A decade of perfecting an impact strategy

    Sofinnova Partners' Industrial Biotech team officially closed the firm's first formal impact fund under Article 9 of the Sustainable Finance Disclosure Regulation (SFDR). Here is our story about how it all started more than a decade ago with the idea that biotechnology was evolving so quickly that it would disrupt sectors outside of healthcare. A team took shape and the idea blossomed through three iterations into a €175 million early-stage fund.

    After more than a quarter century of investing in healthcare start-ups, Denis Lucquin, then the chairman of Sofinnova Partners, decided in the late 2000s that the time had come to explore the potential impact that biotechnology would have beyond healthcare.

    A couple of pioneering young American companies with impressive valuations had caught his attention, and as a scientist and fund manager with deep knowledge of the eye-popping innovation that biotechnology was enabling in healthcare, he saw chemistry as one of a range of industries that biotech could potentially transform.

    As a father of three sons who are passionate about environmental issues, he also saw an opportunity to help make the world a better place — he felt he had found a purpose with impact.

    Because Sofinnova’s managing partners take decisions unanimously, Lucquin, even as chairman, had some convincing to do.

    “Biotech science had evolved so much over the last 10 or 12 years, so I thought maybe we could do something more by building on our expertise in healthcare,” Lucquin explains. “So I took the idea to my partners at the time, and after some discussion, they agreed to do one or two deals in these non-healthcare areas,” now broadly referred to as industrial biotechnology or biotech for sustainability.

    For Antoine Papiernik, Sofinnova Partners' current Chairman, the move marked the beginning of the firm's effort to make a positive impact on the environment. "Industrial biotech became an important part of the Sofinnova platform because industrial biotech is critical to our future, to our collective future," he said.

    Lucquin quickly spotted two investments that fit: The first was BioAmber, a Canadian spin-off that used innovative fermentation, purification and catalysis techniques to turn renewable nonfood feedstocks into chemicals that could replace petroleum-derived incumbents. Next was a Dutch company called Avantium that was developing renewable bioplastics technology. Both companies ended up going public.

    Those investments slotted into an existing Sofinnova life sciences fund that was otherwise devoted to healthcare start-ups. Another industrial biotech investment, Green Biologics, became part of the next fund.

    While all this was happening, Lucquin was already looking farther down the road. Biotechnology was evolving at an incredibly fast pace, and it was clear that it would disrupt sectors outside of healthcare. The possibilities extended beyond the chemical industry — food, agriculture and materials were all sectors that seemed poised to benefit from advances in biotechnology.

    “I had started to nurture this idea of a dedicated fund,” Lucquin recalled. “But first I wanted to hire someone I could coach so they could eventually run this fund.”

    The Industrial Biotech team takes shape

    As luck would have it, Joško Bobanović was in Paris and looking for a job. Bobanović, who had a background in oceanography, had created an Internet start-up and spent eight years as a venture capital executive in Canada, might be a perfect fit, Lucquin thought.

    The dedicated industrial biotech fund that Lucquin had in mind would be an early-stage seed fund — it was eventually named the Green Seed Fund ­— so he was looking for someone who could talk to scientists and guide them through the process of turning ideas into companies.

    “I was more interested in hiring someone who understood the rationale of setting up a company from scratch, from the perspective of science and the academic world, rather than somebody who knew everything about this particular field,” Lucquin said, adding that he was confident that Bobanović could quickly become an expert in industrial biotechnology.

    Bobanović joined Sofinnova as a Partner in 2010, and did indeed learn fast — he now sits on the boards of eight industrial biotech companies.

    Sofinnova Industrial Biotech II raised €175 million as an early-stage environmental impact fund

    The formation of this team dedicated to impact investing marked the start of a new era for Sofinnova Partners. Industrial biotechnology would go on to become a major pillar in a platform of funds, with a pioneering team that was among the first to understand how the maturing field of biotechnology could go beyond health care to help address major environmental challenges like climate change, biodiversity and food waste.

    Indeed, in 2021, Sofinnova Partners officially closed the third iteration of the Industrial Biotech fund and the first formal impact fund under Article 9 of the Sustainable Finance Disclosure Regulation (SFDR). The fund, Sofinnova Industrial Biotech II, raised €175 million as an early-stage environmental impact fund. Twelve years after The Green Seed Fund launched, Sofinnova Partners is managing over 7 times the original amount to finance early-stage companies harnessing biotechnology to develop sustainable solutions across the food, agriculture, chemical and materials sectors.

    Bobanović says the desire to use his intellectual resources for the greater good is his biggest motivation. “I tell people that I am changing the world,” he said. “And, you know, that’s true, both literally and metaphorically. People get excited about the opportunity to change the world.”

    He pointed out that an increasing number of young people are "looking for opportunities to put their talents to work outside of consumer technology — in fields that will help the world become more sustainable."

    “This is not to say that some of the companies in consumer tech don’t have an impact on society,” Bobanović said. “But we could easily live without another mobility app ­— it’s not going to change our lives if we have to flag a taxi. But tomorrow if we run out of food, that’s a big problem. If we destroy the environment, that’s a big problem.”

    Martin Plambach, CEO of Biosyntia
    Martin Plambech, CEO of Biosyntia
    "I see Joško and Sofinnova Partners’ role on our board as one where they are constantly trying to move things."

    "Joško is good at challenging us — he says what he thinks and feels, but you always can sense that he's doing it with the best interest of the company in mind," said Martin Plambech, CEO at Biosyntia, a Danish company that develops sustainable fermentation processes for producing nutritional ingredients. "I see Joško and Sofinnova Partners’ role on our board as one where they are constantly trying to move things."

    "You're not a CEO because you want to keep the status quo," he added. "You want to be challenged. Joško and Sofinnova are good at that."

    The other partner in Sofinnova’s Industrial Biotech team is Michael Krel, who joined as a Senior Associate in 2013 and was promoted to Partner in 2019. He is the partner with the most hands-on experience at industrial biotechnology start-ups, having spent six years in business development roles at biotech start-ups before joining Sofinnova.

    In a rare move, Krel even served as CEO of EnobraQ, a Sofinnova Green Seed Fund portfolio company. His taking the reins temporarily made sense because the company was created by Sofinnova from a research project that was part of the Toulouse White Biotech Cluster, a public-private industrial biotech accelerator.

    "I was there for 18 months. I structured the company, hired the CTO, hired the team, raised the seed round," Krel said, "so that it could transition to the hiring of a longer-term CEO."

    Krel came to biotech and venture capital via science and consulting. He finds it satisfying to retain the “positivity of going into deep science,” yet “still being able to see a lot of different things and have an impact on a business,” helping its executives “craft their strategy and their path forward.”

    Like Lucquin and Bobanović, sustainability provides a purpose for him.

    “I have three young kids, and I don’t want to end up 25 years from now with a difficult question about, you know, why didn’t I do anything to solve climate change,” Krel said. He said that investing in companies that are all part of a movement toward sustainability and lower carbon emissions “is the way for me to address that very personal issue.”

    "Michael is on our board and gives us a lot of support," said Karim Engelmark Cassimjee, CEO of EnginZyme, a Swedish creator of technology that unlocks the power of enzymes to create sustainable chemistry solutions. "He will point out the flaws of your argument very efficiently, and these conversations always end up with an elegant solution. He's a very good person to have on the board."

    Clearly, the Sofinnova Industrial Biotech strategy team is united by this sense of purpose.

    In 2017, Guillaume Baxter joined the team as a Senior Associate, bringing with him years of experience as an Investment Director at Solvay Ventures, a post-graduate degree in industrial biotechnology and his own desire to effect positive change through science.

    Baxter, now a Principal, joined the firm as a known talent — he had been "on loan" to Sofinnova Partners to work on the Green Seed Fund from 2012-2015, as Solvay was one of the fund's investors. Krel pointed out that the team is a uniquely balanced, complimentary group. In terms of age, they stretch across decades (Lucquin is in his 60s, Bobanović is in his 50s, Krel and Baxter in their 40s.) They have worked together for a number of years now, and the fact that they learn from each other’s strengths has helped them converge into a stronger whole, Krel said.

    “Josko and Denis are probably better than I am in the specifics of deal making,” Krel said, “whereas my technical background is probably stronger than theirs, especially in this field.”

    He added: “Josko is very strong at AI and everything that is between computation and biology, whereas Denis is stronger in agriculture-related themes, and I am probably better at everything that has to do with the fermentation process. Guillaume is great at understanding the goals of our strategic investors.”

    Anouk Champsaur, an associate with the Industrial Biotech Strategy, and Anna Belousova, a senior analyst, have more recently brought fresh perspectives to the team.

    Loren Burnett, chief executive of Prometheus Materials
    "I feel like I've already got a foothold in Europe because of all the connections that we have just through Sofinnova."

    Belousova, who initially graduated as an invertebrate zoologist, went on to get a B.Sc. in Biology from Moscow State University, and an M.Sc. in Biomedical Science from Skolkovo Institute of Science and Technology. "We are focused on the sustainability part of biotechnology," she said, "food, agriculture, materials, chemicals — all these are important parts of everyday life."

    Champsaur, whose many academic successes include being top of her Ph.D. class (in Chemistry) at Columbia University, is both grounded and optimistic about her work at Sofinnova Partners. "It's not just one company that's going to change the world," she said, "but I think as a collection, they might be able to make some piece of a difference in the big problem."

    Lucquin sums up his team-building in one succinct, self-effacing sentence: “You need to hire people who are better than you are, and that’s what I did.”

    Investing in people

    Sofinnova views its own people as its most important assets and creates teams that thrive on a spirit of continuous improvement and development.

    This attitude carries over into the companies in which it invests. Sofinnova seeks to invest in entrepreneurs who create companies that can change the world for the better, and its teams help portfolio companies form clusters with like-minded organizations so they can better equip themselves to deal with the challenges they will face.

    Founders have to be visionary people who believe in their story and know how to sell it, Krel said. “They need to have force, to be able to move mountains and stay resilient when things are not easy,” he added. “Creativity and charisma are important, of course, but resilience is a very key feature.”

    Biotechnology start-ups fit neatly into a category known as "deeptech" — their technology is based on complex research in difficult domains, and the "go-to-market" path to becoming a viable business is often long and capital intensive.

    Sofinnova Partners takes an active role in helping its portfolio companies succeed, in a spirit of mutual respect and trust. The Industrial Biotech team is embracing this model by helping entrepreneurs build teams, independent boards and knowledge networks; it is creating value by guiding strategy and finding the right financial and industrial partners.

    Adapting a proven model as a platform for growth

    Sofinnova's 50 years of experience investing in early-stage biotech and life sciences companies is a distinct advantage when it comes to attracting founders of "deeptech" companies like the 20+ startups the Industrial Biotech team has invested in so far.

    "When someone has some synthetic biology technology, and they want to create a company, not many VC investors are able to go deep with them," Baxter said. "The people in the ecosystem around them may say, 'O.K., you want to find a deeptech investor, able to make some impact and help you make progress in industrial biotech —Sofinnova is it.'"

    "Sofinnova Partners is really a well-known brand in the ecosystem; the name lends credibility when you talk to other people," said Jean-François Déchant, CEO of Elicit Plant, another Sofinnova Partners portfolio company. "They have a very strong network, a deep ecosystem. So, it's very easy to get in touch with the people you need to develop the company."

    Sofinnova Partners led a €16 million Series A fundraising round for Elicit Plant in February 2022 so the company could develop its phytosterol-based solution that addresses water stress in crops, allowing farmers to respond to climate change.

    The Industrial Biotech team has built and adapted its strategy based on the Sofinnova model — its platform and philosophy — to fit the needs that are typical of its portfolio companies.

    For example, after a couple of early investments experienced difficulties ramping up commercial activities, the Industrial Biotech team held a “learning from experience” workshop and came up with some specific rules for the future, Lucquin explained.

    “The first rule is that before you lay one brick for your new plant, you need to sell at least half of its first year’s production,” he said. “Second, whatever capital you have budgeted for spending, you need to add more, let’s say a cushion of 30 percent.”

    The third rule, Lucquin explained, is about having options when it comes to your market. Companies not only must be prepared to sell other products if demand for their main product fails to materialize — they also have to be constantly on the lookout for new, higher value, uses and market needs.

    The goal is to make sure the companies that Sofinnova invests in have multiple options for monetizing their intellectual property. Diversifying, looking for optionality, creates more opportunities — if companies are agile enough, for example, they can spot a market trend that helps them turn co-products into high-value sales.

    Luc Mathis, CEO of Meiogenix
    "I looked around this afternoon and saw all the CEOs from the portfolio, and I felt that these were good people. I appreciate their seriousness and professionalism. I feel proud to be part of this group."

    "With Sofinnova you have the experience, you have the ambition, you have the vision," said Vincent Usache, CEO of Microphyt, which creates natural solutions for nutrition and well-being based on microalgae. "It's just a fantastic opportunity for a company like ours to have people like Denis and Michael with us."

    Building communities of stakeholders

    Sofinnova Partners has invested in more than 500 start-ups in its nearly 50-year history. One thing that has always played a part in the firm's success and bolstered its reputation is its ability to create connections and build networks.

    The Industrial Biotech team is able to use this network of networks as a platform to build community ties in its own sector, Bobanović said, pointing to the annual Sofinnova Industrial Biotech Day as just one of many examples.

    "We see this field as a multi-disciplinary domain that involves many different stakeholders," Bobanović said. "And we see ourselves as somewhat responsible for helping foster connections in the field, so we started that event with the idea of bringing together 100 or so people on an annual basis — start-ups, big industry, people from the financial industry and other investors — anybody else who is interested in the field. And the idea is really to create a platform to bring people together at a place where they can talk; everything is geared towards networking conversations and helping each other."

    He added that Sofinnova is constantly trying "to find commonalities in our companies and organize workshops and events where we can debate and explore experiences." Topics can range from processes like fermentation, to building factories or storytelling.

    "Events like Sofinnova Industrial Biotech Days are refreshing," Usache of Microphyt said at the event in April 2022. "You get to interact with people who can open new horizons, who have different perspectives on your business — it's extremely important."

    Matt Lipscomb, CEO of DMC Biotechnologies
    Matt Lipscomb, CEO of DMC Biotechnologies
    "Sofinnova Partners does a really good job bringing together leaders from portfolio companies and having round tables and open discussions about issues that we all face, from hiring and labor issues to communications, marketing or whether to build a plant, buy a plant or engage a contract manufacturer."

    Déchant, the Elicit Plant CEO, said that after 2 years of lockdowns, it was "very refreshing" to meet — in person — with a variety of people from fellow CEOs to analysts to executives at large corporations. "My discussions with large companies have given me ideas on what kinds of strategic alliances we could build."

    Luc Mathis of Meiogenix said that the event made him "feel like I'm part of the family."

    “I feel proud to be part of this group," he said.

    "Having people who are going through similar challenges in the room together to be able to bounce ideas off of each other is invaluable," said Matt Lipscomb, CEO of DMC Biotechnologies. "Sofinnova Partners does a really good job bringing together leaders from portfolio companies and having open discussions about issues that we all face, from hiring and labor issues to communications, marketing or whether to build a plant, buy a plant or engage a contract manufacturer.”

    Martin Plambech, CEO of Biosyntia, said in-person events like Sofinnova Partners Industrial Biotech Days allowed for more intimate conversations that helped loosen the dialogue. “You hear things about challenges people are having and you can relate that to what you’re struggling with,” he said, adding, “you can learn from them and they from you. They’ve created an atmosphere where people are O.K. saying what they are struggling with.”

    Loren Burnett, chief executive of Prometheus Materials, a Colorado-based company that has harnessed microalgae to create carbon-free building materials, sees Sofinnova Partners as a gateway to Europe. "I feel like I've already got a foothold in Europe because of all the connections that we have just through Sofinnova," Burnett said.

    "Finding a VC in the U.S. is pretty straightforward, but finding a high-quality VC in Europe, such as Sofinnova Partners, is to me special," he added. "Sooner rather than later our business partners will be international. And so we need to be ready and have our eyes on the prize in terms of international manufacturing and licensing."

    Sustainability and performance as parallel goals

    Lucquin admits that sometimes he thinks he started the Industrial Biotech practice a little too early. In the beginning, he said, "if you wanted to make a renewable product that would compete with traditional, petroleum-based chemicals, you had to try and make it less expensive — there was no 'green premium'."

    Now, with consumers increasingly sensitive to environmental issues, "when you talk to a Unilever today, when you talk to Danone, when you talk to Coca-Cola, they are starting to consider that consumers are ready to pay a little bit more for something which will be more sustainable," Lucquin said.

    Companies across many industries are moving forward with bolder, more proactive sustainability measures.

    “Sofinnova's Industrial Biotech team invests in companies that use biotechnology to transform the way we produce, consume and reuse resources,” Papiernik said. "Every one of these companies will have a big impact if they can scale. Our job is to make sure they have every opportunity to succeed."

    Sustainability aligned with performance is the goal throughout the value chain. Sofinnova Industrial Biotech portfolio companies use processes that are more environmentally sound than those used in the petrochemical industry.

    Sofinnova's portfolio companies often get buy-in from the market early because their products are better than the incumbents. Better can mean more resistant, like the agricultural products Micropep Technologies is developing.

    It can also mean more recyclable: Pyrowave created technology that makes recycling polystyrene (styrofoam) a much more efficient, circular process. Recycling the ubiquitous material in the usual way is inefficient, and results in a hard plastic "dead-end" material. Pyrowave's technology, supported by investments from companies like Michelin, generates new styrofoam from waste polystyrene. The process uses a tenth of the energy and half the CO2 emissions compared with polystyrene made from crude oil — and it is price-competitive.

    Better can also mean more natural, able to carry a label that reassures consumers. Some of the chemical ingredients Afyren will manufacture at its new factory will go into cosmetics and food. The factory will use sugar beet waste, not petroleum products, as feedstock and will generate far less CO2, and zero waste water.

    Now, more than ever, consumers care about the issues industrial biotech start-ups are trying to solve. Companies and brands are getting on board, too.

    Sofinnova's Industrial Biotech team, underpinned by Sofinnova Partners' five decades and 500 start-ups worth of experience, is leading the way in Europe for investors who wish to have a deep impact in the effort to solve the world's most pressing problems.

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