We need more bootstrapped biotech software startups

This post is a bit off topic from what I usually write about, but I think it’s relevant to many of my readers and it’s been on my mind recently. I think that as a community, we need to find ways to encourage more bootstrapped (as opposed to VC-funded) biotech software startups. Below I’ll explain why I believe this.

In the last few years there has been huge interest and investment from venture capital (VC) firms in software/digital startups in the biotech space. (See, for example this recent post on the a16z blog.) I think this is great for the community and I’m completely on board. I support anything that will give us more intuitive and powerful tools. I share my opinions and advice with VCs when they reach out and I’ve even collaborated on writing projects (announcement coming soon) when those opportunities arise.

But…

I think it’s also important for the biotech data community to have a healthy ecosystem of digital startups that aren’t reliant on VC investment, and thus aren’t on the hook for the kinds of returns that VCs expect. Here’s why:

First, there are a lot of opportunities that could be highly impactful but don’t have the opportunity for the kinds of billion-dollar returns that VCs are after. Finding a few dozen loyal (B2B) customers is enough to allow a small team of developers to retire early, but not enough to make a VC happy. So if founders are only looking for VC funding, they won’t bother. That’s bad for those few dozen would-be customers and in aggregate it’s bad for the whole community.

Second, on the occasions when VC-backed startups discover the market opportunity wasn’t actually as big as they thought it was, it’s often harder for them to keep going than if they were bootstrapped. If their valuation starts to drop before their revenue catches up with their expenses, it’s very hard to extend their runway. Plus their early investors may start pressuring them to get acquired so they can get any return they can. Suddenly all these tools that were born from the hype start to disappear.

The bootstrapped software in our ecosystem is a buffer against this.

So what, exactly, am I advocating for? I don’t know yet… Certainly, if you’re thinking about founding a biotech software/digital startup I hope you’ll consider bootstrapping it before you sign on your first angel or seed investor. But I also realize that bootstrapping is often easier said than done. So I think as a broader community, we need to look for ways to make this a more viable alternative to complement all the VC-funded startups.