By Lucy Parkinson, Director of Research, LSN
LSN’s Research team casts a very broad net when seeking life science investors. We speak with investors of many different types, including family offices, venture capital firms, major corporations and their VC arms, and venture philanthropy investors; we also look all over the world for investors who are interested in early stage life science deals.
From working with a very diverse crowd of investors and hearing the experiences of LSN’s clients in winning allocations from those investors, we’ve consistently found that it pays to keep your mind open about how to get your asset funded. We’ve noted before that you can’t prescribe reality when raising a round; while you might have an ideal scenario for who you’re going to get a check from and when, many of our clients have been surprised to discover who their company is truly a fit for, and timeframes also often go awry.
The reality is that many, many entrepreneurs will be pitching to the top 20 US VC funds; family offices that invest early are similarly inundated with startup pitches. In addition to these players, there are hundreds of other active investors in your space that it doesn’t make sense to ignore. Many LSN clients have received allocations from investors who were not previously on their radar.
One often overlooked pool of capital is the Asia region, where there are many venture investment firms, family offices and corporations that are looking to the US as a source of breakthrough healthcare technologies. Flexibility is a key element when engaging in dialogue with investors from Asia. Over the past few years, an increasing number of Chinese pharmaceutical corporations have set up US subsidiaries in biotech hubs such as Boston, the Bay Area, and New Jersey. Some of these outposts work strictly on their own R&D programs, while others serve as scouts for new technologies that are not expected to adhere to their core business. In many cases, a talk with the parent corporation might be delegated to its subsidiary leading to a R&D collaboration deal, for example. On the other hand, a talk with the subsidiary can be escalated to the parent corporation for potential joint venture, distribution agreement, or buyout.
It is critical to stay flexible as the negotiation unfolds. Establish a trusted channel of communication through multiple interactions. Try to understand the other party’s decision process that might go through a different structure and at a different pace.
With any strategic investor, it’s important to be open about your goals for the relationship. Many early stage therapeutic companies are largely virtual, with the company primarily centered on one asset, or a platform. In many cases a licensing deal or acquisition might be the most attractive transaction for investors; in some cases an equity stake will be attached to a licensing agreement. In addition to the big pharma corporations themselves, some firms work with certain venture funds or virtual pharma development firms; in these cases, the investment might come from a third party but could be attached to an option for the pharma to buy the asset in the future, once it’s de-risked. So while some entrepreneurs can see themselves developing their asset all the way to market and building a company with a deep pipeline around it, there are other possible outcomes that may be simpler and equally rewarding.
Keeping your mind open to a full range of options is vital when raising capital. It’s important to be flexible on your positioning too, so that you’re equally able to pitch the opportunity in scientific terms and on a business level. It’s also important to be a good listener and to pick up on what kind of pitch, and outcome, an investor is looking for. When you’re heading out on the road, best to set down your preconceptions on who’s out there.