By Caleb Appleton

Having invested in the biotech space since before it had a name, I’ve seen life sciences investors steer founders toward a therapeutics pipeline in hopes of securing the payout of a winning drug or medical device.

But the high reward comes with even higher risk: The 90% failure rate of clinical development means that a single, highly likely failure can destroy the entire value of a company. Given the global pharma industry is worth $1.6 trillion, even modest improvements to the failure rate would generate enormous gains in economic productivity and patient impact.

Caleb Appleton, principal at Bison Ventures

There is no denying that therapeutics offer a desirable path for strong returns and enormous human impact, but we can’t afford to continue ignoring the alternative. The business models that are most reliable, yet untapped, are the tools and services powering this field.

Eric Schmidt, the longtime Google/Alphabet CEO and founding partner of my prior firm, Innovation Endeavors, famously remarked: “Revenue solves all known problems.”

Recurring revenue with high gross margins ensures companies can define their destiny, such as choosing when and if to build out riskier product lines like therapeutics. It also enables unit economics that command a high multiple, resulting in lower dilution to founding teams. And while a pre-clinical therapeutic business must convince specialty investors that their hypothesis will play out, platforms can iterate on their product quickly to show real product-market fit.

Here’s a framework biotech founders can use to determine whether they should market their platform to others, or leverage it to develop therapeutic assets of their own:

Is the platform uniquely enabling or broadly useful?

Just as SpaceX’s launch capabilities enable the entire space tech industry, when Illumina started offering sequencing technology, the industry belief was that affordable, accurate sequencing could support nearly all biological R&D efforts. Had Illumina only used it to run internal GWAS studies and drug development, it’s unlikely they would have reached an $80B market cap.

Does the market see value in the tool today, or do you need to educate?

Without ubiquitous adoption, complicated platforms are better suited for internal drug discovery. Eikon Therapeutics, a unicorn I previously backed at seed, fits this bill — the technology to track single molecules is immensely useful for understanding protein kinetics but very challenging to interpret. Spatial biology is another emergent tool where the vastness of the data and the nascency of the field requires specialized teams, making it better to build on top of rather than sell.

Is there a business model to support the technology?

Investors worry about stacking technical and go-to-market risk. Pharma is not accustomed to large SaaS and contract spend, but they do expect services and partnership spend — winning companies will understand how to use these purchasing behaviors to their advantage. A recent success in building a derivative business model is Alloy Therapeutics, which provides nonexclusive biologics discovery services, capturing substantial payments and margins without getting involved in slow royalties and milestone negotiations.

What is your superpower?

As much as product-market fit is important, so is fit between founders and business models. It’s unfair to ask a consumer app founder to succeed in enterprise SaaS, just as it is to ask a technology builder to be good at drug discovery overnight. Founding teams should lean into their superpowers, and if that is building technology, it’s probably also selling technology.

While the life science industry has long favored high-stakes therapeutic ventures, it’s time to embrace resilient, revenue-generating models that improve therapeutics success rates.

Caleb Appleton is a principal at Bison Ventures focused on investments in biotech and AI applications in the physical world. Previously, he was a frontier tech investor at Innovation Endeavors focused on surgical robotics, drug discovery, next-gen hardware, and applied AI. He recently spent two years at a growth-stage portfolio company, TuneIn as senior VP and GM and he began his career at Bain & Co.

Illustration: Dom Guzman