Just in case startups thought they were insulated from the Wall Street implosion of September 2008, Sequoia Capital let there be no doubt that the ripple effect was being felt. Sequoia famously held an emergency meeting with its portfolio companies in October 2008, complete with a mock tombstone with the message “RIP: Good Times.”
The era of free-spending was supposedly out, and austerity was the watchword. A few outliers started experimenting with the idea of “garage biotech” companies that buy cheap equipment on eBay to help wean themselves off venture capital on a quest to profitability. But for the vast majority of venture-backed biotech, digging into exactly what changed in the budget is hard to pin down. If you’re suddenly flaunting the idea that you’ve become a tightwad with investors’ money, then what were you doing with it before?
This whole notion of frugality, stinginess, or whatever you want to call it, came back on my radar earlier this week during an interview with Meenu Chhabra, the CEO of Seattle-based Allozyne. She outlined a lot of scientific progress her company has made in the past year in stealth mode, while she was flying coach, forbidding most travel to conferences, feeding her board of directors with box lunches, and refusing to hire any senior management besides herself and her chief scientist.
This got me thinking about what really constitutes the “new reality” of spending in the biotech drug development business. So I pressed Carl Weissman, the CEO of Seattle-based Accelerator, to walk me through specific examples of what spending habits were like in the old days (pre-September 2008), and how belts have been tightened in the post-Lehman era. (For the record, Weissman has been consistent in these pages about how Accelerator has always been parsimonious with its money, by industry standards.)
So, with that, I thought it would be fun to put together a little chart to juxtapose the old spending habits versus the new ones Weissman has observed. If you have any other specific examples you’d like to add, shoot me a note at [email protected]
|“Old Reality”||“New Reality”|
|1. VCs fly in the night before a board meeting, stay in nice hotel, eat dinner as a group at a fancy restaurant, attend board meeting the next day, fly back at night. Full bill goes to portfolio company.||VCs fly in the morning, and attend the board meeting mid-day. Portfolio company provides box lunch, and directors fly home that evening. No overnight hotel stay, no fancy dinner.|
|2. In San Diego, stay at the Lodge at Torrey Pines. In Seattle, the Fairmont Olympic Hotel.||In San Diego, stay at the Sheraton La Jolla. In Seattle, Silver Cloud Inn.|
|3. When flying to the East Coast, go first class.||Economy ticket, and try for upgrade|
|4. Business class flights to Europe and Asia.||Discounted business class. Or, coach.|
|5. Scientists attend conferences once a quarter.||Pick one conference per year.|
|6. Each scientist hires two research assistants.||Wash your own dishes.|
|7. Pay salaries for a chief financial officer, a vice president or higher-level executive of business development, an operations chief, and a VP of HR.||Consultants.|
|8. Company-sponsored happy hour on Friday.||Go out on your own.|
|9. Free food, soda, beer in company fridge.||Coffee and tea provided.|
|10. New luxury sedans for top execs every year.||Hold onto the Honda another year.|
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