Flanders has everything it needs to produce a new generation of biotech companies: world-class researchers, strong research institutions and international recognition. Yet a growing shortage of risk capital threatens to stifle the next generation of innovation. Jan Steyaert argues that a fundamental change of course is needed.
This opinion piece was originally published in De Tijd, in Dutch.
As the (co-)founder of three successful Flemish biotech companies – Ablynx, Biotalys and Confo Therapeutics – and as a committed scientist, I feel obliged to sound the alarm. Flanders risks undermining its position as a leading biotech region because there is insufficient capital available to launch new companies. The reason is simple: venture capital funds are increasingly shying away from early-stage, high-risk investments, while government is doing too little to bridge the resulting funding gap.
Following three successful start-ups, we are now working on a new and promising spin-off. Our business case has received support from the Research Foundation – Flanders (FWO), Flanders Innovation & Entrepreneurship (VLAIO), and Innoviris, the Brussels agency for innovation. At European level, we were awarded the European Research Council's most prestigious research grant, complemented by two Proof of Concept grants to support the valorisation of our research. There has been no shortage of independent international peer review.
But turning a scientific breakthrough into a successful biotech company requires substantial risk capital. We are given opportunities to present our story to investors around the world. They listen carefully and take our business case seriously. Yet once all the information has been analysed, the response is almost always the same: too early. That is investor shorthand for: the risk is still too great.
We are then advised to de-risk the project further. But the very essence of venture capital is taking risks. If no one is any longer prepared to bear that risk, tomorrow's biotech companies will simply never be founded.
There are limits
There are limits to the scientific and translational credibility that even a leading researcher, together with the support provided by the Flemish Institute for Biotechnology (VIB) and Vrije Universiteit Brussel (VUB), can build. There are also limits to the financial resources we ourselves can mobilise.
For the past two years, our research group has financed a team of twelve people with industrial experience solely to de-risk our business case. We have been able to rely on support from FWO, VLAIO, Innoviris, VUB, VIB and the European Union. But these funding channels are themselves under pressure and cannot continue to compensate for the shortage of private risk capital.
To get our new company off the ground, we as academics have been forced to reinvest the proceeds from earlier successful spin-outs in another high-risk venture. Not to generate new knowledge or enable scientific breakthroughs, but to reduce the risk of research that has already been successfully validated, so that investors may eventually be willing to come on board. Surely that cannot be the intention? The financial returns from successful knowledge valorisation should be used to enable the next generation of innovation, not to compensate for the lack of available risk capital.
In a healthy innovation ecosystem, entrepreneurs and researchers assume the scientific and technological risks, while investors provide the capital needed to bring promising innovations to market. That balance is increasingly being lost: researchers are forced to shoulder the financing risk as well, while capital becomes available only after much of the risk has already been removed.
As a result, the engine of future innovation risks beginning to splutter. Smaller Flemish investment funds are themselves becoming victims of the balance of power in the international capital markets. In the past, they provided seed funding – the first capital for a start-up – and assumed the greatest risks. But when larger international funds join at a later stage, they are often unwilling to reward those early risks with a meaningful increase in valuation during subsequent funding rounds. As a result, the returns of the original investors are diluted, leaving local funds with less capacity to finance new companies.
The same applies to the original know-how and intellectual property contributed by the founding research laboratories. These form the foundation of the company, yet they are not always properly valued in later funding rounds.
An innovation ecosystem can function only if those who take the initial risk are also fairly rewarded when a project succeeds. Today, that balance has been lost. If Flanders still wants to produce biotech champions, it must once again be prepared to invest in risk.
Radical innovation
The question is also whether our public investment instruments are still fulfilling their original mission. Gimv – established to stimulate entrepreneurship and innovation in Flanders – now invests a significant share of its capital outside Flanders and is barely visible in new biotech ventures. PMV is being used for large-scale strategic investments, including the acquisition of Brussels Airport, while billions of euros are channelled each year into support measures for established companies, including compensation for rising energy costs.
These are defensible choices in themselves. Supporting strategic sectors is important. Protecting existing economic activity has its place. But innovation also requires a deliberate choice. It is time to decide where our priorities lie.
Do we primarily want to support the industries of yesterday, or are we also prepared to invest in the companies that will generate Flanders' prosperity tomorrow? The wisest course probably lies somewhere in between. Flanders must both nurture its existing economic strengths and continue to invest in radical innovation.
But without sufficient risk capital for young companies, our world-renowned biotech sector risks gradually losing the very foundation on which it depends.
The resources are there. What is lacking is the decision to invest a greater share of them in the future. Or are we prepared to let Flemish innovation be financed by American venture capital, while the returns flow to American shareholders?
Bio
Jan Steyaert is Professor of Structural Biology at Vrije Universiteit Brussel (VUB) and Scientific Director of the VIB-VUB Center for Structural Biology. His pioneering applications of nanobodies – small, powerful antibody fragments – as molecular tools have enabled researchers around the world to capture dynamic proteins in specific functional conformations. His current research focuses on designing nanobodies as research tools for biotechnology and molecular pharmacology, and on discovering nanobodies for the development of new medicines.
Jan Steyaert is co-founder of Ablynx and Agrosavfe, and founder of Confo Therapeutics, three successful VUB biotech spin-offs that have translated the unique potential of nanobodies into applications in agriculture and medicine. On 27 June, he received the prestigious Anfinsen Award at the annual meeting of The Protein Society in recognition of his pioneering research. Later this year, he will launch a new spin-off at Bio Incubator Brussels.
