Synthetic biology (SynBio) isn't just about science; it's also about how these scientific innovations are turned into products and solutions that meet market needs. Its applications are extensive, ranging from enhancing food flavors to revolutionizing carbon sequestration practices through innovative uses of natural systems and genetic engineering.
However, the path from lab to market can be challenging for founders, from building a scalable plan to navigating regulatory matters.
We had the pleasure of hosting Chloë Payne, Principal at Ponderosa Ventures, to cover the basics of the SynBio industry and help aspiring STEM founders take their first steps into entrepreneurship.
Welcome to the 44th episode of Deep Tech Catalyst, the channel by The Scenarionist where science meets venture!
Key Themes Covered:
🧬 Understanding Synthetic Biology (SynBio) and Its Applications
🗺️ Navigating Regulatory Scenarios in the Food Industry
🎯 Pricing Strategy Basics for SynBio Innovations
📈 Capital Efficiency and Scalability in Synthetic Biology Innovation
🎯 Green Lights and Red Flags for VCs in Early-Stage SynBio
🎧 Prefer to Listen?
KEY INSIGHTS FROM THE EPISODE
🧬 Understanding Synthetic Biology (SynBio) and Its Applications
Let's break down what synbio is and explore the value chain and stakeholders involved.
First, SynBio involves organisms and the potential for innovation around them.
Many innovations in this space involve genetic transformation techniques, novel screening methods, and other ways of manipulating organisms to change their behavior or protein expression.
As we move through the value chain, we encounter innovations in production and processing. This might involve:
automation software,
novel extraction methods,
downstream processing techniques,
or even the bioreactor design and cell culture media
Each of these elements comes with different business models and plays a unique role in the synthetic biology market.
From Lab to Investable Startups
Beyond the initial stages, the focus shifts from more technical aspects to business innovation, particularly in the productization phase.
In simple terms, once you've developed your process and have a tangible output, the next step is figuring out how to turn it into a marketable product.
Some companies excel as brand builders, licensing or acquiring intellectual property from tech firms to create brands around alternative proteins, novel pharmaceutical products, and other innovations.
They create brands around alternative proteins, novel pharmaceuticals, or other innovations. In some cases, the founders of these innovations might not be suited to building brands, but there’s real potential in commercializing their breakthroughs.
Emerging Applications in Synthetic Biology
Synthetic biology, closely linked to biotechnology, integrates elements of artificial intelligence and computational biology, impacting various industries such as pharmaceuticals, food technology, and medicine.
One significant trend is the shift in global food consumption patterns, particularly the rising commodity prices, such as cocoa, which has quadrupled in price over the last 5 years. This spike has spurred technologies aimed at producing organic compounds or proteins that mimic the taste profile of cocoa, presenting a rapidly emerging market opportunity for alternative protein sources.
The Intersection of SynBio, Ocean Tech, and the Carbon Credit Market
But there are also more niche applications that are less well-known, particularly in the ocean space. For those less focused on climate issues, it's important to note that there has been significant investment in the carbon credit market.
Novel methods for capturing carbon through biological and natural systems are now being explored.
One promising area involves the ocean’s natural carbon cycle.
Diatoms, tiny ocean organisms, are being studied for their potential to enhance carbon capture. By genetically modifying diatoms—using techniques like CRISPR—scientists aim to increase their reproduction rates, essentially creating algae blooms that absorb more carbon and accelerate the natural carbon cycle.
This approach could have a major impact on efforts to address climate change.
🗺️ Navigating Regulatory Scenarios in the Food Industry
Understanding the regulatory landscape is crucial for STEMs who are innovating new products. For university-level founders or early-stage startups exploring the market, the best approach is to target regions where regulations are already in place or relatively straightforward.
In the food industry, for example, new solutions that mimic the taste of high-cost commodities must not only be innovative but also meet safety and consumer acceptability standards.
However, government agencies responsible for crafting and implementing these regulations often move slower than the industry's pace, forcing companies to adjust their rollout plans or pivot to more favorable regions.
For instance, in the case of cultivated meat, markets like Singapore and the U.S. could be considered more favorable than those in the EU or UK due to their well-established food regulations.
Navigating these regulatory environments can be complex and costly, especially when the expertise of a regulatory consultant is required. Planning for these challenges early in the development process can help prevent future difficulties and financial strain.
Founders should research thoroughly and prioritize initial market entry into regions with clearer regulatory paths, saving time and resources when bringing innovative products to market.
🎯 Pricing Strategy Basics for SynBio Innovations
One of the major challenges facing synthetic biology, especially in the commodity food market, is balancing capital-intensive technology with a global market driven by commodity prices. These 2 elements don’t always align well.
While there are certainly ways to navigate this challenge, the key is to engage with customers as much as possible—and to engage with a variety of them.
Different customers have different needs and price sensitivities, which may reveal opportunities to add value beyond simply replacing an existing commodity.
For example, if you're producing a protein or an alternative ingredient that’s healthier, carbon-negative, or offers a cleaner label, there could be a willingness to pay for those benefits that wouldn’t exist for a standard commodity like cocoa butter or wheat.
These exploratory conversations with potential customers will help you identify where your technology can offer unique value. Many corporations are trialing multiple startup products simultaneously, often evaluating ten or more at once.
Building a relationship [with potential customers]will help you get to a point where you can price it, which makes sense for you because you need to know your own costs and kind of price it in a way that makes sense. But also you're still creating value for the customer. And I think that can only come from really good customer relationships and spending a long time with them, which is really time intensive, but it's what it takes.
📈 Capital Efficiency and Scalability in Synthetic Biology Innovation
A common concern for venture capitalists (VCs) investing in synthetic biology is related to capital efficiency. When VCs evaluate a business, they often look at the long-term financial picture.
For example, they might invest an initial amount now but recognize that, to scale, the company will need to build both a pilot facility and a full production facility, which could require an additional €100 million or more. This large capital requirement compared to the expected exit value of the company can become a significant issue, especially when compared to the economics of software businesses, which typically require less capital to scale.
However, this doesn't apply uniformly to all companies.
Some startups with strong R&D and innovative solutions may be able to partner with larger companies that already have the necessary production facilities. In such cases, the startup can still capture value by receiving royalties or other financial returns from the production process, which is a great outcome.
On the other hand, not all production processes are capital-intensive.
For instance, solid-state fermentation—often used with fungi—only requires trays in a humid environment, making it much less expensive. Similarly, some plant cell cultures don't require costly steel bioreactors and can be done in plastic bags, further reducing capital needs.
Founders should carefully consider their capital requirements but not feel pressured to immediately license their technology or rely on large bioreactor companies. There are alternative, more efficient routes available depending on the technology and production needs.
🎯 Green Lights and Red Flags for VCs in Early-Stage SynBio
When it comes to early-stage investment, the criteria we assess are quite specific and differ from those evaluating later-stage deals, such as Series A or beyond.
The Founding Team
One of the most important aspects is the founding team.
Even after a product is built and the company has taken shape, a lot of risk still hinges on the team. It’s important that the founders are resilient enough to handle the challenges of building a startup, which can be incredibly tough.
Equally important is the team's ability to stay together. A common reason startups fail isn't just running out of money or failing to find product-market fit—often, it's because the founders couldn't maintain their partnership. Conflict resolution within the founding team is a critical factor we assess. A strong, cohesive team is essential for long-term success.
In addition to the team, companies must operate in large, high-impact markets, especially those addressing climate-related issues. Venture capitalists look for big markets with the potential for significant impact.
Finally, and just as crucial, is customer need. The startup must be solving an urgent problem that customers are willing to pay for now, not years down the line. Customer testimonials or other forms of evidence are important to show that there is a clear and immediate demand for the solution.
Customer Validation for Early-Stage SynBio Startups
A great outcome when VCs evaluate an early-stage company is a conversation with a potential customer. Even if a company is pre-product or pre-revenue, it's essential to establish connections with the industry you're aiming to sell into.
If you've spoken to someone in the industry and they express that they’re actively looking for a solution like yours, and it’s a significant problem for their business, that kind of validation makes a big difference for your investors.
In some cases, this type of customer feedback might even be more valuable than a Letter of Intent (LOI), depending on the context. LOIs aren't binding, and there's often a degree of caution around them.
What matters more is the genuine customer validation—knowing that a company is eager for the solution you’re offering.
Common Red Flags Founders Should Avoid
Before reaching out to venture capitalists (VCs), take the time to research which VCs invest at your stage, in your sector, and in your geographic region.
Many startup founders apply outside the right VC focus area, too late-stage, or in the wrong sector. A little extra research can help founders focus on the VCs that are the best fit for their needs, which saves everyone time.
As for red flags, the biggest one is often related to customer focus and demand.
This is particularly common in Deep Tech, where founders can be so immersed in the R&D and the excitement of the technology that they don’t always think about who’s going to buy the product.
While the innovation might be groundbreaking, it’s essential to consider the commercial opportunity and the market need.