Not long ago, Nabanita Nawar (BSc 2017 UTM, PhD 2022) and Pimyupa Manaswiyoungkul (PhD 2021), the Mississauga-based founders of HDAX Therapeutics, faced a classic entrepreneurs’ dilemma. The two young scientists had developed a novel approach for targeting rogue proteins implicated in heart and kidney conditions. In 2021, they decided to take a huge career step, leaving academia to set up their own firm to commercialize the discovery.

Fairly quickly, they hit a formidable roadblock. Having exhausted their initial funding, including support from UTEST, U of T’s early-stage incubator, they needed more capital to move their prospective therapy to the next level. But they couldn’t find anyone in Canada willing to back them. “There just aren’t enough investors in Canada who have the risk appetite for that early-stage technology,” says Nawar, the company’s CEO. So they headed south – to San Francisco, New York and Boston – in search of investors with expertise in drug development and medical devices. They eventually secured seed financing from a combination of U.S. and Canadian sources.

Many young life-science startups face the same difficult search for early backing. To address this problem, U of T has partnered with Genesys Capital, a Canadian venture capital firm, and McMaster University to launch the Genesys University Seed Fund.

The fund will provide initial investments of up to $1 million in promising life-science startups emerging from U of T, McMaster and elsewhere in Ontario, with the possibility of further funding as the companies progress. So far, the fund has secured commitments of more than $30 million – toward a goal of $40 million – from investors including the Temerty Group, Venture Ontario and RBC, as well as U of T and McMaster. Similar funds have been established by MIT and the University of California, Berkeley.

Leah Cowen, U of T’s vice-president, research and innovation, and strategic initiatives, says the creation of the fund represents a new approach within the university’s well-established entrepreneurship ecosystem. “This is a milestone,” she says. “The university has never done this.”

The launch also reflects one of President Melanie Woodin’s core commitments: mobilizing knowledge for social and economic impact. “By shortening the path from research discovery to real-world application, commercialization and venture creation,” she says, “we can strengthen Canada’s innovation ecosystem and build a more resilient economy.”

The Ontario government is supporting the fund through Venture Ontario as part of a broader effort to strengthen the province’s life-sciences sector, including by attracting and retaining talent. Steve Romanyshyn, the agency’s president and CEO, says the fund could help draw further investment by signalling that Ontario is a strong destination for life-
science innovation.

The missing investment

Founded 25 years ago, Genesys Capital, one of Canada’s leading venture capital partnerships, has raised more than $400 million through six funds and backed 44 companies. Genesys usually invests in businesses that are further along in developing their technologies and are seeking larger amounts of capital to grow, says Jamie Stiff, one of the company’s managing directors.

But Stiff says Genesys also regularly hears from very young companies like HDAX. “We’re introduced to all sorts of opportunities through the University of Toronto, through McMaster, through other universities, where we say to ourselves, ‘Gosh, if we could only invest half a million to a million dollars into this program to advance the science and run some critical experiments.’”

Canada has funding programs for basic science but tends to fall short when it comes to early- and later-stage capital for riskier ventures, says Cowen. In the life sciences, companies such as HDAX are at the beginning of a lengthy and expensive process, turning discoveries made in university labs into potential new drugs or medical devices that must undergo years of clinical trials before they can be approved.

Investing at this stage requires both patience and specialized expertise. Firms such as Genesys need a high tolerance for risk but also deep knowledge of the relevant science to judge which experimental therapies are worth backing. Companies can fail not because they lack good business ideas, but because the science doesn’t pan out.

Deeper support

With the new University Seed Fund, Genesys will tap its networks to find entrepreneurial scientists at U of T, McMaster and beyond who are seeking funding to bridge the gap between relatively modest university-sourced research dollars and the much larger sums of equity financing needed to cover clinical trials and regulatory approvals. As Stiff says, “It’s a really hard gap to fill.”

Cowen says U of T identified Genesys as a potential partner because the firm has a track record of doing more than writing cheques. “They’re actually deeply engaged in supporting the companies,” she says.

From a founder’s perspective, Nawar says this long path to market means life-science startups can go years without generating any revenue. Potential investors must therefore be able to judge the underlying science rather than rely solely on the firm’s financial projections. “Companies like ours don’t approach generalist investors at this early stage because they don’t know how to assess the company,” she says.

That scientific expertise is another reason U of T chose to partner with Genesys, says Cowen. Its network of investors spans fields such as drug development, diagnostics and anti-infectives, giving the firm the ability to evaluate highly specialized discoveries.

The seed funding from Genesys will come in the form of “SAFE notes,” a financing tool that postpones valuing a startup until it has matured. “It’s a very efficient way of getting capital into projects,” explains Stiff, “so you don’t spend a lot of time arguing over what this thing is worth at a very early stage.” Genesys’ plan is to provide these notes in amounts of up to about $1 million.

A model to build on

Over the next five years, Stiff anticipates backing between 10 and 15 promising startups, with the hope that some will go on to raise an additional $10 million or more. But the bigger measure of success, he says, will be whether the initiative performs well enough to raise another seed fund and support a subsequent portfolio of life-science startups. “That will tell you if the plan worked.”

For the university’s part, Cowen hopes the partnership will encourage other Canadian venture capital firms to look for opportunities beyond the life sciences in other fields of research at U of T. “We could build another fund with another venture capital partner to support innovation in other areas,” she says. “We hope this is the beginning of a journey.”