Archive | September, 2013

Hello World… ABC Life Science Company is Raising Capital!

26 Sep

By Dennis Ford, CEO, LSN

Hold the phone! We’re not there yet! Yes, the 80-year ban preventing companies from advertising and soliciting capital has now gone the way of the dinosaur. The September 23rd lifting of the ban heralded that change is afoot and will usher in a new set of rules and regulations. However, the devil is in the details, and until the SEC makes the new rules and regulations public at the end of this year (or next year), we are still in mostly in the dark.

What does this mean for life science entrepreneurs? One thing for sure is that now more than ever, make sure you act in concert with your lawyer regarding fundraising. For life science entrepreneurs, being able to freely let all aspects of your personal and professional networks know you are actively raising capital can’t hurt – especially now that it is OK to solicit using the bevy of online apps and tools that you now already manage. However, understanding that your future investors must be certified, accredited investors (once again, check with your lawyer) needs to be understood.

In a past life, I was part of a team that started a broker dealer, and the rules, regulations, compliance aspects, administrative tracking, logging and filing of all communications was extremely costly. It took a few in-house staff – as well as several outside, highly paid consultants to keep everything kosher. I bring this up because depending on how the SEC comes down on the aforementioned will largely determine how viable the new fundraising mechanism will be.

Cash flow is the enemy of most entrepreneurs, and if there is now a bevy of must have’s and must do’s to be compliant, then most cash strapped startups will be in a real pickle. The minimum, so far, though not yet cast in stone is that the entrepreneur will have to file a Regulation D form 15 days prior to a general solicitation for investment capital and explain in detail how they intend to go about it.

My last observation and personal opinion is to ask: where does this fit in for life science entrepreneurs? There is a well-known map that dictates that the path for startups is friends, family and angels for seed money, followed by government grants, and then institutional and PE/VC capital for growth.  If all goes well, I see this as an awesome mechanism for startups that need that first 250-500k to get started. So far, it appears that this could be done via a crowd funding portal or an outbound campaign to accredited investors that have declared an interest in your particular indication, sector or service. Stay tuned.

Tips for Pitching to Angel Investors

26 Sep

By Michael Quigley, Research Manager, LSN

mike-2After recently sitting in on several angel panels and company presentations, and supplemented with my own research, I have developed a strong understanding of what angel and early stage investors are looking for in a pitch, and what puts them to sleep. With this article, I aim to shed light on what I have learned in hopes to aid companies in their fundraising efforts. Angels, like other early stage investors have been burned by bad returns over the past decade, and those who are left have tight grips on their capital. In order to loosen that grip your pitch must immediately catch the investors’ attention by engaging them, not drowning them in slides of text and data.

Tell Your Story

Who are you? Why did you start this company? How did the management team first get together? Where did the initial idea come from? These are all questions that can be answered within the first few minutes of a presentation that angels can relate to regardless of their understanding of that within your management team science and technology that is driving the company. Another crucial point to make here is that within your management team, you have both creative scientific visionaries with significant experience in the field, as well as business-minded leaders who have experience in scaling companies and closing deals. Seeing that kind of bilingual management structure is extremely attractive to investors. When investors have a foundational understanding of the roots of your organization, they get a better feel for the drivers of the company as a whole, and can more easily put their trust into you.

Address the Market

Discuss the medical need your product is addressing, and what treatment options are current available for it. Here, you have the opportunity to get the investors’ mouths watering by showing them the potential revenue your firm may realize if your product reaches the market. It is important to stay grounded and logical in your revenue projections, however – investors can be quickly turned off if they feel the numbers you presented to them are inflated and lack rational expectations. It is important to note here as well that if your market is very well understood, investors most likely already have an understanding of how much potential there may be. With this section, only a brief description of the market potential may be necessary, unless your market is particularly underappreciated. Furthermore, you should mention some of the struggles that companies targeting this indication have had in the past that you can later on show how your technology directly addresses.

Hit Them with the Technology

This is the section of the presentation that all too often can remind investors of an academic chemistry lecture and have them checked out within minutes. When addressing how your device functions, or the pathways your therapeutic is targeting, you need to show enthusiasm and passion. Having high energy and excitement when explaining the technology shows that you yourself believe in the product, that what you are working on is innovative and investment worthy, and it will keep investors awake. It is important to not get too deep into the science as to lose investors, yet deep enough to show your product’s differentiation from what is currently in trials or on the market, as well as what data you have so far to support you. A good way to do this is to practice by explaining the tech to someone with a less extensive science background in order to simplify and streamline your explanation so that any investor can understand it.

Know What You Want

More than just understanding how much capital you need to get to clinical trials, you should have diagrams in your presentation highlighting exactly how much of the requested funding is going to be spent on the various activities you company must perform. As previously stated, angels have been tightening their grip on their capital and they are going to want to know exactly what it is going to be used for if the give it up. Additionally this kind of forward financial planning shows your company has strong direction and organization making it all the more worthy of investment.

Have a Clear Exit Plan

Whether it be to out license the technology, get bought up or even IPO, you need to show your potential investor when he will be getting his money back. You should include research on potential buyers currently interested in technologies such as your own and the amount of money going into the kind of deals that align with your company’s strategy and technology. What is the demand currently like for assets such as yours? How might that demand change? These are questions that investors will have when thinking about their potential ROI and investment time frame.

Sources:

http://money.cnn.com/2013/09/17/smallbusiness/angel-investors/index.html

http://lifescivc.com/2011/05/starting-a-biotech-advice-for-pitching-vcs/

In Oncology Investing, Knowledge is a Big Advantage

26 Sep

By Jack Fuller, Business Development, LSN

Therapies targeting cancer indications have historically gotten a lot of attention in the healthcare industry. As the new categories of direct investors in biotechnology continue to grow savvier in the sector, funding cancer therapeutics remains the most attractive economic and philanthropic opportunity.

Nothing new here, as the odds of having cancer in a lifetime are at 44% for men, and 38% for women. Everyone is affected by cancer, which in turn fuels enormous interest in philanthropic passion investing. Couple a philanthropic interest with a strong market potential, and cancer becomes a no-brainer for many institutional investors. This has led to a large subsector in the industry, so in order to find out what areas of cancer are hot we need to drill deeper.

At a recent event I was speaking with the lead scout at one of the premier pharmaceutical companies in the world.  He mentioned that within cancer, the biggest area of research that stood out for their team was finding ways negate one of cancer’s biggest strengths – avoiding the immune system.  Any therapy that had a way of boosting the immune system or giving it the tools needed to search out and destroy cancer, they wanted to know about.

The fact that people seeking out indirect methods of treating cancer versus the traditional direct therapeutic approach says something about how much progress scientists have made in this field. The fundamental, biological understanding we now have of cancer is the greatest strength in the advancement of specific therapies. Scientists have been removing and analyzing tumors for decades, examining first the effects of small molecules – and today, of biologics – on highly advanced tumor models in animals, and pinpointing ways to (more or less) treat the disease. The bottom line is that we have a decent idea of how cancer works when compared to difficult-to-analyze diseases of the central nervous system (CNS), or even more ill defined maladies such as psychiatric disorders.

At a recent symposium on the future of neurological drug development, one expert pointed out that we can’t biopsy CNS disease tissue, except posthumously, which in turn severely limits the information the scientific community can gather. Similarly, when studying mouse models of psychiatric disorders, it is rather difficult to tell if a mouse is schizophrenic or not.

The bottom line to biotech entrepreneurs and investors alike is that when people talk about cancer being hot, there are some serious scientific differentiators that back up cancer therapy development. We are not talking about a cancer “bubble” or an investment fad, but the momentum generating from decades of developing the right tools to study and understand cancer as a disease. While that isn’t exactly groundbreaking news, the message here is that any companies with robust research technologies have a strong pitch to philanthropic investors looking to advance cures in poorly understood diseases.

Hot Life Science Investor Mandate 1: Large Family Office Looking for Opportunities in Medtech Subsectors

26 Sep

A family office located in the Western US with around $100 million in assets is looking for a compelling opportunity for allocation within the next 6-9 months. The office invested in more than five deals in 2012, typically between $1-5 million per firm.

The foundation is most interested in medical devices, and will look at firms within the full gamut of medtech subsectors. Typically, the office allocates to firms that have at least one product on the market. They have no strict criteria in terms of a firm’s EBITDA or revenue, but require that any firm in which they invest has goals to lower the cost of healthcare.

Hot Life Science Investor Mandate 2: PE Group Interested in Analytical Services, CROs for Upcoming Investments

26 Sep

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.

Hot Life Science Investor Mandate 3: PE Group in Eastern US with Large AUM Looking for Life Science Opportunities

26 Sep

A private equity group based in the Eastern US currently has over $9 billion in assets under management, and is currently looking to deploy capital from its fifth fund – which raised over $2 billion – to life science companies.

The firm has no set timeframe to make allocations, but would invest within the next sixth months if a compelling opportunity were identified. The firm’s investments typically range from $30-50 million. The firm is most interested in biotech R&D service firms, and specifically is looking for contract manufacturing organizations (CMOs) and contract research organizations (CROs).

The firm provides firms with growth capital, and also does distressed equity transactions, and therefore is only looking for established firms. The PE has no preference as to where the firm is based, and plans to invest up to 49% of the fund’s assets in firms that are located outside of the US. The firm mainly invests in private companies but will consider public companies as well.

Hot Life Science Investor Mandate 1: UK-Based Tech Transfer Office Seeks New Therapeutics & Diagnostics

19 Sep

A technology transfer office based in the UK is currently looking for new investment opportunities in the life science space. The firm currently invests capital in companies based outside of its parent organization, and therefore anticipates investing in around eight companies by the end of 2013. They typically allocate between £20,000 and £20 million per firm. Because institutional shareholders back the firm, they have an evergreen structure, and can deploy capital as soon as a compelling opportunity is identified.

The office is currently most interested in firms in the biotech space, specifically investing in biotech therapeutic and diagnostic firms. They have no particular preference in terms of what indication the company’s product is targeting, and will invest in firms that have products targeting orphan indications.

Investing in both pre-revenue companies, and companies that have positive cash flow, the office will consider firms with products in the preclinical phase of development all the way through to firms that have a product on the market. They have no strict criteria in terms of revenue and EBITDA for cash flow positive companies.