Archive | February, 2013

Establishing a Web Presence for your Life Science Firm

26 Feb

By Tom Crosby, Marketing Manager, LSN

In our increasingly connected world, the Internet has become not only the new marketplace of ideas, but in a very real sense, it is the new marketplace – where the majority of business is conducted every day, all over the globe.

This is not news to anyone with an Internet connection, but even the most successful and intelligent people in their respective industries can have trouble keeping up with the ever-changing environment, and often times fail to recognize how critically important it is for their own businesses. To the chagrin of traditionalists everywhere, web presence has become a vital piece of your company’s image or brand, and helps to deliver your message. In other words, it is too important to treat as an afterthought, especially when it comes to fundraising – if you don’t have web presence, you don’t exist. Worse yet, if you have a poor web presence, you are publicly out of touch, and sending the message that you do not “get it.” Investors are savvy, and it takes only a few seconds to see if you are brand-aware, and your message is on point.

Web presence takes careful planning and professional execution. For those attempting to raise funds in the life science arena, this often means using a specialized third party to execute this piece. The development (and subsequent marketing) of your products, creating dialogue with prospective investors & maintaining investor relationships, and your on-line branding all at once are too much for an executive to focus on, and will likely yield poor results. This is not to say that it can’t be done by the right individual with enough time, effort, and funding. However, the most cost-effective route long-term is the one that brings in capital the fastest and promotes a quicker path to market.

In order to raise funds efficiently today, a strong web presence is of pinnacle importance. This is something that is too often overlooked by industry leaders, whether they would like to admit it or not. Many life science firms will pay an uninformed third party – lacking any sort of industry-specific insight – what amounts to a nominal fee to establish their entire online identity, and leave it there. This is where having a dedicated team in place to establish your web operations can easily put you ahead of your competition for precious investor dollars. This can be done in-house, or by a team of industry-specific consultants, but either way, it is not an area in which you should underspend or cut corners.

Although your initial returns may be slower than outsourcing the work to the most affordable third party, having a dedicated, contextualized team presents your firm with many advantages that are worth the extra investment, not the least of which is a higher overall quality. First, your team will be in charge of shaping the performance of your brand, and therefore, will be personally invested in its success. Furthermore, by having constant, informed dialogue with your team, changes and updates to your web presence will take place quickly and fluidly. Finally, a team with specific understanding of the industry will be able to perform tasks surrounding your firm’s Internet identity that can’t necessarily be outsourced, or are better done by an individual in direct context with your goals.

One aspect that makes marketing a life science firm difficult is that there is often a disconnect between scientists and investors; the desire to do business is all there, but ideas are frequently lost in translation. This is even more so today, as life science VCs wane and new investors fill the void. Of course, any serious investor will quickly bring in a scientist to ultimately vet the technology. There are the cases of the scientist-turned-investor, or the business person who speaks biotech, but the message here is, plan for both, make sure your messaging is at least generally understandable, and save the deep-dive tech-talk for the scientists. Any vetting scientist will have to understand the value of your product, and from there, the businessperson will be able to value the market.

To effectively market any idea, simplicity is key. And it can be tempting for a drug developer in phase II to highlight the complexities of their work, touting novel pharmacological action and unique pathways. To the scientific community, this information is understandable, and even engaging. However, to an investor, this could very well be the obstacle standing between your firm and an allocation. Confidence is a huge factor in investing, and a coherent, easily understood message goes a long way towards creating investor confidence.

If you bring the messaging of your web presence in-house, or go through a consulting team that understands how to translate fluidly between the languages of science and business, you can effectively turn your product into an idea. Of course, your product is what lands your firm the allocation to push through to distribution, but unless it also exists as a single, digestible idea, getting your product to market becomes harder than it already is. An uninformed third-party can get your website up and running, but without some degree of outside understanding, you run the risk of being obscure and unattainable. The impact of a simplified, streamlined web presence cannot be underestimated, and, in a word, is a crucial factor in garnering investor confidence. Creating a brand and having your team all reciting the same message has a big impact when you are being evaluated as a firm who “gets it.”

Why Investors are Speaking to Academic Scientists

26 Feb

By Max Klietmann, VP of Research, LSN

The academic scientist is playing a more critical role in the commercial life sciences space than ever before. This is due to the fact that large pharma is replacing early-stage drug development initiatives with M&A and in-licensing of technologies emerging from academic labs, strategic investors are aggregating early stage asset portfolios, and CROs are seeking to create relationships early to pre-emptively establish market position for the future.

It is obvious why early stage investors such as angels are interested in establishing dialogue with academic scientists, but even late-stage investors are in a continuous dialogue with academic scientists today. What makes this group of innovators so critical to the industry? Fundamentally, it is because they represent a crystal ball forecasting the long-term, groundbreaking industry trends that will affect the entire industry.

Academic innovation and commercialization are closer than ever, and this trend is accelerating. Academics were once all but irrelevant to investors because their work was often decades away from market potential, and most scientists didn’t care about or even consider commercializing their work. Academics wanted to be respected by other academics, and lived by the mantra “publish or perish.”

All of this began to change in the late 90’s, when a massive surge in academic publication occurred that led to a huge rise in patent registration around various technologies. This made investors suddenly aware that academic scientists were not just professors in labs trying to impress their peers – they were sources of deal flow/investment opportunities, market intelligence, and could point out disruptive technologies before they reached the “commercial realm.” The big pharmas, investors (early and late-stage), and even secondary constituents like insurance firms all maintain dialogue with academia precisely for these reasons. Academia is the industry’s oracle, and has the most future-oriented perspective on emerging trends in the space.

The line between academia and commercialization is blurring and the two, once-disparate realms are becoming tightly intertwined. As such, creating relationships with academic laboratories and innovators is a critical piece of market intelligence for all constituents in the space. Creating strong relationships with research institutions will be a vital to the adroit navigation of an increasingly complex space moving forward.

How to Easily Select Investors that may be a Fit

26 Feb

By Alejandro Zamorano, VP of Business Development, LSN

Fundraising in the life science sector has changed significantly over the past five years, as old players fall by the wayside and new players come in to take their place. The overriding observation is that the sands are shifting and we are about to see the new landscape. What this means is that since the roster of life science is changing, everybody better update the rolodex.

Nothing wastes time more than using an out-of-date map to get somewhere new. From LSN’s conversations with executives who have successfully navigated the new fundraising environment, it is apparent that the investor landscape is much broader than most would have expected. LSN now classifies the life science investor space into eight defined categories:

  • Syndicated angel groups
  • Private equity, including venture capital
  • Private asset managers, including family offices and wealth advisors
  • Life science corporate funds, large/midsize pharma and biotech
  • Information technology corporate funds, computer manufacturers, large info providers and telecom
  • Alternative institutional investors, pensions, endowments, and foundations
  • Hedge funds, specifically pipes/event driven and special situations strategies
  • Government grants and contracts

These categories of investors have their own investment preferences and style. The first role of any life science executive tasked with the role of fundraising should be to create a Global Target List (GTL) of investors that you should reach out to and stay connected with throughout the life of your company’s development. As a result, the first step is obtaining a list of investors that operate in the life science space. This can be done by leveraging your internal network, or working with a third party research company that specializes in the collection of investor information (like LSN).

Once a general list has been obtained, the next step is to filter investor based on their investment preferences. This is critical in order to avoid reaching out to investors that are not a fit. LSN has identified six major criteria that investors use to filter though initial deal:

  • Financing type (equity, debt, royalty)
  • Ownership type (private, public)
  • Sector preferences (medtech, therapeutics, service providers, and diagnostics)
  • Development phase of the product
  • Allocation size
  • Indication categories (cardiovascular, diseases of the nervous system)

For example, take a broad-brush first pass, create a rough indicator that draws out the most common investors during each phase of clinical development that you would be able to put on your radar screen as a general fit. The task of determining investor preferences is the most difficult part any fundraising effort, as it requires in depth information about your investor prospects. The aggregation of this information is time consuming, and requires commitment and considerable resources.

As a result, one of the easiest ways to aggregate a list of potential investors is to identify comparable companies that are developing similar technology and assets. Once a list of comparable companies has been identified, the next step is to look at each of the comparable financing rounds to identify the names of the lead and co-investors. When identifying comparable companies, you should divide them into three tiers: exact fit, good fit, and rough fit. This will allow you to prioritize investors based on the fit of the comparable company. Reaching out to these investors should enable you to create a GTL of investors that are knowledgeable about your technology and space. Remember, many investor strategies have to do with aggregating assets under a particular silo or indication.

One of the common misconceptions in the industry is the belief that investors will not invest in competing technologies and assets. This could not be further from the truth. Remember, investors are interested in returns, and if a technology or asset competes with one those held by their portfolio companies, they are particularly interested in order to hedge their risk. Investors demand diversification and understand that investing is a number game.

The recommended route to identifying preferences of investors is to work with an established third party research group that specializes in the aggregation of investor data. These companies will help you navigate through the complex maze and enable you to find investors that are a fit for your companies’ profile and capital needs.

Having filtered your GTL to a list of investors to around 500, it is your turn to reach out to them and begin a conversation that will morph into a relationship, which will turn into an allocation. Remember, investors are people too, and at the end of the day, they are mostly investing in you.

Hot Life Science Investor Mandate 1: Highly Active Seed-Stage Investor Looking for New Opportunities – February 27, 2013

26 Feb

A seed-stage investor focused on companies with strong growth potential across a range of technology sectors is part of an initiative of its state department of community and economic development. Located in the Eastern US, the organization’s primary mandate is to help develop technologies that will develop new markets and job growth.

The firm is one of the most active seed-stage companies in the country. Since the launch of its seed fund 12 years ago, the firm has invested more than $50 million in over 150 companies that have gone on to raise more than $1.2 billion in follow-on financing. Over recent years, total annual investment in its portfolio has been trending upward, with over $200 million in allocate AUM.

The organization does not have a clearly defined preference for any sector within life sciences, and will make allocations to companies developing therapeutics, diagnostics, medical devices or providing R&D, IT, or regulatory services. It does not discriminate on the basis of indication, but does have a stated interest in orphan indications. Though there is not a specific phase preference for companies developing drugs, most allocations in that area are made to firms developing preclinical stage compounds.

The organization plans to allocate across roughly 15 seed stage life sciences companies over the next several months, in allocation sizes between $250K and $500K.

Hot Life Science Investor Mandate 2: Venture Fund Plans to Make Opportunistic Allocations Over 1st Half of 2013 – February 27, 2013

26 Feb

A venture fund headquartered in the Eastern US, which specializes in early stage opportunities in med-tech, diagnostics, and instruments, currently has an AUM of more than $30 million. Typically, the firm initially invests in a start-up at the early stage, but reserves capital for participation later on. First investments are usually in the range of $1-3 million, but they are open to making larger or smaller allocations as opportunities arise.

The firm expects to invest a total in the range of $10 million in a given portfolio company as it makes progress toward a successful exit. They prefer to be the lead investor in any deals that they engage in, and plan to make several allocations on an opportunistic basis over the first half of 2013.

Hot Life Science Investor Mandate 3: PE Group Interested in Analytical Services, CROs for Upcoming Investments – February 27, 2013

26 Feb

A private equity group based in the Eastern US has over $250 million in total assets under management, has raised three funds, and is currently looking for new investment opportunities in the life sciences space. While the firm has no set time frame to make an investment, they would allocate to a firm within the next 3-6 months if a compelling opportunity were identified. The group typically invests around $5-20 million per company.

Currently, they are looking for firms within the R&D services space. The firm is most interested in analytical services companies, as well as contract research organizations (CROs) that specialize in toxicology, however would consider other companies that fall within the umbrella of the biotech R&D services space as well.

This PE group executes recapitalization, growth equity, and buyout transactions. The firm is only interested in companies that are cash flow positive. With that being said, the firm is looking for firms whose EBITDA is in the $1-10 million range, and has annual revenue that does not exceed $75 million.

Outsourcing Your Fundraising Efforts: The Conundrum for Life Science CEOs

20 Feb

By Dennis Ford, CEO, LSN

One of the greatest challenges facing life science CEOs leading biotech or med-tech start-up firms is that they are faced with being in nearly perpetual fundraising mode. Deciding upon the best method to raise capital can be difficult, as each choice bears its own burden. Either in-house staff can agree to own the burden of fundraising, or they can choose to outsource to a third party.

While at first, unloading this tedious and laborious task to a third party firm or marketing expert sounds enticing, it is important to have a clear understanding of what you are doing. These outsourced fundraisers are called third party marketers in the alternative investor parlance – better known as 3PM’s. There are various ways to distinguish and classify 3PM’s, but I tend to group them into three main categories:

  • The first category consists of large financial companies that have very deep pockets. These companies are able to spend the millions of dollars needed to staff a high-end professional fund-sourcing machine through their cap-intro teams. Then there are also around a dozen well-known, private big brand firms who are able to effectively shop you around to their investor network. The only issue with this is that it is difficult to navigate your way in and thus, determine if you are a fit for them and their fund raising business. This is because most of the business is referred through a sourcing network that has been around for decades, and has become something of an “old boy’s network.” Lastly, within this group there is the VC, which – by most accounts – uses the herding mentality, in that it herds other VCs together to set you up with capital. VCs have lost their luster for various reasons, but they all come down to not being able to make returns on investments, and losing credibility as a result. There are a few that have done well and they are in the driver’s seat, but the market place is squealing due to their perceived predatory terms.
  • The second tier players – some who do quite well – are the loosely affiliated, retired executives who have a decent who’s who global rolodex of investors and can form business consultant or 3PM firms to use their connections to raise capital. This can be effective or can be a wash depending on who it is and the circumstantial timing.
  • Next is what I like to call the “wild west.” These firms can be 1-6 man firms that range from the fast-and-loose, to serious, button-down Business Development, to all the types in between. Typically, these guys are regional shops with local connections, or sometimes with specific reach into capital repositories comprising mostly angels and family offices. If you are a good 3PM, the work is extremely difficult, as investor interests change with the markets. Overall market perception of this type of 3PM is that they make a lot of promises to the client, but tend to always take the path of least resistance – meaning that the hot client gets the attention, while the rest are left waiting.

3PM’s in general have a mixed reputation in the market. I have developed a guideline to help you in your evaluation of a 3PM. Find references that have long term satisfaction from deals brought by the 3PM. Understand the subtly and nuance of the 3PM’s business culture, and how the 3PM handles deals. 3PM’s promise a lot and have been known to deliver less. Retainer fees should be high enough to keep the 3PM in the game, but low enough to keep him hungry. New 3PMs are often filling in while they develop a long-term career opportunity. Are they a one-man band, or even worse, a bunch of high-powered marketers with no stable leader to reel them in and no back up staff to help with research and preparation? Having support staff is critical, as is having the opportunity to be introduced and speak with them in order to better understand the firm. Consider setting a monthly retainer based on a mutually agreeable set of goals. Here a list of suggested qualifiers.

1) How many present deals/clients is he working on? Too few, and he isn’t a hustler. Too many, and he goes after whatever is hot and leaves you with little attention if you’re not.

2) Track record – how much, where, when, for who, from? If a 3PM can’t immediately elaborate on his last few deals, that’s a red flag.

3) References – as stated above, they have to be relevant, in context and current.

4) Culture of his 3PM – hopefully having understood the universe of fundraising, the 3PM can speak positively of his own firm’s culture.

5) How the 3PM does deals. Again, the 3PM cannot go blank on any question, but this one is especially important.

6) Basic trust is essential – if you do not trust your 3PM, you have nothing. Trust your gut.

7) Many investors want direct contact, and do not want (or appreciate) a middleman. What will the 3PM do in that situation?  The best answer is that he usually can make a compelling case to stay, and doesn’t get in the way of a deal.

8) Good 3PMs live off their investor relationships and their reputation as a good and fair businessman.

9) Good 3PM’s are focused in targeting investors, and do not ever use a mass-canvassing approach. If they are into spamming, they are not worth your time.

10) 3PM’s understand investors’ needs and desires. They employ a rational, systematic approach to canvassing for an investor fit. This means lots of tedious research. The 3PM should understand the value of fit.

In short, my suggestion to life science executives is that you should choose your fundraising partners wisely, and understand the value of direct VS 3PMs. To conduct an effective direct campaign, you must define a targeted list of investors that fit your investment profile, and then with the help of your staff, start directly reaching out to your investor prospects. Remember it’s about starting a dialog and building a lasting relationship, because at the end of the day they are investing in you, your team, and your products and services.