INSME's Interviews

Talking with a Biotech Angel...

INSME: Mr. Verland, this is the second in a series of interviews that our editorial staff has planned to carry out with personalities of the venture capital scene and the innovation finance system. How do you position yourself in this field and how would you hence define your company?

Dr. Verland: First of all, let me point out that I am not a venture capitalist operating an ordinary fund with many financial partners involved. I rather consider myself a business angel [INSME: a Business Angel is a private investor investing risk-capital in very early stages of development] and my company Biolink Capital can be thought of as an incubator for start-up companies active within specific areas of the life science and biotechnology sector.

INSME: Why did you initially decide to invest in the biotech sector and start up Biolink?

Dr. Verland: I have worked with innovation and biotechnology my entire career, so after a successful exit of two of the companies, which I funded or acquired some years ago, I got the financial capability to become a biotech business angel. All my investments are made through Biolink Capital, which operates in a similar way as an "open-ended fund". Moreover, I have always been fascinated by the process of building new companies and businesses in this sector, in which I have knowledge and experience [INSME: Dr. Verland has a M. Sc. in biology and mathematics and a Ph. D. in immunology and endocrinology. He has worked as President and CEO in Møllegaard Breeding & Research Centre A/S a biotechnology company and contract research organization (CRO) specialized in laboratory animal science, breeding and pre-clinical development].

INSME: Is Biolink’s activity focused on the Danish market or is Biolink also engaged in activities internationally?

Dr. Verland: As Biolink specialises in pre-seed and seed investments, proximity is very important. I spend several hours a week in each of my portfolio companies, so I mostly invest in projects and companies within comfortable commuting distance. In practise, this includes Denmark, but I also have activities in South Sweden created through contacts with CONNECT Skane and through the Danish Business Angel Network.

INSME: How many companies are there in Biolink’s portfolio?

Dr. Verland: Currently there are 4 Biotech companies and they are at very different stages and sizes: Nordic Vaccine Technology A/S, Synarc Inc., StemCare Aps and Genobiotix Aps.

INSME: How did you get involved in the companies?

Dr. Verland: Well, as regards Synarc, I got involved as seed-investor and head of the European operations shortly after its foundation in 1998. Today the company has a staff of 270 and operates 7 offices (3 in the USA, 3 in Europe and 1 in China). In March 2004, Synarc raised M$ 10 in a Series B funding from Schroder Life Science and US Venture Partners. The second portfolio company, Nordic Vaccine Technology is a Danish biotech company founded in 2001 and has a unique nanotechnology used in the development vaccines. I was co-founder of the company and also the major seed-investor. In March 2004 the company raised M€ 1.2 from a consortium of Danish venture capital firms. The third portfolio company, StemCare is a biobank collecting and storing stem cells from umbilical cord blood, and again I am co-founder and the major seed-investor. Also this company has raised a further M€ 1.5 earlier this year. My newest investment is a small biotech start-up with a unique technology for developing new antibiotics.

INSME: As Business Angel, what type of activities do you carry out when investing in the companies – and how does this differ from more formalised venture capital?

Dr. Verland: In most cases I get involved in a project at a very early stage and therefore it is difficult to carry out an ordinary due diligence. There is no organisation, no legal structure and often no established IPR - you simply have to trust your gut feeling. This is a major difference compared to the more formal and institutionalised venture capital. Another difference is related to the level of hands-on activities. I allocate between one third and one fifth of my time to each of the companies in my portfolio. Venture capitalists have bigger portfolios and are, logically, less involved in each company. Business angels are mentors on an everyday basis. We participate in operations and act either as a very active chairman of the board or board member or in some cases even as interim executive management.

INSME: How would you describe the collaboration between venture capitalists and business angels?

Dr. Verland: First of all, let me say that I have never experienced a conflict that couldn’t be solved. Business angels pave the way to venture capital, but are not always rewarded for this. The problem is that business angels spend a lot of time in the portfolio companies to build them up. They are, however, not always rewarded for this job if a company needs to raise additional capital from formal venture capitalists [INSME: Business angels typically provide seed capital whereas the the formal venture capital funds usually invest in the subsequent rounds]. At the more mature stages of a company’s development, the role of the business angel may not be as important as it is during the early stages. The company will typically have the resources to employ a professional and experienced management, and do not need so much mentorship as before. In the present market with very low valuations of biotech companies the old shareholders [INSME: Founders and Business Angels] have to accept high dilutions of their shareholdings in subsequent financing rounds. Founders and key management is usually compensated for such dilution by stock options or similar financial instruments, but the new investors have of course no obligation to compensate business angels, if they are no longer considered crucial to the development of the company.

INSME: How do you solve this situation?

Dr. Verland: I negotiate as much as I can, but sometimes it is not possible – and then I have to accept the dilution. After all, I cannot imagine a serious business man who will argue against the rule of the market mechanisms. Consequently, I am today extremely focussed on securing a substantial ownership from the beginning, so that there will be room for subsequent dilution.

INSME: How do you see your role in the innovation system? How do you collaborate with other actors?

Dr. Verland: I mainly have experiences from the Danish innovation system. The Danish system is made up of governmental incubators, technology transfer offices and research parks and there are relatively few investors active in the early stages. Our role as business angels is to help fill this void. Typically, the public incubators will make an initial investment of say €200.000 which may be matched by one or more business angels investing $ 100-300.000. In addition, the business angels will contribute with the business experience and hands-on involvement that the public incubators are looking for. In general, I consider the collaboration between the various actors in this field as good. For example, in Nordic Vaccine Technology we are a number of investors including public incubators, the National Investment Fund, Coloplast [INSME: One of the leading medical devise companies manufacturing medical patches and articles for colostomy] and Biolink Capital. Sometimes, the diversity of the investors is of course a challenge but if successfully managed the combination of experiences, networks and competencies may also be the single factor that makes the difference between a success and a failure for the company.

INSME: Do you think all companies benefit from this collaboration or only certain companies?

Dr. Verland: It all depends. In most early-stage companies where the entrepreneur is scientist with little business experience, yes. In companies, where the entrepreneur is a skilled business man and has experience from several start-ups the situation may be different. In any case, however, it is all about having a realistic perception of your own capabilities, skills and competencies – and that is true both for the entrepreneur and the business angel. If there is good fit between their profiles and a good chemistry the entrepreneur and the business angel may perform miracles as a team.

INSME: Based on your international experience, how would you compare the Danish investment environment with that in other countries?

Dr. Verland: I have limited experience with European venture capital firms outside Denmark, but I do have some experiences with the US venture market. In general, I consider the US venture market more mature and to some extend also more professional. This is probably mainly due to the much larger size of their funds, which not only allow them to make bigger investments but also to have more investment managers and analysts employed. A typical scenario is that a Danish venture capital company will make a 5 M$ investment with a team of one investment manager and an analyst. In the US, I have experienced a team of 10-15 people working full time for 3 months to complete a 10 M$ investment.

INSME: How could we learn from the US?

Dr. Verland: Basically, our [European] funds are too small. But size will not do it alone. There is plenty of capital available in pension funds etc., but it is invested in a very passive way. We need more highly focused funds in terms of segments and sectors.

INSME: How would you improve the activities from a policy-making point of view?

Dr. Verland: In Denmark, there is a void in the early-stage investments and more resources should be allocated towards early-stage companies. Part of the reason that we have this void is that in today’s market most investors tend to reserve their free capital to make follow-up investments [investments in already existing portfolio firms] rather than to invest in new high-risk start-up companies. Considering that we risk to loose a whole generation of biotech start-ups this is of course a very short-sighted strategy, but nevertheless understandable from the point of view of the individual venture company. From a governmental point of view such a development is, however, critical. In my opinion the US system of SME grants seems to address this problem and it is today a major source of funding for many start-ups in the US. They support the research and bring it to the stage where venture capitalists and business angels can develop it further. In Denmark, we simply do not have any grants for this purpose. The result is that entrepreneurs and small companies cannot develop their inventions to a stage where venture capital and business angels are prepared to invest in the projects. That is a major challenge for many governments, not only the Danish.

July, 2004 Copyright © INSME 2004