The Importance of Investor Fit – Do You Need a Personal Introduction?

10 Jun

By Jack Fuller, Business Development, LSN

LSN is a big proponent of the importance of finding the right fit in potential partners. This is true for companies looking to develop assets together, finding the right CROs to outsource drug development, and especially in finding investment partners to help raise capital. Last week, I attended the Massachusetts Life Science Innovation (MALSI) Day, and I was incredibly pleased to hear that sentiment echoed by speakers and entrepreneurs throughout the day.

What we mean by fit is the list of criteria defined by a company/firm’s mandate. For example, with investors, a specific firm’s investment mandate may be to only invest in two or three companies in the next 12 months, targeting companies in the medical diagnostics field who also have a usable prototype. Any company that reaches out that does not fit these criteria has no chance of being funded, regardless of their value proposition. With this in mind, understanding an investor’s mandate is the most important factor when deciding whom to go after.

At the conference, I attended a panel where an Angel and a VC each lauded the importance of having a fit before the even reaching out to an investor. The question was then posed, “in the last 12 months, how many meetings have you had with people who reached out to you cold?” Both answered the same: “zero!” However, they were quick to point out that of all the people who reach out to them cold, the chances of them being a fit for their specific investment mandate hovers somewhere around 1%.

Needless to say, the audience (which was largely made up of emerging life science companies seeking capital) was outraged by this. Here is a room full of life science entrepreneurs, attending a panel about financing in the life sciences, and the panel tells them they have no chance of reaching out successfully. Just before a riot started, they explained the concept of fit. Investors in the life sciences are continually inundated with unsolicited business proposals that have less than a 1% chance of satisfying their specific investment mandate. They don’t have time to look at this unfiltered list, so they summarily dismiss everyone that hasn’t been filtered. The problem with the life science community is that the only real filter they currently have is through personal introductions or partner relationships.

Recently, LSN ran a boot camp at a local Boston incubator to explain to early stage scientists that part of doing a dedicated successful outbound marketing campaign is to take the time to research your look-alike companies and determine who has invested in them in the past. This uber investor list is paramount because they know your type of company, your marketplace and technology. Most importantly though, they have already pulled the trigger with similar companies. Next you want a list of investors who have self-declared “present or future mandate” to invest in a company in your arena or orbit.  This is more difficult but something in which we here at LSN specialize. This is particularly important when reaching out cold to investors.  For example, when emailing an investor you know has a mandate for small molecule cardiovascular therapeutics, it is incredibly impactful to have a subject header “CEO of cardiovascular small molecule company – in town next week – meeting request: First Attempt”  LSN has found that outbound campaigns to investors with whom there is a recognized fit results in a 15-20% open rate!

These two panelists were adamant that they are not opposed to people reaching out to them. However, the current method of blindly reaching out to every VC or Angel on the planet is not helping anyone find prospective deals. The old model of raising funds is being replaced with greater focus on connecting people who need to be in the same room together. LSN was founded on this principle, and is why LSN research spends so much time in dialogue with the investor marketplace. As a more efficient dialogue is created between companies seeking capital and investors looking for opportunities, the speed of product development increases, which in turn leads to a more robust industry with better patient outcomes.

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