Tuesday, August 4, 2009

Interview with Scott Horner, PhD, Managing Director of a venture capital firm

Have you ever wondered how venture capitalists decide which startup biotech companies are worth the risk of funding? This interview with Dr. Scott Horner will give you a glimpse into the career of the sole PhD scientist at Third Security, a venture capital firm with the goal of identifying high potential life science startups and helping to make them profitable.

Scott earned a PhD in biophysics from the University of Rochester in 2003. When he neared graduation his PhD mentor was just starting a small biotech company based on a technology that had been developed in the lab with Scott's help. Scott worked for his advisor in the spinoff company for 3 years as the Chief Scientific Officer before jumping at the opportunity to become an Associate at Third Security. In less than 2 years Scott had proved his worth to the company, and he was promoted to a position of Managing Director in March 2009.

Why did you decide to pursue a career in venture capital management? While Scott was working as Chief Scientific Officer in his PI's startup company, he had many opportunities to inform other scientists and business people about the science behind their new technology. He said, "I loved going out and presenting about our company and getting others excited about our technology". In the process he realized he had an interest in the business side of science. That said, he's the first to admit that it was hard to let go of the notion that "good science" was the sole determinant of a sound business plan. As Scott learned how to build a company around a technology, his appreciation and passion for business strategy increased and as he puts it, "that's when I decided to transition from being a business operator to a business innovator".

What were your responsibilities as an Associate at Third Security and what do you do now as a Managing Director? Scott explains that in contrast with venture capital firms that fund many different investments hoping that 10% of those companies will become profitable, Third Security is intent on investing in a select group of emerging companies and doing all in their power to ensure that each one succeeds. That puts a lot of responsibility on the analysts whose job it is to evaluate potential startups based on technological merit, the expertise of the scientists who started the company, and other complex market factors.

As an analyst, Scott spent many hours each day researching the science behind new technologies and analyzing the market in which a new company was attempting to enter. In the case of later stage startups that were performing well, he actively sought merger and acquisition targets that the company could merge with to make themselves even more competitive. Scott approached each case as a research project requiring lots of background reading, hours of report writing, and many board room presentations to lay out the pros and cons to the higher level decision makers at Third Security.

When Scott was promoted to Managing Director he shifted from doing research in support of the portfolio managers to BEING one of the portfolio managers. Now he works directly with the founders of a biotech company to help them design a strategic business plan, identify threats to their plan, and advise them on market factors that scientists don't generally think about such as financing, advertising, and market entry.

What aspects of your previous training especially prepared you for this career? In answer to my question Scott said, "The PhD was absolutely required not only from a technical depth standpoint – being able to understand complex new technologies, but also from a process standpoint. Learning how to think about problems and approach complex questions in a methodical way is certainly something that has had applications for me well beyond science."

Scott explained that his training as a research scientist gives him an appreciation for the blood, sweat, years, and tears that go into developing a new technology. As the sole PhD at Third Security that appreciation gives him a degree of emotional capital with the owners of the startups companies he works with.

What kinds of things did you have to learn quickly when you started at Third Security? Although Scott gained an appreciation for business development fundamentals and strategic planning while working in a biotech startup, he quickly realized he needed a more holistic view of what is required for an emerging company to become profitable. Some things he specifically mentioned learning on the job were:

  • What makes a business attractive to investors,

  • upper level business management processes,

  • finance and accounting issues,

  • understanding how to introduce a new product into the market,

  • how to price the product,

  • how to advertise a new product in a cost effective manner.

Is your career path to this position a common one? "If you look at 10 venture capitalists you'll see 10 different paths to how they got to where they are" explains Scott. "Since PhD scientists are still relatively scarce in the venture capital world you see a lot of wandering paths."

Scott acknowledges that he is one of the younger Managing Directors in the business, and he attributes his success to lots of hard work and the fact that his first position after earning a PhD was in a startup company where he wore many hats and learned business strategy out of necessity.

Is this career especially suited to a certain personality type? Scott explains, "You definitely need to be a self confident individual to do something like this – you meet a lot of really smart scientists and business people so you have to make sure you're on your game. You need to be outgoing and personable, but you also need to be aware that a lot rides on your assumptions and there are a lot of dollars are at risk when you give something the thumbs up or thumbs down. You definitely need to take a 'measure twice – cut once' approach." Scott further explains that he routinely puts in 12-13 hour days because he needs to convince himself first and foremost that he has thoroughly vetted a potential investment. Because so much rides on the decisions he makes, and because his work is very outcome oriented, venture capital careers are characteristically high pressure… but they do carry the possibility of high rewards.

How much can entry level analysts expect as a starting salary? It is hard to give a narrow salary range for venture capital consultants. Factors such as company size, location, and previous experience all factor into a starting salary. That said Scott estimated that most entry level analysts make between $60,000 – $100,000 depending on the factors listed above. Salaries beyond the first few years with a company are merit based and vary widely depending on the returns from the firm's investments and their bonus policies. Scott explained it this way, "If you come in as a first year analyst and really hit the ball out of the park, this is one of those fields where you can do very, very well."

Where do you see yourself in 5 or 10 years? "If I can retire from Third Security, I will", says Scott. "It's different everyday, the people I work with are fantastic, and I get to do what I love everyday."

What advice would you give to aspiring venture capital or management consultants? "I know it sounds painful after being in graduate school so long, but I think that a graduate student who wants to transition into venture capital would certainly be well served by finding an internship in a venture capital firm or a larger investment management firm. If you have to, volunteer some time with a local venture capital firm so you can really understand the operational and management issues that are faced by these companies."

For those in the Research Triangle Park area, two local venture capital firms that you can contact are Pappas Ventures (http://www.pappasventures.com/) in RTP and Intersouth (http://www.intersouth.com/), in Durham. You can also check out the Center for Entrepreneurial Development, http://www.cednc.org which holds conferences and monthly activities for entrepreneurs in the triangle.

Scott's last word of advice is that because a career path such as his is still a narrow path for PhDs it is uncommon to see positions advertised. That means that if this path interests you… you guessed it… networking is key.

If you have questions for Scott that weren't answered in this posting he is eager to answer them and invites you to append your questions to this post between now and Wednesday 8/12/2009 at which point he will do his best to answer any questions that have been posted. If you're unsure how to post a question on this blog, please see the text box at the upper right hand corner of the blog titled, "How do I post a comment or question?". Thanks for reading.

7 comments:

  1. Hi Scott,
    Did you always plan to go into this field or was your decision partially a function of being in a lab run by a PI with a company on the side?

    Thanks,

    Brent

    ReplyDelete
  2. Brent,

    I have always had an interest in more of the “business“ side of science. When presented the opportunity where I could serve in both a research and business development capacity, albeit a bit daunting at first, I welcomed the challenge. From my perspective, this is one of the real attractive attributes of working at a smaller start-up company, as exposure to the broader requirements for both building the operational business framework and bringing a technology to market is unavoidable. One aspect in which I became particularly entrenched was fundraising and presenting the opportunity to potential investors. Giving investor pitches and networking with investors (and other entrepreneurs) was something that I enjoyed immensely, and when presented with the opportunity to take a seat at the “other” side of the table, naturally I jumped at the chance!

    Thanks,

    Scott

    ReplyDelete
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