Rafi Hofstein
Earlier today I caught up with the President and CEO of MaRS Innovation (MI), Rafi Hofstein, as he takes in the JP Morgan annual biotech conference in San Francisco to talk about funding early stage tech start ups in Canada. MI, as not too many Canadian investors will know, is one of a few organizations that focus on getting scientific ideas into action in a country that needs it.
Indeed, Hofstein begins there in our interview, noting that MI was born back in 2007-2008 as discussions in Ottawa over Canada's lag in venture capital especially as regards translating academic research to viable, commercial technology, products and services. So MI came to be, bringing together a swath of Canadian Universities, hospitals and other institutions to help seed - and equally importantly guide - scientists with ideas to commercial success. It started with $15 million in government funnding and the same amount from member organizations.
"In a world that has become pretty risk adverse...it is almost impossible to build value and to get an asset up the value the chain," Hofstein says. "If I had to use one sentence to describe MaRS Innovation, I would say we are the bridge of the Valley of Death."
In the past decade MI invested in some 100 assets and helped create a few dozen companies. By and large it takes an active approach as the part of MI mission is to take some of the pressure off scientists - who may not be the best entrepreneurs, at least initially - to develop the product while MI manages the early stage business side.
Xagenic - one of its earliest investments - stands as case study of how MI works. Two scientists at the University of Toronto Shana Kelley and Edward Sargent came up with a unique molecular diagnostics approach. "We recognized the potential," Hofstein says.
MI took it on - it takes on about 15% of the ideas the come across its desks - and, as it typically does, covered patent costs and helped develop the business case.
Meantime it installed interim managers of the company, and to cover business development, it invested about $500,000. "And that's essentially just to get things started," Hofstein says.
Then, under MI guidance, Xagenic as it was to become known, improved on the messaging of the business plan so that we could raise another $2 million, Hofstein says. This was the company's seed investment.
With that Xagenic was able to make a prototype - key to enticing bigger fish in the sector. It worked. They raised $10m from external investors and soon thereafter hired a CEO and a team of about 20 people to start developing the product around the prototype. This would lead to a Series B financing of $20 million, including a US venture fund from San Diego.
Hofstein is proud. It is "probably one of first cases of US-based highly qualified investor coming to Toronto," Hofstein says.
Now Xagenic - still based in Toronto - has 70 employees as it continues development of its molecular diagnostic product.
Now Xagenic serves as hallmark for the MI approach. "The model that we built around Xagenic is the model we have used for everybody else," Hofstein says. And its working. Hofstein rhymes off three reasons he thinks so. One: We're getting great scientific ideas closer to meaningful products. Two: Foreign capital is lending in our backyard. And three: We're also addressing the need to create more jobs in Canada.
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