VCs wanted. So I took a job at Ascension
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Ventures, which is a growth stage firm investing in
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healthcare IT, healthcare services and devices and
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diagnostics. That was a really great place to
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learn venture. And I also learned that Venture
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was going to be the the right career for me over being a
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founder. And so I spent a couple of years
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there learning the nuts and bolts, insurance and outs of how
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to be a Venture investor, but wanted to go somewhere that was
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a higher technical focus for my actual full time career.
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So about five years ago, I joined Breakout Ventures, where,
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as you said, we invested the intersection of biology,
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technology and chemistry, really looking for people who are
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unlocking scale both in human health and industrial biology
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and chemistry and building big companies with those technical
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insights. Amazing.
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Well, thank you so much for giving me your journey there.
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And for those less familiar, how would you describe breakouts
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focus today and how that has evolved over the funds in in
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more detail? Yeah.
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So breakout has been around in some format or another for about
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15 years at this point. And even then our our
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fundamental thesis on the technical side really has not
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changed. We believe that tech is going to
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revolutionize the physical world just as it revolutionized the
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digital world. We believe that founders who are
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fluent in both technology and either biology or chemistry are
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best positioned to build big companies that are going to
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change both both human health and industrial biology and
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chemistry. So we're fundamentally focused
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on founder LED companies and fundamentally focused on on deep
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tech areas. I would say that the way that
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that thesis plays out has changed quite significantly even
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just in the five years that I've been at Breakout.
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Probably 3 big ways that it's changed are I think you see more
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diverse business models and products today.
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So when I joined Breakout, we were still very much in the
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world of if you're building a platform company in the life
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sciences, you need to have a first asset that you're
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developing that you're owning the your own your own destiny
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and on. I think now it's much more
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likely that we see companies that are taking multiple early
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stage, early stage partnerships that are really focusing on that
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as their overall business model, even as they have, you know,
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eventual grand plans to to make their own drugs.
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Second big changes. I think we're seeing companies
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that are doing a lot more with a lot less.
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So again a lot of this has to do with that shift away from the
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asset centric business model where it used to be you have to
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raise you know 50 million to get your first in human clinical
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data. Now I think we're seeing
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companies that are much more focused on how do I deliver
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value with less dilutive money and really show that we're on to
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something without having to to raise these mega rounds.
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And if we are going to develop our own assets, how do we get to
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that milestone that matters less money and and quicker?
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The last big change is when I joined breakout, I was there was
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a huge focus on immuno oncology and oncology more broadly where
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we were starting to see some companies build outside of that.
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Now I'd say that's been really a Cambrian explosion of folks that
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are building in neuroscience or autoimmunity or metabolism and
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even Women's Health, which was a bit of a backwater when I tried
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to break out. Now we're seeing really exciting
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platform companies being built there.
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We ourselves are professors in Vitro Labs which is building out
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not only a hormone free IVF product but also a platform on
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understanding ovarian biology. And so the diversification of
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therapeutic areas that are fundable, I would say has has
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definitely come a long way. Yeah.
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And that shift from asset focused to a platform and
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partnership driven model. And do you think there's
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anything that's particularly driving that change?
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Yeah, I think there's there's two things, one good and one
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bad. So first, I think the the math
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of getting that platform proof has come down significantly,
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which is a very good thing, right, that you can get a
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clinical proof of concept by leveraging not only off the
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shelf tools for a lot of the drug development process, but
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also potentially going overseas to get those data points earlier
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and more more efficiently. I think the other thing on that
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platform proof math getting more favorable to founders and
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investors is rediscovery style data.
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That used to be a little ho hum. I think it's gotten a lot more
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exciting because it's not about, oh, hey, I found a thing that we
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know is a drug. Now it's more hey, I I can
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position assets better. I have more of a point of view
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on how to drive value at the asset level that's a little bit
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more repeatable versus rediscovering some known
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biology. That was really an unlock with
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our portfolio company. Noetic who announced a major
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platform partnership with GSK earlier this year was really how
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do we look at all of the data that are being generated in the
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clinic and apply our platform there to show that we have
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diverse ways of proving values of platform companies.
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So that asset driven thing of you know if you don't have
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clinical proof of concept on the first asset to come out of your
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platform and that's going to cost you $50 million at least
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that math is changing very dramatically.
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I think on the negative side, the acceleration of target
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cycling particularly with cheap and frequently best in class
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targets being available overseas and from China in particular has
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also made it really hard to position yourself to be working
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on the right asset, the asset that's going to be hot or even a
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class of of targets that's going to be hot five years from now
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when that cycle has gotten so fast.
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And so I think preserving optionality by looking at
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platform and how are the different ways that we can
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engage on the platform side is also a bit of survivalist
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instincts and dealing with that universe overall.
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Yeah. And so with that market shift
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then and all of those insights that you just shared, how does
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that change what a fundable biotechnology company looks
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like? Yeah.
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I think there's two big things that we're seeing, particularly
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in our Fund 3 portfolio companies. 1st is we're seeing
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companies that are outsourcing everything that they aren't best
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in class in. A lot of the drug development
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stack, so to speak, has really been getting commoditized.
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It's something that you can go to a vendor for either another
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platform or a consultancy and there's no reason to build in,
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for example, medicinal chemistry expertise in house.
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If that's not the thing that you're going to be best in class
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in, just leverage it. The commoditization of the drug
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development stack as a strength versus versus a weakness is
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really enabling companies again to do more with less and to to
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really focus on on what they're going to be great at.
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The second thing is I think having platforms with multiple
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front doors to partnering is really important, particularly
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as we talked about the diversification of different
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therapeutic areas. I think there was somewhat of a
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consensus in oncology, for better or worse of here are the
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data that matter. Here is what we need to see in
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order to unlock value. And that's very different when
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we talk about take neuroscience for example, where you just see
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a lot of different levels of sophistication in neuroscience,
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even in the, as the field has been growing pretty rapidly.
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I think you see different risk appetites in neuroscience across
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the potential partners out in the landscape.
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And so having different ways to beat partners where they're at
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and say, you know, this partner, they have a high risk tolerance.
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Maybe they want to work on a do asset together.
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That could take a long time to prove, but it's an important
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asset to them versus this partner really wants to think
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more about how do I position the targets that I already have
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within the clinical landscape to really maximize my chances of
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success. You need to be able to have both
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of those conversations with partners today, I think, in
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order to be successful. Yeah, that's insight as well.
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And what would you say the patterns are with companies that
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may be getting it wrong versus the AI companies that are
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getting funded right now? Yeah, Yeah.
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I think there's a couple of different ways to think about
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this. I'm not going to be the first
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one to say that there's a bifurcation between mega rounds
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companies coming out of the gate with hundreds of millions of
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dollars in funding versus what I would call precision rounds.
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A lot of times you hear people talk about the haves and the
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have nots and I think that's the that's not the not the framing I
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would use where companies that can focus on, you know, what are
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the ways that I can deliver value for the 1st 2 million, the
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1st 5 million, the 1st 10 million to really demonstrate
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that I'm getting that momentum that I'm getting the unlocks
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that folks are underwriting to versus not having that that
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targeted plan. I think some founders make the
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mistake of, oh, I have to raise $25 million at the gate in order
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to be relevant and, and I don't think that's the case at all.
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I think taking a hard look at what are the things that I can
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really do in the next two years, they're going to systematically
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de risk my company and raising for that vision.
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I think it's something that a lot of VCs are looking for
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nowadays. The the math on returning $100
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million investment into a single company gets really hard really
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fast and and I think also gets hard on the founder side as
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well. And so having that eye towards
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doing more with less I think would would favour founders.
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We see a lot of folks that are not raising right sized rounds.
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Yeah, OK. And with platform companies then
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we're starting to see this new type of role emerge somewhere
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between discovery, product and partnerships.
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How would you define that person and why are they so hard to
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find? You know, particularly across
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folios that break out? Yeah, I think this gets to the
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conversation on multiple front doors.
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So in a software company, for example, when you talk about
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having multiple front doors to partnerships, you're talking
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about different products at that day.
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So clinical positioning products versus a therapeutic asset as a
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product, I think is a new way of thinking about things in
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biotech. This is a role that requires
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understanding of sales cycles, creativity on the business
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development front. It requires creativity on the
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product side of things and being able to think about different
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use cases as distinct, discrete products.
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And it usually requires a scientific background as well.
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These folks typically understand the platforms deeply because
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that's what really unlocks the conversations with the
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partnerships with the potential partners going a layer deeper.
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That balance between those 3 roles, I think also changes from
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company to company where, you know, for example, in our
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portfolio company A Alpha, which is a great person here, it's
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much more on the, on the sales of product side.
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Like they're getting into that stage where they understand what
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the product is and it can accelerate those conversations
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more quickly versus, you know, some of the pre C companies that
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I have, it looks a lot more like a customer discovery role and
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and something that's a little bit more senior than you might
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have seen in business development roles in the past.
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I think this is really hard in the world of life sciences
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because for so long the field has been populated by
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specialists, by people that really understand one role
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intimately well. And this is more of a a
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generalist, Jack of all trades type of role.
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So I think we're going to see more of these people in the
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future, but there is a backlog and a premium on them right now.
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Yeah. And it's interesting seeing how
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people try to upskill those advantages and and then become
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those people as well. And across the portfolio, where
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are you seeing the biggest talent gaps right now outside of
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that type of person? Yeah.
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I think the other person that we're seeing is an OPS person
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that looks very different from OPS people of the past.
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So if you're building a platform company and you're going to keep
16:53
everything in house and you're going to be hiring into all of
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those functions in house OPS people really look like talent
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retention. How do we make sure everyone's
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operating at the top of their license?
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How do we make sure these internal teams are are talking
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to each other on the right way? So much more internal talent
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focused person. I think the OPS person of today
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and the outsourcing focus on what we're good at world.
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They still have to do that. There's that.
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That's always going to be a part of of OPS.
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I think though, getting creative about what do we have to do in
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house, where do vendors exist that we can leverage OPS really
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becomes more of a strategic role because they have more of those
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high level opinions and points of view on here's what we really
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need to own as a company versus here's where we can leverage the
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the other folks that are building in our space in order
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to focus on keep the focus on what we're good at.
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These people also tend to be more doers, action oriented
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folks. They tend to be very opinionated
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because it's important to have an opinion on what's happening
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in house, what's happening out of house, and so that that
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really great OPS person is is hard to find.
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Yeah. And for the founders that I am
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listening to this podcast, how should they be thinking about
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turning the platform into something that Farmer actually
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wants to buy and what would be a defensible advantage today?
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Yeah, I think so. We just recently had an exit in
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Surfio, which was a company that was building a platform for
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ultra high concentration drug formulations, both small
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molecules and biologics. They exited, we announced it
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earlier this year. It's a Halozyme.
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And so we have a great recent example of a platform that got
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acquired in our portfolio. I think there was 2 reasons that
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Surf got acquired. One was very much the company
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they were building and the other is how they built it.
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So on the company itself, as they're as they were building a
19:14
platform, they really focused on building the right products.
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So their platform is truly off the shelf.
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Partners don't have to change anything about their
19:24
manufacturing. It's something they can do on
19:27
site and off site. So a very modular way of doing
19:30
ultra high concentration drop formulations.
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And that was something that was very attracted to Halas on
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because they have a partnership focused business model and they
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want to make sure that they can continue to to drive diverse
19:43
partnerships. Surf was also, as they developed
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their platform, really obsessed with customer discovery, talking
19:51
to both customers and strategics to build something that folks
19:55
would want to buy or would want to partner with and
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understanding their entry point in partnership talks as well.
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So it was very easy to tell the story to Halozyme of.
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Here's how we partner, here's how we're a partnering machine
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and how you can turn this on day one and and start to see value
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in terms of the. Here's how they built it
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correctly. They again to this point of
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doing more with less. They were really laser focused.
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They had exactly 1 venture rouse before getting acquired.
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They were laser focused on delivering value for the least
20:35
amount of spend. Again, understand the customer
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outsourcing everything that they could outsource that makes sense
20:41
for them to outsource and being very focused when they did
20:47
decide to bring things in house to make sure that it was the
20:49
right function to bring in house.
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By doing all of that, they put themselves in a position where a
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$400 million exit made everyone very happy.
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That's something that's really hard to do.
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If you've taken in $100 million or a billion dollars, now you're
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in the level of only a billion dollar or multi billion dollar
21:13
exit is going to make everyone around the table happy.
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But by not over raising, by obsessively focusing on value,
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having that exit that looks like a basic from the outside, but
21:27
internally was quite beneficial to the venture investors, to the
21:33
founders to to all of those folks.
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I think made it so that that exit optionality was pretty,
21:41
pretty big. They they could exit for that
21:44
amount and it it again made everyone happy.
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Well, Congrats on the acquisition and such a great
21:52
example. And just to round us off the end
21:55
of the podcast, then something that we ask everyone that comes
21:59
on and to which scientist or innovator would you most like to
22:03
have to dinner, past or present, and why?
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I did too because I didn't know if it was a dead or a live 1.
22:13
In terms of past as a neuroscientist, I have to say
22:16
Santiago de Ramoni Cajal, I was a microscopist and so his images
22:23
are just very beautiful. He was also like kind of a
22:26
weirdo. He did professional boxing for a
22:28
while, which is just pretty fascinating.
22:31
And I think also, you know, to tie it into our conversation,
22:34
these companies building kind of big ambitious platforms based on
22:41
data and they're like, we're going to gather a bunch of data
22:44
and see what comes out of it. Like Ramon Nica Hall wasn't
22:47
doing it in a start up setting, but he was very much doing the
22:50
same thing when it came to to neuroscience.
22:52
So he's he's always been a favorite of mine alive.
22:58
I would have to say, you know, in addition to our founders, who
23:03
would all be at the top of my list, I would love to have
23:07
dinner with Derek Lowe, who writes in the pipeline for
23:11
science. I just always find him, you
23:15
know, a very entertaining read. He's creative.
23:18
He's sharp witted. He has an absolutely
23:20
encyclopedic knowledge of the history of drug development and
23:25
what's been hot when and what's been tried and how did it fail.
23:30
And so he's a, he's the favorite of of the newsletters I follow.
23:35
Yeah. Oh, nice.
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Oh, well, thank you so much for taking the time to join the
23:39
podcast today, Jonah, And good luck with the portfolio at
23:42
breakout. Thank you, I really appreciate
23:45
you having me.