Are one-customer data startups the new techbios?

Last week, I speculated that platform-style innovation in AI for drug discovery will increasingly shift towards pharma partnerships with more tech-focused startups as VC finding for platform techbio startups continues to dry up. This week, I want to discuss a more tech-focused startup that seems to be banking on this idea - Tahoe Therapeutics, which recently announced $30M in funding to build a giant single-cell dataset. But what makes this interesting isn’t just the funding or the dataset. It’s their business model, which has them selecting a single partner to share this dataset with. And that has me wondering if this could become the new business model for biotech startups.

As some additional context, there’s a general rule that VCs want to invest in companies that are going to be big. If you’re expecting nine out of ten of your investments to go to zero, you need that tenth one to be worth a lot more than ten times what you invested. So beyond pre-seed, and possibly seed funding, the general rule is that to get VC funding, a company should have the possibility of being worth hundreds of millions, if not billions.

So that means that any founder with a vision that requires a decent sized team and multiple years without revenue generally needs to make that vision as big as possible to have any chance of getting the VC funding to make that possible.

In the early-stage drug discovery world, the general wisdom is that you can get more value/revenue from bringing one drug to market than from helping multiple partners bring their own drugs to market. So anyone with a general approach that could potentially discover a whole bunch of drug candidates has been pushed into becoming a drug discovery company rather than a product/services company. (For example, this recently happened with Voyant Bio, whose founder, Assaf Magen writes a nice blog on immune therapies.)

Back in the before times, i.e. before the mid-pandamic crash in VC funding for biotech, VCs were excited to invest in companies that planned to spend 5-10 years building a platform based on the promise that they’d then start spitting out 5-10 clinical candidates a year. But that era has ended (or at least paused).

So what is a founder with a big platform vision to do?

Tahoe’s idea seems to be that the reason there isn’t much value/revenue in helping multiple companies discover drugs isn’t that you’re helping someone else. It’s that you’re helping multiple people. Scarcity is valuable. If everyone can use your platform, then everyone will want a different capability that differentiates them. If you only sell it to one customer, they’re not just buying the product/service - they’re buying that differentiation.

So the plan is that Tahoe will spend their recently raised $30M to generate a massive dataset, then “select a single partner to share the data and accelerate translation to clinical outcomes.”

Given that other recent partnership deals involving non-exclusive access to data that wasn’t purpose-built were in the hundreds of millions, it seems like this one deal could easily get into the range that VCs would be excited about.

(The dataset itself is also very interesting, and they even released part of it as open source, but that will have to wait for a future post.)

So, will this become the new model for how founders with big platform-style visions can build companies that are big enough to attract VC funding in the post-techbio era? Only time will tell. And in the meantime, I’ll be keeping an eye on Tahoe.