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The Inventivity Pod
So You Want to Start a BioTech Company?
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Serial entrepreneur Randy Scott founded Novamin, a toothpaste using the bio-glass technology invented by Larry Hench (featured on “Glass that Grows,” 9/25/18).  Bio-glass is a ceramic that essentially fuses with bone and cartilage in your body.   Randy says the key to starting a biotech company is “to fall out of love with the science” and instead understand the economic model that makes the invention relevant.   His father, “a prototypical entrepreneur,” sometimes did well and sometimes did not, but his mother  successfully ran a small business.  Probably as a result,  Randy as a child was always “inventing fictional businesses in my head.”

 

TRANSCRIPT:

 

Intro:

Inventors and their inventions. Welcome to Radio Cade, the podcast from the Cade Museum for Creativity and Invention in Gainesville, Florida. The museum is named after James Robert Cade who invented Gatorade in 1965. My name is Richard Miles. We’ll introduce you to inventors and the things that motivate them. We’ll learn about their personal stories, how their inventions work, and how their ideas get from the laboratory to the marketplace.

Richard Miles:

Glass that Grows part two. Welcome to another episode of Radio Cade in which for my guest today is Randy Scott, who’s the founder and CEO of a company called Novamin and also partner at Health Quest Capital. Welcome, Randy.

Randy Scott:

Thanks, Richard.

Richard Miles:

So listeners who have been with us for awhile will remember that we did a show with David Greenspan called Glass that Grows. It was the technology invented or discovered by Larry Hench, who was a material science researcher at the university forward back in the sixties and seventies. And there’ve been various applications of that. So David Greenspan talked about one application and Randy you are involved with another one. So before we get into anything else for maybe our listeners who didn’t catch the David Greenspan episode, if we could go back over, what was it that Larry Hench discovered kind of in real simple terms and then maybe just a little bit about why is there more than one way to use this core technology?

Randy Scott:

Yeah, sure. So the material that Larry Hench invented, was called bioactive glass or just bioglass for short. And the, the thing that makes us different than regular glass is we think of regular glasses, something that is sort of permanent and nonreactive and what have you, bioactive class is different in that it reacts in the presence of anything that’s aqueous, including body fluids. And it doesn’t stay permanent like window glass or you know, something you’d drink a beverage out of or whatever. It actually reacts and it releases calcium and phosphorus and some other things into the environment around it. And then it actually attracts those things back to itself. And it forms a crystal structure that is essentially the same as what bones and teeth are made out of and the body. And so you could imagine if this process takes place inside the body, then the resulting crystals that form to the body just looks like it’s part of the body. And that’s what made bioglass unique was that once it got put in the body and it went through this reaction, which happens very quickly then the body did not distinguish between its own tissue and this new material. So it became the first material that was not just invisible but was actually recognized by the body as this is part of myself.

Richard Miles:

Interesting. So when, when Larry Hench developed this, did he right away know that there was gonna be multiple ways in which this could be used or you know, at what point did Larry or other people say, hey, this can be used for a lot of different things. Cause there are several different applications where, when did that Aha moment come in terms of application of the technology?

Randy Scott:

Yeah. And that actually did come later. So when Larry first kind of started working on this, he was trying to solve the problem of how can we make new bones to put into the body. So replacing whole femurs or whatever, right? You know, the whole bones and it was all born out of a conversation that I think David referenced in his interview with a Vietnam War general that Larry met on a bus and said about all these, you know, soldiers that were victims of land mines and that kind of thing. And so that was the problem he set out to solve because you can’t just put a piece of metal in there or piece of plastic in the body or whatever. And that kind of large piece and expect it to be successful residing in the body for a long time. Didn’t really work out for that very well though, because glasses at the end of the day, one of the things we all know about glass is that it breaks easily. So you put it in a load bearing large situation like that, it’s going to break eventually. But somewhere later down the road, some other researchers also at University of Florida got the idea of what if we ground this up and to… you know, just kind of granules, think like salt or sugar or something like that. And could we put it into bony defects and have those have the material convert in such a way that the body would then heal around it as if they were bone chips or something that the body might normally remodel into new healthy bone. And sure enough, that worked. Uh, and so that really became the first viable commercial application for it. And then somewhere later down the road, a researcher at the University of Maryland who had done just some animal studies for Dave Greenspan and Larry Hanson and some of the other folks that were doing some work in the area, he got to thinking, he was a dentist by training, although he was to sort of pay his bills or whatever he was running animal studies, and he got to thinking, well, you know, teeth get these tiny little defects in them. And I wonder if we grounded up, instead of being, you know, the size of a salt crystal or a sugar crystal, what if we ground it up into super fine powder, then we put it into those defects somehow. Would it cause the teeth to also kind of regenerate themselves or heal or whatever. And so he experimented with that and sure enough it did work and there were some other challenges that came to using it in that way, but conceptually it did work in the laboratory at least. And that was more or less like I think where I came into the story, which was thinking about the kind of dental applications and in particular thinking about, you know, incorporating this into toothpaste and how might it improve the performance of toothpaste. Given that one of the things we want our toothpaste to do is to prevent us from getting, getting cavities or even better fill the cavity that has already happened in these kinds of things.

Richard Miles:

So Randy, so you said that this professor is the one who thought it might apply to teeth. And at that point you sort of got in the mix and you’ve had since then had a distinguished career in sort of identifying companies and helping entrepreneurs. So with all that you’ve learned now, you know, as you started Novamin, kind of walk us through what were some of the first things you had to figure out as you’ve got this, this technology that you believe works and believe has an application. And what was the first thing that you did? Did you call up your parents, say “I’m rich.” You know, “Hey, I’m buying your house and car. I’ve got it all figured out.” Or what are, what are kind of the first initial steps you took and then if you can sort of summarize what were those early years like in terms of, of getting a good idea into the marketplace and starting to grow that.

Randy Scott:

Yeah. So the key on any of these things is to fall out of love with the science and instead trying to understand the economic model that makes whatever the invention is or whatever relevant. And that’s one of the pitfalls I think a lot of inventors, and especially I would say academic inventors kind of fall into because they’re scientists by nature. And so they love the beauty and the elegance of the science. And I would say the early folks with what became Novamin with the bioactive glass had you know, some of those same kind of challenges of just trying to set the science and the beauty of the science aside and think about the economic part. So, um, you know, in our case it was figuring out that, okay, the really, the only way this was going to make a difference to the population as a whole but also to the business world was if we could figure out a way to incorporate it into something like toothpaste where he could use large volumes and it would touch lots of people. And so we, you know, kind of stopped spending time and energy and money on, on the science of the Novamin so much and started more figuring out on how to solve the problems of using this in a toothpaste formula and have it feel right and taste right and not go bad on the shelf and all those kinds of things. But anyway, to come back to your question for, you know, entrepreneurs, one of the biggest mistakes or whatever shortcomings that I see as a venture capitalist is that they are completely in love with the science and they’re not yet in love with the economic model because, you know, at the end of the day, investors like VCs want to invest in businesses not in science or an idea.

Richard Miles:

Interesting. We’re going to come back to that. I’m sort of fascinated by that initial stage and then, you know, even after that. Sort of how do you get to the next stage of attracting serious capital and getting it into big markets. But let’s, let’s circle back and talk a little bit about you, Randy. Sorta, what were you, let’s go back to pre success Randy. Right. Let’s go. What were you like as a kid? Did you already… were you four years old and you had the best damn lemonade stand on the block outselling all your competitors or what, at what point did you figure out you had some sort of skill or attraction to business or you know, making things work, that sort of thing?

Randy Scott:

Yeah. So I was kind of a business junky actually as a kid and that I was always inventing fictional businesses that I was running. I wasn’t so good at the follow through, maybe of…

Richard Miles:

Where were you in 1980s and tech. Okay. Alright.

Randy Scott:

But, yeah I would just, one week I’d be had to have my own newspaper and the next week I’d have my own boat dealership or something. It just kind of each week I kind of invented a new business idea in my head.

Richard Miles:

And what age are we talking about roughly?

Randy Scott:

Oh, this would be pretty young. I mean, this would be elementary school kind of ages. And so I was always sort of daydreaming around these types of things.

Richard Miles:

But then that series A round for the boat never took off in the first… And so what were you like in high school. Did you join like the junior achievement or those sort of business type clubs or what were you drawn to it at that age?

Randy Scott:

Yeah, in high school I finally actually started paying a little bit of attention in class, which helped some later so I actually got into college and that kind of stuff. But yeah, you know, I was the editor of the newspaper. I was editor of the yearbook. I guess I was kind of a natural leader, you know, a couple of clubs. If I got in a club, I usually ended up being the president of the club or something like that. Not by design necessarily, but I think I’m by nature, you know, I’m pretty good at figuring out what needs to be done and then just going off and doing it as opposed to you know, waiting for instructions. And I think that’s one in the context of a club or something like that in high school that almost automatically makes you a leader. Cause most of the people aren’t there to do anything other then socialize I guess. But it’s also probably the traits of a good entrepreneur.

Richard Miles:

So any of this sort of genetic or from family background, do you have a long line of successful sort of business types in your family or what did, what did your folks do for instance?

Randy Scott:

Sure. Yeah. So my dad was very much… both of my parents were small business people. Well, my mom had a store now that she started from scratch that was successful in the little town we were in but then my dad was more of the sort of prototypical entrepreneur, which was, you know, every couple of years it was a different business. Sometimes they would not do very well and maybe we’d have to move into a smaller house or something like that and then of course something would do really well and we’d have new cars and all that kind of stuff for a year or two. And he was very active in the kind of environmental sort of stuff, which is interesting cause you don’t think about that so much back in the 70s or even late 60s, but he invented a device for recycling industrial wastewater for example, that was installed in the Maxwell House coffee plant up in Jacksonville. I remember as a kid, we always had to have Maxwell house coffee in the, in the household, which became awkward when my first job out of college was with Folgers coffee. Somehow my parents didn’t disown me despite that. But he was also into paper recycling, built the first municipal waste to energy plant in the United States up in Ohio. So, yeah, he was always doing something. Also built a lobster processing plant. So there was random stuff built in here in between all the other stuff too.

Richard Miles:

So it sounds like you kind of grew up in an environment where taking risk or sort of that sort of, it was not, at least not strange to you. I don’t know if it was pleasant, but it was not strange.

Randy Scott:

Yeah, absolutely. In fact, the strange thing if anything was I got out of school and I went to work for Procter and Gamble, which was this big, you know, Fortune 15 company or whatever. And I think that was weird to my parents because they sort of just didn’t really understand the idea that you’re going to go work for a big company where you’re expected to work for your whole career and whatever. Of course, I didn’t work there for my whole career, obviously, but that was a bigger adjustment than the idea of starting a business and taking the kind of risk.

Richard Miles:

And if I remember correctly you had a stint in the Caribbean with a distributor ship, a beverage distributors, is that correct?

Randy Scott:

Yeah. Close. Yeah. So after P&G I worked for a brief time with Lenscrafters when it was a startup and left with one of the founders there and we went down to Grenada. Where you spent some time, Richard also might’ve even overlapped at the same time? I’m not sure if we figured that out and went down to Grenada, you know, a few years after the American invasion with the idea that we would, um, help, uh, you know, do the patriotic thing and help them build their economy and have a little fun at the same time. And we went down with the intention of buying a rum distillery that was for sale down there. And, uh, we actually got outbid on the distillery by some British rockstar. I don’t actually remember who it was. And so we just bought a bottle of the local rum at the store and went to the beach to drown our sorrows before flying out the next morning and we cracked open the bottle and we thought, “Wow, this stuff tastes better than anything we could have made ourselves anyway.” So the next day we delayed our flight. We went and we met with the old family that owned the distillery and had been there for, you know, a hundred years or 200 years. I have no idea. And I got the rights to it and we kind of created a new brand called Webster Hall Plantation Rum. And it was going to be the first super premium rum in the US it’s kind of mid eighties. And started importing it. And then I immediately went to my then girlfriend, now wife and told her that we were going to be multimillionaires cause I only needed half a percent of the US rum market to be rich.

Richard Miles:

It’s the oldest line in the book right now.

Randy Scott:

And I get reminded of it every day, almost. It didn’t work out.

Richard Miles:

But so it seems like our careers have had similar trajectories. We’ve done a lot of really different things, which means either we’re really good at a lot of stuff or were good at nothing. We got to keep finding a new job. So I’m a little ADHD perhaps.

Randy Scott:

Exactly.

Richard Miles:

So let’s come back to Novamin, and I remember you telling me a story that I still tell people about what it’s like to build a new company, a small company, and you’re starting to take on more employees. And you told me the story of how when you first started you thought it was sort of your duty to share every jot and tittle of information with all of your employees. You want to be transparent, let them know what’s going on. And finally at one point, one of them came to you and said, “Randy, stop! This is exhausting to know, you know, every, every twist and turn in the company’s history.” And then that’s when you learned, you know, maybe some things I need to keep to myself for a while as the CEO and founder. Can you describe a little bit what that’s like after you sort of pass through that initial valley of death in terms of you got your initial financing, you’re trying to grow the company to the next stage, but you still got a ways to go before you’ve developed a company DNA or a culture within that. What is that like?

Randy Scott:

Yeah. One of the things that that particular episode taught me was that not everybody is geared to ride the roller coaster of a startup and, you know, until a company gets to be, I would say maybe, you know, 20 or $30 million in revenue or something like that, the companies are very sensitive to any kind of little event feeling at least like an existential crisis. You know, one customer bailing out on you can be fatal in a lot of cases or whatever. So every piece of bad news tends to create a bad day and every piece of good news creates a giddy day. And so you really do end up with this, you know, big rollercoaster ride and you have to be able to, uh, kind of control that emotion if you will. And not everybody can do that. And you know, if you’re building a company, you’re going to have to hire people that are good at being in a startup and people that maybe aren’t good at being in a startup, but you need them anyway. And so you have to manage them differently. And you have to recognize that they’re not like you. They don’t necessarily feed off of that roller coaster. They actually get beat down by that roller coaster.

Richard Miles:

Now, Novamin had a successful exit. Right? It did well.

Randy Scott:

Yeah.

Richard Miles:

Does having taken part in that sort of life cycle of starting the company and extinct successfully, uh, I imagine that it helps you in your current job, right, where you’re trying to pick winners and losers. You’re evaluating companies every day or at least every week, I imagine. And you’re trying to decide where’s the best place to put your fund’s money. Um, do you recognize yourself in some of these business owners that you talk to? And if you could develop that a little bit and tell me, you know, what are you looking for without giving away your trade secrets? So I don’t start a fund of my own right. Um, what are the basic core elements that you’re looking for, you think to yourself, “This could be a good deal.” And, conversely, what are sort of the red flags where if you see him, it’s like “check please,” you know, “I’m done with this conversation.”

Randy Scott:

Yeah. Right. Um, so I definitely do see myself and sort of the Novamin situation in a lot of the companies that we look at. So, uh, in that sense, it definitely plays into how I think about companies. I think that, uh, yeah, a couple of things that we look for. Uh, first off is, uh, you know, if I think about the Novamin experience, for example, one of the things that I think really worked for us in terms of being able to exit successfully was we had a technology that was going to be potentially very valuable to a, um, a relatively short list of, uh, of existing players in the space. So it was kind of an oligopoly if you will, of, you know, kind of four or five major toothpaste companies. And we knew more or less from the beginning that we were going to have to get one of them to buy the company. And, uh, but we also knew that we could create conditions where all of them could look at it as a real potential game changer, both up and down, meaning it could damage their business or really help their business and that would make it sort of irresistible, we believe, to get one of them to come in and buy, which is exactly what happened when glaxosmithkline bought it against bids from Procter and Gamble and Unilever and others. And so, um, you know, we’d love to find those kinds of situations because as investors ultimately just investing in a business keeps it successful and grows. But if it remains private and all that, it’s very difficult for us to then create returns for our investors, which are pension funds and that kind of stuff because we have to be able to exit our investment typically in three to five years for the economics of the whole situation to work out. And that means that there has to be an MNA event, somebody has to buy the company or it has to be an IPO or something like that. And if you look at it, IPOs are sexy, but there really aren’t very many IPOs relative to the number of venture investments that get made. So it’s going to have to be this MNA thing in most cases. So we spent a lot of time looking at that back end of the deal, coming into it. Um, and then I’d say, you know, it’s something that is the kind of the quick turn off as the entrepreneur. That’s in it for the CEO because it’s not always the original founder, but that’s in it for their deal. And so if they start negotiating their own deal before you’ve even made the commitment to invest, then you know, pretty much they’ve got the wrong mindset for this and it’s not going to be a pleasant relationship and that one will end it pretty quick.

Richard Miles:

So that sounds like the ones you’re looking for, are the ones really ready to let it go, negotiate a price and, and walk away from it. Or is there something else here that I’m missing? You’re saying negotiate their deal. What does that mean?

Randy Scott:

I mean negotiate their personal deal. Like, yeah they’re focused on their salary and all that kind of stuff at the early stages. You know, we, we are looking for, you know, the CEO’s and the entrepreneurs that, you know, their first priority is the success of the company. Uh, and that ideally believe that whatever they’re doing is actually important to the world, even if they didn’t make or nobody made money on it, that it’s still somehow important to the world. You know, we are, we’re focused exclusively on healthcare for a reason because, you know, we’re not just trying to come up with the next sort of fun, entertaining Chotsky or something like that. Uh, we’re, you know, doing all this work so that we can also have some residual benefits or, you know, additional benefits beyond the profits that are made.

Richard Miles:

So Randy, I usually offer all of my guests an opportunity to dispense wise sage advice. So, uh, if you want to end right here, we can, but… if you saw, you know, a young Randy Scott, uh, and there are plenty of those in Gainesville, sort of, you know, the type, right? We both seen them, they’ve got a great idea. They’re full of enthusiasm. Uh, you know they’re sleeping on somebody’s couch or somebody floor, and they are convinced they’re going to make it. And you have given advice to those folks, but what do you tell them, uh, what are the, you know, the three things you say, “Hey, here’s what you really need to be doing now.” And then are there things you say “And here are the things you need to quit doing?” How do those conversations go with sort of young entrepreneurs, uh, in Gainesville or anywhere where you deal?

Randy Scott:

Some of them are things we’ve already talked about. “Hey, you know, you’ve got to focus on the, you know, how’s this going to be a business as opposed to, uh, you know, this has great science or great idea that needs a home.” Uh, so, you know, really getting them to understand what I, what I described to them frequently as “follow the money.” And in fact, I do a little kind of a Jerry Maguire riff sometimes off of that that you may have seen before. But, uh, you know, it’s really about following the money and if you can follow the money all the way from, you know, both the ends of the entire business chain and you understand everybody that has to touch the product, touch an element of the product, pay for the product, sell the product, all that kind of stuff, and understand everybody’s economic motivation and the deal. And after thoroughly understanding that, then you’re going to be able to understand your place in that ecosystem, if you will. And a lot of things I think will come into focus, uh, at that point once you do that exercise. And it’s amazing the number of entrepreneurs that have never thought about it beyond, you know, the little sliver of the ecosystem so to speak, that they’re occupying. So I think that’s the main thing. Another thing is just being patient and recognizing that no matter how bad things might look at a given moment in time, they can turn around 180 degrees in a very short period of days or hours or whatever sometimes. That it can all happen very quickly in a positive way. And you’ve got to just kind of keep the faith and um, stick with it.

Richard Miles:

Sounds like good advice. So, Randy, thanks very much for joining me today. You know, reminding listeners that the companion episode to this one is Glass that Grows with David Greenspan, which we also talk about the same technology but a different application. But I’m glad that you could complete the picture for us today, man.

Randy Scott:

Great. Thanks, Richard. Great to be here.

Richard Miles:

Thanks for listening. I’m Richard Miles

Outro:

Radio Cade would like to thank the following people for their help and support. Liz Gist of the Cade Museum for coordinating and inventor interviews. Bob McPeak of Heartwood Soundstage in downtown Gainesville, Florida for recording, editing and production of the podcasts and music theme. Tracy Collins for the composition and performance of the Radio Cade theme song featuring violinist Jacob Lawson. And special thanks to the Cade Museum for Creativity and Invention located in Gainesville, Florida.

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