SPECIALIST SERIES: What Is An Investible Hypothesis?

By Jay Knowles

Partner, Innovation

Many venture capitalists look for opportunities to invest in a company or a project such that if it reaches a certain inflection point, that company will become significantly more valuable, and what it will cost to get it to that point. As an example, investors often like to see how much it will cost to take a drug discovery program from idea stage through to clinical proof of concept.

It helps to consider comparable examples of biotech companies in the specific field/disease indication that has been acquired by pharmaceutical companies, when they were acquired, and for how much.

It is also helpful to consider what intermediate steps may add value along the way, and how much funding will be required to get to those discrete points, since investors may wish to fund the company incrementally rather than all at once.

These incremental funding rounds are often referred to as seed, Series A, and Series B. A seed round should validate the science outside of the academic setting, possibly through in vivo proof of concept. Series A may take you through to IND stage for the lead program, and series B may take you through clinical proof of concept.

Taken together, these rounds of financing add up to the investment required to test the investible hypothesis. It should help venture capitalists get a sense of how strong a syndicate is necessary, and how much capital risk they will have to take on before they can get to an exit with their investment (plus hopefully some profit) returned. At BBIC, it would be helpful to understand the investible hypothesis because that will be the route to further commercialization should the proposed experiments be successful.