Third Rock Ventures Interview - Part 2
How to build winning companies like TRV does (part two)
Agile Search developed the following interview series as curriculum for the UMass M2D2 Impact program https://m2d2impact.com/ We hope you enjoy part two!
Chris Robinson is the Chief Talent Officer and Recruiting Partner at Third Rock Ventures, a life science venture capital portfolio with offices in Boston and San Francisco. Across the portfolio, TRV is comprised of six funds, with $4.2 billion?under management and 60 companies; they will be launching another 10 companies over the next three years.
In our second installment, Chris discusses Third Rock’s approach to the hiring process for its portfolio companies, the changing state of play in the capital markets for the biotech industry, and the downstream effects of those changes on the talent market.
John Compton:?For the Third Rock Ventures companies you’re building, when exactly do you come in and start the hiring process? And which roles do you look to fill first?
Chris Robinson:?We’re doing diligence on 35 to 40 ideas a year for every project team at TRV. I’m involved, from a staffing and recruiting perspective, from day one. And what I’m doing at that point is getting the small teams and others across TRV to think about the people who we know in the space, who can help answer questions around diligence, specific consultant recommendations, and also people who we want to start considering for hire. Being in front of those people we want to hire early on is key. I’m planting seeds and letting people know about what TRV is working on and why it’s relevant to them at least a year in advance.?
The life cycle of recruiting for the C-suite is not calling someone today and hiring them tomorrow. I’m generally talking to and targeting key people way ahead, sometimes years ahead, of the hire. I’m always saying to the partners at Third Rock that my job is really to know who the great talent is, and being in touch with that talent, and helping them manage their careers, which includes expectations, changes in their lives and their goals.
Specific to goals, it’s the ones they are accomplishing and milestones they are hitting, because that’s what allows them to free up, to do something else professionally. For our seed companies, which are typically financed at $2 million to $5 million, this occurs when the small teams need to build a five-to-seven-year strategic plan. They’re running killer experiments, trying to enable new technologies and approaches. That’s really where I dig in with those small teams, because they’re coming to me and saying, “All right, here’s this proven idea, and now we need to find domain experts who can help us develop a strategic plan around what the research is showing.”
That domain expert is usually the first full-time employee of the seed-stage company, in the form of a president, or head of R&D, or CSO (chief scientific officer). Those are the people I hire into Third Rock as employees. Sometimes we may hire them earlier, as entrepreneurs or residents, and then bring them in to the launch of a company in order to drive the strategic direction of the research. And we talent map from there, as in, “This is what we think we’ll need in year one, two and three; and here are the functions and here are the domains we will require.”
John Compton:?What are you hearing and seeing right now from the experts and analysts about what's going on in the biotech market?
Chris Robinson:?What we’re hearing and seeing now is a consolidation and constriction of the industry. Things got a little haywire over the past five years, with free-flowing capital, as I would call it. There were many non-traditional investors who wanted to catch the wave of biotech. Additionally, COVID bolstered our industry quite a lot, so family offices, technology investors, and others who hadn’t traditionally invested in life sciences have come in. Many of the newer investors are used to a quicker return cycle, so yes, there’s been a shift.?
But what hasn’t changed at all is that most things fail in biotech. The majority of what is worked on does not work the first time around. So too much money came in all at once, leading to over-inflated valuations on early-stage platform companies that were still pretty far away from the clinic. And these preclinical valuations of a billion dollars, mostly just because of a novel technology that people thought would change the way everything was done, has not proven out. It’s taking longer, which everyone should’ve expected, because science is hard, right? Biology is still smarter than us, right? And so, because of that, now there’s a tremendous number of companies that have been funded over the past three to five years out there, and their plans aren’t working. It’s not that they won’t get there; it’s just going to take longer, and more capital, and a longer return cycle.?
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Investors are backing up a bit on those types of companies, and now focusing more on, “What’s your product, how long until you’re in the clinic, and what solid business plan is behind that?” Breakthrough stories are still highly investable, and it will come down to great teams leading those companies through the ups and downs of entrepreneurship, but there's a much greater focus on, “What is your product’s value proposition, and what is your clinical development path?”
What we're seeing is many Series A companies that were funded, and now they're out there trying to raise B and C rounds, and a lot of those companies are not able to raise, because either they don’t have great management teams, or their science is not as solid as once thought. An example of this is the cancer immunotherapy space, where there are way too many companies working on the same targets, and there’s just not enough space for a thousand companies to do this. Some of those companies are just going to go away.?
John Compton:?What are some of the downstream effects because of this shift??
Chris Robinson:?One of the positive downstream effects will be in the talent market. The extraordinary growth of companies over the past five years has thinned out the talent pool, to a point where it created inflation in titles and salaries that are simply unsustainable from an investment standpoint. And now you also have a lot of professionals who don’t have the intuition or scar tissue that comes with the commensurate title and responsibility. Whether it's biotech or medtech, we’re regulated by the FDA, and until you do a couple of cycle rotations of seeing success and failure, it’s really hard to be successful building an innovation company.?
We have a lot of smart people, but I like to say, “You can’t ‘smart’ your way through experience,” so I am anticipating that the industry in general will be going back to a more reasonable approach to hiring. Even within the best-in-class of the talent pool, I believe we will see more reasonable title and salary expectations. I've watched some people go probably two steps ahead of themselves professionally over the past five years, and it’s created a very candidate-driven market. There will always be demand for certain types of people, but we’ll be moving to what I consider a more reasonable marketplace, with respect to valuations on companies and expectations for the professionals who will work at those companies.?
Another trend that we're already starting to see is with Big Pharma. The big pharmaceutical companies are waiting on the sidelines. They have tremendous amounts of cash, and are ready to do M&A. Several months ago, someone tweeted out that Top 10 Big Pharma actually had enough cash on the sidelines that it could buy the entire biotech index in the NASDAQ. So those investors are watching cashflows on small-cap and mid-cap biotech, so they can sweep in and get a great deal, and that’s what we’re expecting over the next 18 months. There will be biotech companies reverse-merging, going out of business, and acquisitions for sure. And by nature, that will free up the talent market quite a bit. Which is nice actually for me, because it’s been extraordinarily painful over the past few years to find talent, even for Third Rock.
Stay tuned for Part 3 of our interview with Chris, with more details on Third Rock’s approach to competing for talent in a constrained market, identifying candidates with the right stuff, and which roles are in the highest demand.
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