A Capital Idea

One goal of a cluster is to make it easy to start new companies by providing access to services, advice, and finance. In the San Diego cluster—as one entrepreneur put it—starting a company is like falling off a log.

Part of the reason for that is Duane Roth, who heads Connect, a kind of nonprofit incubator-without-walls and UCSD spin-off that helps entrepreneurs connect with everyone from angel investors to accountants. In the past eight years, it has helped 800 companies—in such diverse areas as clean technology, wireless–life science convergence, stem cells, peptide therapeutics, and sports innovation—raise $7.8 billion. These days, Connect starts about a company a week, and has 120 waiting in the queue.

Roth knows from experience. After 13 years in the pharmaceutical industry, at Johnson & Johnson and Wyeth, he started the biotech that in 1987 became Alliance Pharmaceuticals, whose main focus was an artificial blood substitute intended for temporary use during surgery.

"We're one of those companies that get into the 'bet the ranch' mode, where you're in Phase III—first time anybody's done it—and you cross your fingers and hope you get it right. We got within 200 patients of the finish line, and had a side effect that derailed us, so we've been out of the clinic for six years."

Roth still heads Alliance, but most of his time is spent helping other would-be entrepreneurs find a better model than the one he pursued. "Most of the people I'm working with today have no desire to start a company," he says. "They want to see their idea commercialized, but they don't want to leave the university. They aren't generally money-driven, and they're frustrated. They want to see somebody who can understand what they have."

Roth works in multiple industries these days, and he thinks life sciences companies have much to learn from their high tech counterparts. "When these guys in technology come to see me to start a company, there is never a question about what they're going to do. They tell you the five people who are going to buy them, and at what point. They're investing small amounts of money to get the information they need, and they know there's going to be a market. We've got to start thinking that way in the life sciences area, because the high tech model means that nobody gets clobbered. A failure is not curtains."

His solution is a new model he calls the actively managed venture company, or AMVEC. "An AMVEC is a group of people who are not portfolio pickers," he says. "They're industry people who know how to take something in early phase, and work out the most important factors that are going to affect the opportunity to go ahead."

The goal is to create a team that will manage six or seven projects, investing $3 million to $5 million over a three- to five-year time frame, and then selling them to pharma at relatively low prices—tens of millions for a project instead of hundreds of millions for a company.

Can the concept work? We may get a chance to see soon. Roth plans to announce his first AMVEC in May.

"People are still holding onto the old model because it's what we know," he says. "But we need to switch to thinking about a real, distributive partnership. There are always one or two things that are critical to move a project ahead. [You have to] figure out what they are, spend the money, do the work, and then sell it. But don't try to make $100 million—make $10 million or $15 million. Then do it over and over and over again."