Verity Biosystems was a promising little tech firm when it set up shop out of Wayne State University in Michigan (originally under the moniker Streamline Proteomics) in late 2001. Based on a multiplexed bead technology to study gene and protein expression, Verity investors were so excited that they got founder David O’Hagan to sign on the dotted line, promising to raise $2 million within four months.
But like so many startups, Verity’s was not a happy ending. Two years later, O’Hagan has written the experience off as a major loss and shipped out to California, where he hopes the climate will prove more hospitable to biotech entrepreneurs (see p. 20). And John Siverling, Verity CEO and one of the Sloan Ventures team that took Verity into the VC firm’s portfolio, is shopping around the Verity IP in an attempt to pay off the company’s debt.
"Given the financial markets and everything else, we had to make a decision about the company — and its technology was at such an early stage that the chances of getting the funding we were looking for were severely limited," Siverling says. Facing a market with a "dramatic slowdown" in instrument sales, he says, "we had to make a decision that this will not become a company on its own."
The financial problems were part locale, part timing, according to O’Hagan. What he calls the "lack of opportunity in Michigan" was only compounded by the fact that the original papers were signed on September 11, 2001 — "the next four months was out for investors," he says. Even afterward, though, Siverling and his crew at Sloan Ventures only managed to raise $750,000, O’Hagan says, "and it just wasn’t enough."
He was frustrated, but, O’Hagan says, "I don’t feel I was duped. They did everything they could do given the circumstances." That still doesn’t make it a wash: O’Hagan lost control of the IP for his technology, and all the investors in the company (including O’Hagan’s family and friends, as well as Sloan Ventures) will likely get no money back even if the IP does sell, since any revenue at this point will go toward paying off debt.
"That is one of the risks of the early-stage game," Siverling says, pointing out that in good times, VC firms hope that just five or six of every 10 companies will ever make money. "Frankly," he adds, "we still believe in the concept of the technology — it still holds value."
— Meredith Salisbury