The Number of Biology-based Startups Funded by Y Combinator Has Grown Significantly

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October 27, 2015

Who are Y Combinator?

Most of us will have heard of them already, but for those who are new to the start-up scene: Y Combinator provide seed funding for start-ups. They make small investments (USD 120k) in start-ups for equity (7%), bring them to Silicon Valley for 3 months of intensive advice and training, and then help these startups onto the next step: gaining VC investment and growing the company. With a focus on web/mobile applications, they have funded over 800 start-ups including well known firms such as DropBox, Stripe and Reddit.Despite their early software focus, Y Combinator provides a number of generalist services which transfer well into these new arenas. With a strong focus on providing incorporation, legal and mediation help, as well as their numerous contacts within the venture capital world, Y Combinator has the capacity to help startups within a broad set of disciplines.Much of Y Combinator’s growth, both in disciplines targeted as well as the number of startups funded, is due to the actions of Sam Altman. An early graduate of the program, he was the co-founder and CEO of Loopt, a location-based social networking app. The successful exit from this start-up provided him with funding to act as an angel investor, eventually leading to the role of President at Y Combinator.Although originally targeted at software start-ups, Y Combinator began to shift towards the high tech, physical product space with the accession of Sam Altman to the presidency. Y Combinator is no stranger to scientific development, with previous graduates including (a website for scientists to find crowd-sourced funding for their work, rather than grant money), Science Exchange (which acts as a marketplace for biotech firms to outsource their research to laboratories around the world) and Benchling (software to plan and manage your genetic engineering projects).This early experience with science was used as a basis to pull in the ‘first class’ of biology-based companies, in the Summer 2014 batch. This group included several synthetic biology companies such as TAXA (who we have interviewed before) and Ginkgo Bioworks, (focused on the development of micro-organisms as biological factories for the production of various valuable compounds such as flavours and fragrances).In keeping with Y Combinator’s desire to see founders with passion, Ginkgo was founded by a group with known interest in biological research, including current CEO Jason Kelly (who previously developed, a well-known source of scientific protocols provided and used by the scientific community) and Tom Knight (who moved from AI to biology because it would be the most interesting thing to program). From humble beginnings they have now picked up over USD 54 million in investment, making the company one to watch.From this initial ‘first class’ of companies, the number of biology-based start-ups funded by Y Combinator has grown significantly, to the point that 15% of the Winter 2015 batch were active in the biomedical field. This includes a number of synthetic biology companies such as Industrial Microbes (converting natural gas to higher-value chemicals), 20n (using data mining software to design the ideal genetic pathway to produce organic molecules), and Transcriptic (cloud-based and highly automated biotech experiments).

Y Combinator

Categories of the startups involved in the Y Combinator Winter 2015 batch (source: Y Combinator)Thus there is definitely no lack of talent entering the area and no lack of interest in synthetic biology startups. To capitalise on this, a number of accelerator/seed fund investor groups have begun to emerge, in particular IndieBio (which focuses on startups with biology tech, providing USD 250k for 8% equity), but also including more focused programs such as Illumina Accelerator (which focuses on genome sequencing tech).But is this shift towards synthetic biology here to stay? This is actually quite difficult to answer. Biotech actually comprises a relatively small portion of total venture capital investments, between 12-19% over the last few years, with the majority of recent investments actually heading towards software/tech companies (an excellent analysis can be seen here). Biotech IPOs have been particularly good this year, which naturally interests investors in a low-return market such as our current one, but has also raised prospects of a ‘biotech bubble’. Indeed, the NASDAQ Biotechnology Index has dropped significantly in recent months, suggesting a possible backlash against the field.Given this, the question then becomes: should Y Combinator be focusing on synthetic biology? An interesting question, and one which we may hear an answer to in the upcoming SynBioBeta SF 2015 conference.Sam Altman and Jason Kelly from Ginkgo Bioworks will be discussing the future of synthetic biology in their Fireside Chat session, November 5th4:00 pm – 4:30 pm at SynBioBeta. Hope to see you all there!

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