By Danielle Silva, Director of Research, Life Science Nation
At LSN, I have the pleasure of regularly speaking with entrepreneurs about their startups. One topic that always comes up during these discussions is the subject of fundraising – especially for early stage firms. What often surprises me is that many of these entrepreneurs have the mentality that they do not need to be in dialogue with investors if they are not looking to raise additional capital. Many of these entrepreneurs question why they would “waste” their time going to networking events or conferences if they are not trying to attract investors; instead, they believe their time is better spent further developing their product. Speaking with investors even when you’re not looking to attract capital needs to be part of your business development plan, and is just as valuable as taking time to develop your product.
Picture this scenario: you’re an early stage company that is developing a therapeutic that just received $15 million for their series A financing round (let’s say the $15 million came from three different VCs). So you’re thinking that you have enough capital to, say, get you through the next four years. There’s no need to speak with investors for now, right?
Don’t be so sure – the deal may stipulate that you do not receive all of this money upfront; maybe you only receive capital once you’ve hit certain milestones, let’s say your first milestone you need to achieve a year after the date you signed the term sheet. If, for instance, you only got a small percentage of this capital upfront, the economy slows down, and two of the VCs that invested in you go under because all of their LPs withdrew their capital, the remaining VC may be unable to cover the rest of the money that should have been allocated to your firm. Now your firm is left with way less cash than you thought you would be working with.
Now this is obviously a dramatic example, but the point here is that you never know what the future holds. One of your investors may go under, but a more likely scenario is that you go to a current investor in your firm expecting them to provide you with some additional capital to get you through, and they just don’t have the ability to deliver. Not being able to get supplementary capital from existing investors – or worse, being unable to even get the money promised to you by investors – are two examples of situations your firm could be in where you would certainly be kicking yourself for not keeping dialogue with outside investors.
Another reason to reach out to new investors – especially through networking events and conferences – is to gain feedback on your product or business. If you start a dialogue with an investor asking for feedback on your business, it can be a great way to start a relationship with an investor, and can be a mutually beneficial way to share and learn. You can learn a lot about the general market from speaking with investors, and maybe even get some additional insight on your competitors. Starting a dialogue in this manner can also lead to a relationship with the investor, which could translate into an investment down the road.
So whether you’re a startup who has just raised money, or even a later stage firm who has just received a large injection of capital, speaking and networking with investors needs to be a priority. Your firm needs to have the mentality that you are always fundraising in order to stay in constant dialogue with investors. In short, if you are a firm who has just raised money, the next time an investor calls, or you have the chance to go to an investor networking event or a conference, just say yes.
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