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Science-Based Enterprises: Great Ideas Beat Venture Capital

Han Cao

Han Cao (A. Kotok)

14 February 2014. Three entrepreneurs starting companies based on science described how they got their businesses off the ground, with ground-breaking science in many cases more important than a large stash of venture capital. San Diego entrepreneurs John Newsam, Irwin Jacobs, and Han Cao told of their start-up business experiences today at a session of the American Association for the Advancement of Science (AAAS) annual meeting in Chicago.

Han Cao, founder of BioNano Genomics, showed the value of a blockbuster idea in launching a new enterprise. BioNano Genomics develops a technology that combines genomics with microfluidics and nanotechnology to provide an up-close map of the human genome.

That technology offers a molecule-by-molecule analysis of long DNA strands — down to 2 nanometers in resolution. In fact, Cao was running between meeting presentations at AAAS in Chicago and the Advances in Genome Biology and Technology conference in Florida, where BioNano Genomics is demonstrating the visualization of DNA sequencing in real time, to which the AAAS audience was given a peek during the meeting.

BioNano Genomics, where Cao is chief scientist, is a spin-off company from the Institute for Integrative Genomics at Princeton University. Cao’s research at Princeton combined molecular biology with electrical engineering where he developed the science behind BioNano’s systems being demonstrated in Florida. Those discoveries became valuable intellectual property, which enabled Cao to attract $10 million, first from angel investors and government agency grants, and eventually venture capital, to build his company.

Cao started the company in Princeton, and didn’t even have an office; he told the AAAS audience he held so many meetings in coffee shops that he started to get sick from drinking too much coffee. Cao later moved BioNano to San Diego to be part of the large talent pool in that region’s genomics community, especially the sequencing technology company Illumina Inc. His company now has 60 employees.

Companies spinning off companies

Winning ideas also enabled John Newsam to to start several companies, but in each case using what he calls an organic model to build the companies, without large amounts of venture capital. The organic model, says Newsam, generates income from early sales of services and grants to match outlays, while the company develops its key products and services.

Newsam, trained as a materials scientist in the U.K., says generating these revenues requires a strong scientific idea and top-flight team, as well as a unique value proposition. He described how these principles made it possible to start a number of companies, including three enterprises involving chemicals or materials science that spun-off their successors.

The first of these enterprises is hte AG; hte stands for high-throughput experimentation. The company, based in Germany, discovers and develops chemical catalysts, but early on marketed its research services  for revenues to create its key products. Newsam admitted hte did attract venture capital later, with the company being acquired by chemical giant BASF.

The next company founded by Newsam was Fqubed — pronounced “f-cubed” — that specialized in soft materials, such as foams and gels used in pharmaceuticals and cosmetics. The company was a spin-off of hte, and thus was able to avoid significant start-up expenses. Fqubed generated early revenues through joint ventures and research collaborations, and was purchased later by Nuvo Research.

Newsam’s current company, Tioga Research Inc., is a spin-off from Fqubed. Tioga Research is a contract research and development company that builds on the high-throughput experimentation of hte and Fqubed. Newsam says Tioga Research has credibility in the market from the intellectual property, products, and talent established in its earlier incarnations.

Navigating competitors and regulators

Irwin Jacobs is the founder of the global mobile technologies company Qualcomm in San Diego, and also a serial entrepreneur who made the jump from an academic career to business. Jacobs was on the engineering faculty at MIT and later moved to University of California in San Diego. In San Diego, he founded Linkabit Corporation in 1969 that made satellite TV technology, including early home descramblers for satellite movie channels.

Jacobs founded Qualcomm in 1985 to get in on the emerging cellular telephone market, and was built on the company’s invention of code division multiple-access (CDMA) technology that uses scare telecommunications spectrum more efficiently than competitors. CDMA became the eventual framework for 3G mobile phone service in North America. He described how Qualcomm had to navigate around those competing technologies and still meet regulatory requirements to get CDMA started.

At one point, says Jacobs, Qualcomm had to put CDMA aside to develop a system for tracking long-haul trucks, well before the days of GPS. That system made it possible for Qualcomm to stay in business while the company established CDMA in the cellular marketplace.

Jacobs says Qualcomm’s business model early on was to license its CDMA technology to cellular handset manufacturers, getting fees upfront, which generated the revenues needed to keep CDMA as the leading cellular technology. Market requirements in some places forced Qualcomm to get in the handset business, in order to generate economies of scale and keep its market share.

Nonetheless, says Jacobs, Qualcomm stayed with the licensing model, which today enables the company to keep ahead of mobile market trends. Those trends, Jacobs says, include such high-growth areas as connected homes (i.e. Internet of things), wearable computing, and mobile health technologies. In addition, Jacobs noted, both Qualcomm and Linkabit were financed without venture capital.

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