Joel Harris: Animal health start-ups need to deal with increasing confusion of investment
Not many investors have insider knowledge on how animal health start-ups work. Joel Harris of Iowa's Ag Startup Engine was previously part of the management team at Harrisvaccines. He shared his thoughts on the ever-changing landscape for young animal health businesses with Animal Pharm editor Joseph Harvey.
Joel Harris admits working with embryonic companies in animal health makes him nostalgic for the early days of Harrisvaccines – a start-up that secured the first US conditional license for a vaccine against porcine epidemic diarrhea virus.
Harrisvaccines was acquired by Merck Animal Health in 2015 and, since then, Mr Harris has moved on to the other side of innovation – investment.
He became a co-director at Ag Startup Engine at the beginning of 2017. Ag Startup Engine aims to give young firms the funding kickstart they need to get on the first steps of the R&D pathway.
"I've spent some time advising and mentoring start-ups – trying to help them avoid some of the headaches and hurdles my father and I went through at Harrisvaccines," Mr Harris told Animal Pharm. "It's just such a different ecosystem now, compared to when we started the company back in 2006.
"We see folks raising significant seed rounds or their series A is a lot bigger than what we were going for 10 years ago. Back then, in general and not just in animal health, there was not as much popularity of being an entrepreneur at a start-up. Now, we live in the 'Shark Tank' era.
"We spun-out of Iowa State University and there were several programs to help fund start-ups. If you won a competition you might get an award of $5,000 or $15,000. Beyond that, it was dependent on us going to friends and family or stakeholders in the industry.
"Now, there's probably about 600 agtech or foodtech accelerator programs that give you money, resources, an office space and connections. There are pitch competitions weekly, and just so much more activities and support."
Making sense of confusion
He suggested Harrisvaccines might be better funded if it were seeking early-stage investment now. However, Mr Harris said a wealth of investment opportunities is not always a bonus for start-ups.
"I'm kind of glad that there were limited resources for us," he noted. "I think it made us hungrier and made us drive our own path. We were so cash conscious. It was a lot simpler then – a lot less confusion. You weren't overwhelmed by all the different types of investors starting to get into this space that don't really understand agriculture or animal health. I see that happening all the time now, as agtech is really popular.
"What makes it confusing is working out what type of investor is the best fit for your business. I see a lot of companies that are trying to conform to a model, where they can approach a lot of the big venture capital funds in agtech or foodtech. You have to realize the only way venture capitalists make money is if you get acquired or have an IPO. You really need to know what type of company you are.
"If you're planning to tackle an industry that has a really long sales cycle or if you're not able to scale significantly quickly because of regulatory hurdles or technology hurdles, you might be at too early a stage to ask for venture capital.
"Venture capital might not even be interested because they might not want to be along for 10 or 15 years to have that commercial success.
"There are other folks like angel investors that will support idea-stage companies. This is where Ag Startup Engine comes in to a certain degree. We can support individuals or companies with a little bit of money in the early days to finish prototyping or back customer discovery or get more third-party validation, before helping them get a more significant round of funding."
Currently, Ag Startup Engine has funded 10 companies. Of these, four are in the animal health space – VetMeasure, LifEngine Animal Health Laboratories, Performance Livestock Analytics and automed. The organization is in its third year and is aiming to invest in 15 firms before 2020. Mr Harris said it is on track to achieve this goal with plans for a second larger fund in the works.
He stated: "We didn't really know if the investment fund would be successful. We wanted to support ideas and people at Iowa State University and the ISU Research Park to help fill a gap in funding. We wanted to take a higher risk by supporting some of the local Iowa companies at an earlier stage with a check for $25,000 or $50,000."
Mr Harris said Ag Startup Engine is agnostic to the type of company it backs, with its scope taking in both livestock and companion animals.
"I've got more involved in the companion animal side of Ag Startup Engine," Mr Harris pointed out. "In the later years of Harrisvaccines, we were really diving into the canine influenza outbreaks that were happening in 2015. So, that was always an interest of mine.
"I'm actually trying to help some companion animal companies raise money and investors can be really dubious of this exploding market that Millennials and Gen-Zs have for their 'fur babies' – it's a $70 billion market in the US and growing."
Joel Harris: "One of the things we were able to prove at Harrisvaccines is that if you create a product that is unique and novel, producers will pay for value,.
He said sometimes the achievements some companies have made in recent years have not fully got the attention they deserve, with more attention being reserved for the human health or crop science sectors.
"One of the things we were able to prove at Harrisvaccines is that if you create a product that is unique and novel, producers will pay for value," Mr Harris told Animal Pharm. "Is it a sound solution to a problem that has a market, with a team that can actually execute and get something done? If it is, investors will be interested."
He said Ag Startup Engine is currently working on its "next evolution".
"Can we go bigger and write bigger checks?" he asked. "We don't want to lose sight of our initial goals. In the future, I still feel we will support early-stage companies. But I think we've shown our model is working. Our portfolio companies are doing well."
One example of this success is Performance Livestock Analytics – based, like Harrisvaccines was, in Ames. Since receiving funding from Ag Startup Engine, the data analytics firm sealed significant additional investment in 2018 and 2019. It also entered into a collaboration with Elanco.
Mr Harris said he is also looking to the human health sector for assets that could be brought to the animal health industry.
"Some of these folks are just so focused on the big bucks on the human side, they just don't see the applications for their technology that can really benefit animal health," he said.
However, Mr Harris still retains a deep interest in the development of next-generation swine vaccines – something Harrisvaccines focused on. With diseases such as African swine fever and classical swine fever spreading globally, vaccine innovation has been under the spotlight recently.
"There's still a big need for better vaccines, better vaccine banks and technology on the diagnostics side that can better identify when these outbreaks happen," Mr Harris stated.
He also said the trend for improved technology cannot be ignored from an investor standpoint, with the aggregation of data for a holistic approach to animal health a prime goal.
"Everybody is looking for this one application or approach to manage all these things like sensors or cameras," Mr Harris commented. "I don't think I've seen this yet. If someone could do this, it would be a big thing."