Fannin Partners, LLC, a Houston, Texas based biotech startup specializing in early-stage life science commercialization, has completed a private offering of Class A units totaling $7.3 million. The proceeds will be used to fund further expansion of the company’s startup portfolio, which currently includes: Acelerox, ACF Pharmaceuticals, Apaxis Medical, Brevitest Technologies, Clearview App, Guidabot, NewHeart, Procyrion, and Pulmotect.
The Fannin Innovation Studio (http://www.fannininnovation.com) is Houston’s only for-profit firm offering integrated funding and direct management of life science startups focused on commercializing innovation developed in Texas Medical Center institutions.
Led by an experienced team of managers with strong entrepreneurial knowhow drawn from diverse business backgrounds and with a range of commercialization experience, Fannin partners works with promising life science innovators to co-found and actively manage startup companies. Fannin provides its startups with central office space, seed capital and access to a vast network of resources.
Even great concepts and laboratory achievements can’t impact human health if they remain in the lab only. While interesting technologies are sometimes licensed by companies — either major pharma or startups — for the purpose of continuing their development, Fannin contends that in Houston, that doesn’t happen as often as would be desirable. And while anyone can form a company and license it themselves, in order to really establish a viable and profitable enterprise, it will be necessary to raise money from individual investors, hire a management team and balance all that with your day job that you need to keep the bills paid, that you possibly love and ideally want to stay in.
Having identified what it believes to be the root cause of Houston’s commercialization gap, Fannin endeavors to work directly with the city’s several top-tier, higher education institutions in recruiting aspiring entrepreneurs to join its apprenticeship program in which they receive on-the-job training, providing them with the skills and knowledge to collaboratively lead Fannin’s portfolio companies from innovation to commercialization.
Fannin notes that the early-stage life science sector in Houston is full of opportunity, with plenty of high-margin, global product sales potential inherent in discoveries made locally. They point out that Houston-based medical institutions are prolific at the research level and have clinical experience that leads the nation and indeed the world. However, the tech startup sector is also full of risk, with potential failure lurking in the underlying science and technology, the regulatory pathway, management’s ability to execute, the enterprise’s reimbursement strategy and the strength of its intellectual property as well as many other potential risks. Fannin also points out that a unique additional risk associated with investing in the biotech sector in Houston is the absence of any major regional pharma industry, resulting in few locally-based veteran drug or medical-device managers, and limited professional funding sources.
Fannin accepts this reality, and while they say their hope is that a third coast will develop in the fullness of time, they aren’t setting out to create one — rather taking what Houston does really well and developing it in a capital-efficient way that will provide it with reasonable prospects of creating commercially profitable products.
First is to have a broad portfolio. Since it is virtually impossible to pick winners at the earliest stages of development, Fannin’s focus is on having as many shots on goal as possible. They can handle this diversified approach by optimizing resources, managing investment of cash, and being ruthlessly methodical at killing off things that aren;t working, before too much precious capital is expended on them.
Secondly, Fannin focuses on optimizing equity for all founders, ergo: It’s no good hitting a market home run, if you only own 0.25% of it, and that applies to Fannin themselves or any founder. Consequently, the focus is on identifying hard to find non-dilutive sources of capital whenever possible, and raising large amounts of capital only when a line-of-sight to an attractive outcome has been clearly identified. This shared-overhead model allows portfolio companies to have low burn rates, further reducing any single company’s equity need.
Fannin’s third foundational pillar strategy is to leverage available talent that. The company’s core management team is comprised of both industry specialists and entrepreneurial veterans, supplemented by trusted advisors and consultants. In addition, Fannin makes extensive use of fellows and interns drawn from the deep pool of very smart PhDs Houston educational institutions who graduate professionals who desire entry into the commercial realm.
Finally, Fannin engages the market early on, unlike many technology developers who focus on the technology first. Fannin conversely spends as much time or more examining how the technology would be accepted, sold and paid for, tapping relationships in the industry and in the investor community, and developing partnerships where applicable to mitigate risk.
One Fannin portfolio company, Clearview App, is working on development of a patent-pending assay platform technology that could allow users to visualize and identify contaminants on a broad range of surfaces. ClearView has developed a technology base on low-cost proprietary hardware that can be used in conjunction with mobile devices such as smartphones combined with running a downloadable app.
“Investors backing Fannin in this round see the potential in locally-generated life science technology, and we provide a unique and diversified way to take that technology and manage it to the point where hopefully others see significant value as well,” says Fannin founder and chairman Leo Linbeck III. “The current Fannin portfolio represents our effort in this space since 2007, and the new funding allows us to expand our team and our investments.”
Great data in the lab can’t impact human health if it stays in the lab. Sure, interesting technologies are sometimes licensed by companies major pharma or start-up that will continue their development. But in Houston, that doesn’t happen as often as it should. Of course, you can form a company yourself and license it in. But to really start a company, you’d need to raise money from individual investors, hire a management team and balance that with your day job (the one you love and ideally want to stay in).
Fannin provides another option by co-founding companies, and if the technology is deemed to hold real promise (including some third-party validation), Fannin will do the work of setting up the company, licensing in the technology and assisting in designing the next development phase. During the initial development phases, Fannin will work for equity, to ensure that seed money invested when the company is initially set up all remains allocated to third-party expenses to advance development. Additionally, they will assign a senior Fannin manager who will be responsible for the program, supported by the team of in-house professionals, fellows, and interns who will handle much of the day-to-day work. Because Fannin manages many companies on a pooled basis, a particular startup won’t receive all of their attention 100 percent of the time, but will get 100 percent attention when it matters — an approach they say has been proven to work particularly well in life science product development.
Given the substantial time it takes most products to reach points of significant value enhancement, Fannin tries to use early seed dollars sparingly and seek out non-dilutive grants and other funding sources to make early equity capital go farther. They will not use the seed capitalization dollars they provide to fund basic lab research, but will work with client entrepreneurs in pursuit of grants — a strategy they say has yielded a great deal of success.
Fannin Innovation Studio is funded by a diverse spectrum of capital sources such as government and foundation grants, angel investors and strategic partners in developing of the portfolio companies’ technologies. Based on past performance, Fannin anticipates being able to attract up to $30 million in funding support, representing total technology development capital pool of nearly $40 million.
“We have experience in capital-efficient development strategies,” explains Fannin Managing Partner Atul Varadhachary. “Moreover, both strategic partners and the venture capital industry have recognized the need for groups such as ours to bring them opportunities that are prepared for their form of investment. As the fundamentals for the sector have improved, we hope to take advantage of expanded opportunities to create successful companies and technologies.”
Fannin projects being able to co-found 15 more portfolio companies over the next five years in addition to the array of medical technologies the company currently hosts or manages including for example development of an intra-aortic pump for heart failure patients, an inhaled immunotherapy for providing rapid protection against infection with major pathogen classes, and a novel point-of-care device for accurately automating enzyme immunoassays.
Fannin Partners, LLC
Fannin Partners, LLC