Y Combinator, Silicon Valley's best known start-up accelerator, thinks it has found a new type of biotechnology start-up.
Life-sciences companies come with a high risk of failure—often, the science behind a proposed invention isn't entirely proven, and turns out not to work. Because of this risk, the traditional way to fund early-stage life sciences companies is for a landmark East Coast investor, such as Third Rock or Flagship, to take a huge equity stake in the business and replace the founder with a seasoned executive. In exchange, it pumps tens of millions of dollars into the company over many years. It often takes more than a decade to generate a return.
But YC is betting that biotech start-ups that use the latest computer science technologies such as machine learning, will grow much more quickly than their counterparts, and thus should be funded more like tech start-ups.
A classic example is YC's first biotech company: Ginkgo Bioworks, which bills itself as scaling the process of organism engineering using "software and hardware automation." After graduating from YC in 2014, the company went on to raise more than $150 million from tech investors including Felicis Ventures and Data Collective.
Biotech is is now a serious category for the fund. Y Combinator is about to add another part-time partner with health and biotech expertise to its ranks, alongside existing partner Elizabeth Iorns (Altman declined to name them, as the plans have not yet been finalized).
"When I took over YC in 2014 I made a list of things I wanted to get into," said the company's president Sam Altman. "Health and synthetic biologies were two of the categories."