Matt Krisiloff

More founders and investors debating China’s rise should go and visit

In June, I spent two weeks in Shanghai, Shenzhen, and Hong Kong meeting dozens of biotech founders, scientists, professors, investors, CEOs, and clinicians.

I went in with a mindset that biotech in the U.S. was in serious trouble. I left thinking it didn’t surpass the best of what America has to offer, and overall contained a lot of unappreciated nuances.

Undoubtedly, China’s ability to move experimental therapies into patients quickly and cheaply is a real structural advantage. But I was also surprised to find how accessible and open to collaboration that side of things felt too (at least in the most immediate political moment).

It made me think it would be great to turn down some of the heat and see if there are win-win ways for US and China startup ecosystems to work together. Below are some of the biggest takeaways from my trip.

Cutting-edge biotech in China is surprisingly expensive

Among the ambitious, well-funded startups I visited, the simple arbitrage story–comparable cutting-edge innovation for a fraction of the price–felt less like the reality.

I was surprised to be regularly meeting PhD scientists earning the equivalent of $100,000 to $150,000 a year – these were comparable to many US scientist wages.

I was also surprised to find it a common case that Seed rounds of $1-5 million were going for valuations between $10-25 million, and Series A rounds of $20-30 million were buying just 20-30% of a company. Those figures are also aligned with many deals in Silicon Valley or Boston.

There are indeed real savings in parts of the biotech stack–for example, life-science real estate in Shanghai can cost roughly $20–40 per square foot per year versus around $65 in the Bay Area. Salaries at Chinese CROs for more established work streams and CDMOs are estimated to be about 62% below global benchmarks, and Chinese animal work can offer savings as well (although primate studies are increasingly approaching as expensive as elsewhere, with monkeys in China now running around $27,000 each). It’s just a more mixed bag than I had expected.

Startups felt a little less sophisticated, and lacked the infamous 996 work ethic

I did not leave my trip believing that Chinese scientists were broadly ahead of the best U.S. groups on genuinely novel therapeutic technologies.

China’s top scientists were clearly quite capable; they were doing serious work, thinking about many of the right frontiers, and operating far beyond the dated caricature of China merely copying Western programs or operating fraudulently.

But anecdotally through my fund SciFounders, I have interacted with a couple thousand biotech and health-technology startups over the past five years, and against my admittedly subjective benchmark, the strongest U.S. companies and founders still seemed stronger to me than the strongest Chinese counterparts.

China’s ecosystem seems to heavily favor a model in which a professor co-founds a company and remains a professor. I am skeptical of that structure even in the U.S., but in China, it seems even harder to make work. In the US there is typically a professional team that gets brought in by investors or the professor, but in China it seems the Professor is often still fully in control of the company while also deeply divided in focus with academic responsibilities.

Younger, scrappier founders building companies independently of the status quo certainly existed, but they seemed less culturally accepted by institutions and investors, and frequently had a harder time raising capital. Wearing my investor hat, I repeatedly found myself wishing there was a politically and regulatorily viable way to support some of these founders. Many had trained at institutions such as Stanford or MIT and genuinely admired the U.S. startup ecosystem, but lacked access to strong mentorship from experienced founders, operators, and investors, which seemed like a shame given their hearts are in the right place of trying to improve the world.

There are clear exceptions nonetheless. XtalPi is a genuinely founder-led AI drug-discovery company I visited that has raised close to $2 billion of equity capital. I also spent time with the Co-CEO of WuXi AppTec, and it was amazing to see how they’ve built a 35,000 person company in a quarter of a century. And Bioyond Robotics was an earlier stage lab robotics company I found quite impressive. But the broader company-building layer felt less mature than the best of Boston or Silicon Valley (and of note, both of the companies just mentioned had founders that spent very significant amounts of time in the US before transitioning back to China to build their companies).

Overall, this is not a claim that China is weak at discovery. For more established small molecule or antibody technologies, or single asset companies, it is indeed a serious threat. And they do have huge advantages generally in areas like medicinal chemistry and manufacturing for many modalities. Nor is it a claim that their ecosystem can’t continue to improve and surpass us. But at present time, it feels like the US clearly still has a lot to offer and stay ahead on.

Incidentally too, I found it very interesting that it did not seem like the average biotech culture encountered had that intense of a work ethic — 996 seemed to be much more of a software / engineering company thing. Scientists at biotechs, it seemed, were typically working ~8-9 hour days, mirroring most of US biotech companies as well.

Chinese companies face major headwinds that US startups don’t

China’s top-down, state-directed structure can lead to huge long-term advantages, but it also seems to create meaningful distortions and disadvantages as well.

Provincial leaders and mayors effectively operate as CEOs of their regions, competing with other provinces for investment, infrastructure, employment, and economic growth. That competition can mobilize resources with a speed that is difficult to imagine in the US. A field designated as a national priority can suddenly receive coordinated attention from universities, hospitals, startups, investors, and provincial governments on massive yet competitive scales.

But the same system can distort company behavior. Upwards of 85% of Chinese venture capital comes from government-affiliated limited partners, and their incentives are different from normal private LPs. I repeatedly heard that government LPs care heavily about local job creation, local facilities, and geographic commitments.  These are rational goals for a provincial government, but do not always align with what it takes to build high-impact companies.

As a result, funds may encourage startups to build facilities prematurely, hire in a particular region, or pursue strategies that fit local industrial policy better than the needs of the business. Funds may also be less sophisticated, and founders often have to sign term sheets holding them personally accountable to pay back money if things do not work out.

Additionally, state-sponsored capitalism only goes so far in the health technology ecosystem; capitalism is still ultimately not something to be outright celebrated, and the government cares much more about developing cheap cures for its populace than building large biotech companies – there is significant pressure from China’s public-medical insurance system via the National Reimbursement Drug List (NRDL) to charge for close to cost of production within China, regardless of what the investment was that took to develop them.

China’s clinical advantage is very real

The clinical system was the clearest China advantage that I encountered.

China’s Investigator-Initiated Trial (IIT) pathway allows medical institutions to launch certain studies through their own review processes, at speeds that can even be just a few weeks with lower GMP requirements. These include trials involving cutting-edge cell and gene therapies and complex devices such as brain-computer interfaces. Its drug regulator has also streamlined parts of the conventional investigational new drug pathway outside to be reviewed a lot faster.

China combines this with a massive and unusually concentrated patient population. Of the highest quality hospitals, Grade 3A, there are only about 1,800 facilities for 1.4 billion people — the flip side of the limited supply is it allows major centers to recruit for trials exceedingly rapidly and with less competition from overlapping studies. Investigator fees, hospital costs, CRO expenses, and associated services are also much lower than in the U.S – depending on the trial and the source, costs can be anywhere from 30% cheaper per patient to close to 65% cheaper.

Some of this deserves skepticism. Several people raised concerns about patient cherry-picking, uneven ethical review, and whether data generated through certain pathways would meet U.S. regulatory standards – recent discussion has also included multiple cases of gene editing trials that have resulted in deaths that were clearly inappropriate to proceed.

But dismissing the entire advantage as laxity would be a mistake. There are certainly benefits that can come from speed, especially as standards continue to improve; I assume this will be the case, as Chinese companies ultimately want to sell into the US, and if not just feeling the pressure internally, they will also want to make sure standards stay aligned with the FDA.

I would not argue that the U.S. should copy China’s clinical system wholesale, but there is a lot to learn here if we want to stay competitive on the clinical trial front and develop cures safely and rapidly.

The ecosystem felt remarkably accessible and collaborative for English-speaking outsiders

This may have been my biggest surprise of the trip. Many senior scientists, founders, investors, and institutional leaders we met had trained at leading American or European universities, or worked at Western pharmaceutical and biotechnology companies before returning to China.

On the whole, the folks I met had fond associations with America. They were extraordinarily kind, generous with their time, and interested in collaboration. University deans, major public company CEOs, scientists, and hospital leaders frequently spent hours meeting with me and other biotech founders I was traveling with, even on very short notice. There was also generally not a sense of transactionalism to the meetings as well – nothing was really expected in return.

As a non-Mandarin speaker, I was also surprised by how common English was spoken amongst the biotech community. For example, during a visit to Huashan Hospital (one of Shanghai’s leading clinical-research hospitals), I was surprised to sit-in on the neurosurgery department’s daily meeting and learn that it is always conducted in English.

There was genuine hunger for research partnerships. We were told that Chinese clinicians historically concentrated heavily on care delivery and did relatively little academic research. More recently, institutions have placed growing pressure on clinicians to publish. Some of the people overseeing trials were therefore eager to work with U.S. companies that could bring interesting technologies and generate meaningful research.

None of this eliminates IP risk or geopolitical tension, but it made it seem like a much more promising prospect to explore areas of mutual benefit for US biotech founders of all stages than I had anticipated.

For example, a US company that can get earlier access to human data may support a fundraise, clarify a development path, or show that an asset should be abandoned before another two years and tens of millions of dollars are spent on it. This could be huge, and is something worth considering rather than thinking all Chinese collaboration is alarming. Likewise, accessing parts of the pre-clinical ecosystem that are indeed cheaper can be beneficial for earlier-stage startups as well.

More founders and investors should visit

There are a bunch more takeaways I could share, but overall I’m hoping to illustrate my perspective that there is a lot more nuance to the whole China debate than it may seem just from social media.

If you are in a position that touches China, be it in biotech or otherwise, I would seriously encourage you to just go make your own visit. It really wasn’t that hard to organize, and overall it felt safe.

To be clear, I would take information precautions seriously – for example, I got a burner phone, a burner iPad, and I didn’t log into my normal email. I would still do this again (and it honestly is a hassle!).

But once I was there, it really did feel different than I imagined. It felt like a parallel world that is fascinating in its differences, and in many ways complimentary to the US rather than a zero sum competition. I’m sure there are a lot of things I missed and in some ways my takes could be wrong (it was only a two week trip), but it was overall so helpful to be there and form my own viewpoint.

Overall, I really do hope there are ways the two ecosystems can come closer together rather than continue to drift apart. There are broader realities to being adversaries, but it would be a shame if things must further bifurcate so heavily when there are ways that biotech companies of all stages (as well as all of humanity) could benefit from deeper trust and health collaborations of actual mutual benefit.

Thanks to Niko McCarty, Milan Cvitkovic, Lucas Harrington and Alex Schubert for reading drafts of this post.

One thing I’ve been surprised about since starting SciFounders is how many of the founders we talk to are coming from academia rather than from industry. I think many industry scientists have great ideas too, and more should take the idea of starting a company more seriously.

One big advantage of working in an industrial setting is that you are seeing first-hand the problems larger, very well-funded companies are dealing with in their R&D and commercialization pipelines. This means you are in an ideal position to come up with new ideas for them as your future customers to solve these problems, or improve on existing technological approaches.

If you had the chance to work in a really good, well-run company, you may be better trained in operating your own company than most academic scientists, because you have seen how a company can look up close. I’m a big believer that companies can be very effective social coordination tools for people to work on hard problems– honestly far better than an academic environment that focuses more on the individual and their projects– and if you’ve been at an good company, you’ve seen how this can be an advantage too, and have a better idea of how to replicate that culture. 

Beyond being a unique setting to figure out potential problems of value to be working on, industry companies are also great places to meet co-founders. Scientists and non-scientists that are drawn to working at companies are probably in general more flexible and open to the idea of working in a company setting, and are also likely more comfortable with the twists and turns of what being part of a growing company can entail. By joining a company, it’s easier to grow fast, it’s easier to meet other like-minded people that you may want to team up with ultimately. 

For what it’s worth as I write this right now too, I think timing-wise it could be a particularly good moment to think about building a company if you’re already working at one. The financial markets are very down right now, so that means that most of the companies industry scientists are working at are quite suppressed in their stock value– if they gave you equity, your options might be less valuable than they are thinking [1]. And even worse, a lot of companies will need to do layoffs or may even close altogether, so job security may be less guaranteed with your current employer as well.

On the flip side, there are still a lot of early-stage investors that had just closed new funds prior to the downturn, and have plenty of capital they need to still invest as part of their jobs. That is great for if you want to start a company now, but that might not be the case anymore in a year or two if we have a true recession. Now might be the time to take the jump if you’ve been thinking about it.

If you do want to start a company, please feel free to reach out to me — I would love to help you explore. I also help run a fellowship program that gives $400,000 in funding and mentorship to start a startup. If that is something you might be interested in, please apply.

Thanks to Alex Schubert and Lucas Harrington for reading drafts of this post.

[1] And if your employer hasn’t given you equity, you’re likely wasting your financial potential working there anyways. 

One of the biggest differences between the software startup world (where I used to spend most of my time) and the science startup world is how little most scientists seem to value company equity. I think it’d be a really great thing for scientists and startups if this would culturally change. 

For many earlier career scientists that have recently finished a PhD program or completed a postdoc, they have had to live on ridiculously low salaries for many years – the average postdoc salary is below $60,000. Getting a much larger sum of cash understandably feels really nice after a very lengthy period of borderline financial exploitation. 

Almost every recruitment offer discussion I have with scientists ends up revolving around negotiating a higher salary, and hardly anyone asks for more equity instead. As a company founder, I used to not mind this as much – I figured it was easy enough to take said equity that would have been granted, sell it to investors for funding, and pass it onto the scientists in the form of cash compensation. As I’ve started thinking about it more though, I think it’s a real shame, because the biggest losers in this equation are the scientists themselves, and it hurts the company too.

Equity in a company is a very powerful alignment tool. Unlike a lot of software companies where the primary driver of building the business is to make money, science companies generally tend to have the benefit of getting to work on a very exciting mission that can truly impact the world by building new technologies or saving lives. And it’s true too that most scientists don’t go into science for the sake of caring about making a lot of money – overall I think that is a great thing. But honestly, even for many of those types of people, the idea of having the ability to make a lot of money can be a powerful motivating tool too.

If a company succeeds, employees should have the opportunity to get rich, and founders should want to make sure that all of their team members strongly have this chance too. It’s way more fun if everyone gets to succeed together, and it moves the team into the focus rather than the individual.

The more the whole team is invested in the success of their company and feels literal ownership of its entity and its future, the more likely team members will care deeply about making sure it succeeds, strive to work harder, and go beyond the quality bar that is set by their peers. A big part of the reason founders care so much about their companies is because it is *theirs*. As much as possible, scientists should want to feel like the company is theirs too. 

In order to make this change more of the norm, I think scientists need to understand the value and mechanics of ownership further. I find it very rare to speak to a scientist working at a startup who has thought deeply about how their shares could be worth 100x or even 1000x what they were granted at if things go really, really well. 

Most scientists have not been operating in a world where they get to see that successful fledgling companies really can get to the point where they are worth billions of dollars. [1] They do not understand that if things go well, they themselves can experience a life-changing financial event, even if they don’t have as much ownership as a co-founder.

I think it’s really important for this education gap to change across the hard technology ecosystem– not just so individual companies can perform better, but so scientists as a very valuable group of people can appreciate the benefits of working at startups vs. working in larger more established companies, or, perhaps even more importantly, slogging slowly through the mud in academia.

I believe company founders need to do more here to educate their team members on the benefits of ownership and drive this culture change. I’ve seen some science companies with multi-billion dollar valuations give almost zero equity to their collective team, and their team members don’t seem to care. This sucks and feels outright wrong. [2]

I think scientists need to do more here for themselves too. If you’re working at a startup and reading this, great — you have the tools now to understand this dynamic better. Encourage your company peers to think more about equity, and request it for yourself. Educate friends at other companies about how valuable equity can be, and explain the concept to friends in academia that it really is possible to be part of breakthrough, world-transformative research and also have the possibility of a major life-changing windfall if things really work out.

Ask and advocate for ownership – this will ultimately be the way to create this change.

Thanks to Dylan Field, Alexander Schubert, Bianka Seres, and Pablo Hurtado for reading drafts of this post.[1] One example of a scientist-led company that has become so valuable – the mRNA covid vaccine company BioNTech, which at present time is worth 39 billion dollars. That is worth more than Twitter, and its two years younger than Twitter too.

[2] Founders of companies: Be generous, help new and existing team members understand how big of an impact equity could mean under various circumstances. Actively encourage team members to ask for equity. Press other founders to do so too.

It seems amongst many scientists that the idea of starting a company is still looked down upon. Many seem to imagine companies as entities for which one must give up their principles and the possibility to pursue the most interesting work.

But done right, that doesn’t need to be the case at all. A good company can actually be a superior vector for pursuing the most impactful research.

If more scientists adopted the model of starting research companies, I think we would see many more transformational technologies come to exist than we currently do. I believe many kinds of basic research questions would be explored at a faster rate too.

A Better Way to Coordinate Teamwork

I like to think of companies as social organization tools first and foremost, where people can be optimally aligned towards working on a hard problem.

In academia, most scientists are incentivized to work on their own research in a relatively siloed fashion – publications are an all-important currency that is hard to be shared. 

The culture seems to end up revolving more around the individual, heavily discouraging teams of multiple people from devoting all their attention towards working together on the same problem. [1]

On the other hand, with a company, it’s much easier to collectively coordinate people towards the same goal. With a general de-emphasis on the individual, collective milestones can be set for everyone as all-important north stars.

This type of environment makes it much simpler for people to work together on different approaches to the same question, or even double up on the same sets of experiments to brute force more possibilities and get past bottlenecks.

With companies too, you’re much more likely to have support team members assisting with experiment setup and downstream analysis to free up other members of the team to focus on other parts of the problem. This makes work much more efficient.

 A Greater Path for Funding

The other big advantage companies have is their ability to unlock resources.

The present period of where we are in the world is one awash with investment capital unlike a time that has ever existed. It is easier than ever for ambitious scientists with a plan to approach investors and ask for private funding to support a startup. 

Good companies can mobilize a lot more capital in a much shorter time frame than what is possible through traditional research grants. Private capital is often less restrictive, and can be spent on large experiments that would otherwise not be feasible. And as a smaller company that is just getting started, private capital can still be complemented with grant funding – there are many non-dilutive grants (like SBIR and STTR US government grants, as well as private foundation grants) that private companies can obtain.

The idea of pitching to investors for funding might be scary, but it is becoming common for graduate students and postdocs to get hundreds of thousands to millions of dollars from investors to start their own companies. Often, they don’t have anything more than just an idea, a rough plan, and a commitment to pursue their work full time.

And as progress is made and momentum grows, it’s common for company founders to raise the tens of millions to hundreds of millions that become necessary to translate research – a much harder feat to accomplish from the academic side.

With fewer and fewer professorship tracks in academia, granted tenure positions, and conventional opportunities for ambitious early career scientists, it’s seriously worth considering this alternate path.

 What it Takes

As much as I espouse that scientists should start companies, that doesn’t mean it makes sense for everyone. For those that are interested in starting a company, there are important criteria to be met – In general, you want to be the right kind of person and have the right kind of idea.

On the idea side, you want to be working on something that has the potential to have a massive long-term impact – this is the type of realm that private investors will be eager to fund. This could be a cure or treatment to some disease, or some type of novel technology that can improve people’s lives. It’s actually very OK for this to be just an idea at the beginning and for a lot of discovery work to still have to be done. The main point is that there should be some type of discernible endpoint, which, even if it is challenging to reach, will make a big difference in people’s lives.

If you want to do something purely for basic research / mechanistic understanding, academia is still probably the better place for that. [2] 

To be a successful company founder also requires a certain type of character and it’s a realistic truth that not every scientist is cut out to start a company. Company creation can often be a lonely, uncertain process where it can be difficult to keep up motivation, it can be hard to know what to focus on, it can be hard to convince people to work with you, and it can be hard to convince investors to fund you.

It’s important to have the right personality to do this type of work – ascribing to the theory that companies are good vectors for people and resource coordination, you or someone else on your team should have the aptitude to grow into being a leader.

If you don’t think you can do this yourself, that’s fine—try to find someone to join you in getting started who you think can. Companies often do best when it’s two or three people of complementary skills coming together as co-founders to get started (and they don’t have to be business people either – often ‘business skills’ are of secondary importance at the start to getting the technology development plan right).

If you don’t know the right people to start a company with, consider joining a startup you think is ambitious and promising as an alternative – you’re likely to meet other like-minded people who you might be able to work with, and you can contribute to important and interesting work in the meantime. 

— 

If you indeed start a company, it will be challenging, but people will want to help you – people love to support those who have the courage to go after very hard but important things. Over time you will be able to assemble advisors, coaches, and investors that will assist with your growth. 

I’m happy to be one to help if you want to reach out – I firmly believe more scientists pursuing companies will be an incredibly impactful shift over time, and one that will make the research world wider.

Thanks Alex Schubert and Lucas Harrington for reading drafts of this post.

[1] I find it odd how most academic labs tend to be named after the Professor – I think it’s harder for people to feel like a super connected team when everything seems to revolve around the importance of the leader.

[2] Academia has an incredibly important place – beyond just the fact that starting companies isn’t for everyone, there are many basic research topics that companies would be bad mechanisms to pursue – it’s wonderful we have a system where many other kinds of research can be optimally supported. We should be doing more to help academic research flourish.

Earlier this year, my teammates and I interviewed over 100 teams for the first cohort of SciFounder Fellowship, and by far the most frequent issues we noticed were problematic equity splits amongst teammates. Some teams knew that their equity splits were in less than ideal shape, but most groups did not. Most of the teams we interviewed were led by early career scientists (usually graduate students or postdocs or people with a couple years in industry); these thoughts are meant most heavily for them.

 I think it’s the case that equity splits for scientific companies can be more complicated. In the software world, it’s pretty easy for e.g. two founders to just split things 50/50 and get going. More often than not, there aren’t other stakeholders involved, and things are pretty simple.

 With science companies though, there are often other groups that must be considered from the start – principal investigators / professors whose lab the scientist may have been in, or other part time people that may have been involved in some way in helping with the technological development prior to starting the company (let alone universities/institutions that may have claims on IP, which is a topic for another time). 

 It’s important to get your equity split right – equity is a very precious resource that you will need for yourself, your employees, and your investors. You want to have ample equity to be able to entice outsiders to join and support your company and you don’t want to lock up too much equity with early team members that will not contribute proportionate value over the years to come. You don’t want to feel resentful – as if you are letting others free-ride on your hard work over the coming 5-10 years. You also want to be smart about your starting equity as a signal to investors that you are taking this seriously and are not going to get pushed around.

 We repeatedly encountered a problem where scientists would give way too much equity to their PIs. Often, this was simply out of ignorance as to what was right. However, it was also commonly the case that this occurred due to the uncomfortable awkwardness that grad students and postdocs were negotiating starting their companies with their PIs while they were still their academic bosses.

If a PI is going to leave their post and be full time on a company, they deserve an equal (and potentially greater) share of the company. But it’s a different story if they are going to be part time, and likely prioritize their academic lab over the company.

There were a couple particularly bad cases where we spoke with PIs that felt it was fair that they should own a majority stake of their companies while they continued to run their academic labs. They expected their (soon-to-be) former students to work on the company full-time essentially as their proxy employees.

This type of situation is highly unfair in the long-run, as in most instances the hard work is still very much ahead of the company compared to where it is now. What has already been done in the lab thus far is likely a very small piece of what remains to be done, and the equity should be balanced accordingly.

I think it’s a fairer rule of thumb for professors (or other part-time figures) to have 10% or less of the founding equity of the company – if your professor is only going to be nominally involved, it’s pretty common to see them having 1-3% of the founding equity.

Remember too it’s possible to grant additional shares in the future – if a team finds that a part time co-founder is contributing more than their equity stakes seem worth, you can always make a grant of additional shares. Likewise the reverse may be possible too – if you’ve already accepted a poor equity split, you can try to fix it in the future. The sooner you do this though, I would guess likely the better, as it may be an even less comfortable conversation to have as time goes on.

 In terms of full time scientist co-founders, if you all are just starting out green from school or a job, it probably makes sense to split things evenly amongst yourselves. If one of you has already been working on the company for a while beforehand, or has done something significant like raise funding for the company already, it can make sense to have an uneven split. Even still though, remember to take into account the very long trajectory ahead – if all goes well, you will be working together for many years to come. [1]

Thanks to Lucas Harrington and Alex Schubert for reading drafts of this post.

[1]  All founders (and employees) should be on a vesting schedule, where equity accrues over time rather than all upfront. It’s common for it to be four years for founders, but consider longer if your company has a long research trajectory. In my company that has a longer-term than usual path, my co-founders and I set it up to have six years of vesting.