Y Combinator seeking software-enabled biotechs after raising funding limit

The Y Combinator startup investment model has already edged onto the fringes of biotech, with the organization itself funding an HIV vaccine and Illumina ($ILMN) borrowing ideas from the group for its incubator. Now, the ties are set to get deeper still, with Y Combinator upping its investments in a bid to expand beyond pure-software startups.

Y Combinator is now offering $120,000 for a 7% stake in its startups--in the past it was $17,000 for the same share--and thinks the increase makes it a viable biotech investor. The sum is still small by drug development standards, but with the rise of CROs and lab rental schemes like QB3 slashing the need for upfront infrastructure investment, Y Combinator thinks it is enough to get a project started. Firms that can bypass some traditional drug development costs will have an advantage too.

Speaking to Nature, Y Combinator President Sam Altman said: "I guess that many of the companies we would hunt would have a strong software component, because that is part of how you would expect the costs to reduce." Computer-enabled R&D shops--from Google's ($GOOG) Calico to NuMedii--have sprung up in recent years with ambitions to modernize drug discovery and development. And Altman sees this trend continuing, comparing the biotech landscape today to the 1970s software boom.

Y Combinator has hired one of its alumni, Science Exchange co-founder Elizabeth Iorns, for expertise in life sciences. For software startups, the appeal of Y Combinator goes well beyond financing, with firms benefiting from the advice and connections it provides. Iorns already advises some startups in her role at Science Exchange. And if the investors Y Combinator puts its startups in front of can be convinced to back biotechs, the initiative could bring fresh early-stage funding into the industry.

- read the Nature Q&A