Archive | February, 2014

Getting Non-fits Off the Plate

20 Feb

By Dennis Ford, CEO, LSN

Dennis 10*10After the launch of an outbound fundraising campaign, sooner or later a number of dialogues begin to take for with various investors. Meetings take place and relationships form. This is one of the most exciting parts of the fundraising process, and everything seems to be off to a great start.  Unfortunately, this is also where many life science funding executives lead themselves astray.

Let’s face it; life science fundraising executives are beholden to a board, and they often feel pressure to put something on their forecast.  Because they are anxious to turn a target into a prospect, they often begin to see things that aren’t there, try to force a fit, or use every skill they have to push along a relationship that isn’t going anywhere.  It’s an easy trap to fall into, and can lead to a lot of unnecessary churn, eventually slowing down the fundraising process. You need to be equally focused on getting prospects on the plate and getting them off the plate. So how do you avoid being caught in this situation? Two easy rules can help you significantly.

Be direct: This is often a very hard thing for a fundraising executive to do, but it is a fundamental requirement in getting non-fits off the plate. Many entrepreneurs are so excited at the prospect of someone being interested in them that they are afraid to ask a question that could stop the dialogue. However, the alternative is wasting time on a non-fit. Always check in to see if the investor is actually interested in making an allocation, and ask what would prevent them from doing so. This will get every question answered faster and will get non-fits out of the conversation faster. This saves everyone time.

Listen to your gut.  Opportunities can change direction, be postponed, stumble and fall off a cliff, and flat-out die.  They are very tricky creatures. They prey upon your optimistic nature. They can get you in a fix. The importance of listening to your gut cannot be overstated. When in doubt, your gut will tell you what to do.

It’s imperative to concentrate on the good prospects and move on from investors who aren’t, pronto! It is also the reason to set everyone’s expectations at the outset of the process.  Let those in your company know that a potential investor is ready for the forecast list only when you’ve made it halfway through the allocation process with them.  A forecast list is composed of investors you have qualified who have also qualified your firm, and who may give you money. Stay focused, direct, and honest (with yourself). These are the key elements to efficiently navigating your way to an allocation.

The Long Tail of Life Science Investment

20 Feb

By Lucy Parkinson, Research Manager, LSN

lucy 10*10Every day at LSN, our research team is confronted with a vast amount of information about investment activity in the life science sector; this comes in the form of investor interviews, analysis of headline news, as well as conversations with partners and clients. LSN spends a lot of time in dialogue with the marketplace, and parsing this overwhelming amount of data is what we do for a living.

News stories often focus on the big names in the sector on both sides of the table – revolutionary disruptive technologies and the early-stage investors who were backing them in their seed rounds.  But these are the superstars of the industry; they’re not representative of the tens of thousands of biotech and medtech startups out there, or of the thousands of active investors in the sector. We’ve touched on the principle of parsing technology before, and how important it is to understand where you fit in terms of disruptive, breakthrough and iterative technology. However, rarely do companies follow through and select the right investors that fit their technologies.

When you’re looking for investors to support your emerging life science company, you need to turn over every stone.  It’s possible to start your fundraising campaign by working your own network, exploring local options such as your region’s government programs or angel groups, and sending proposals to big-name VCs – but where do you turn once those options have been exhausted? This strategy tends to waste time, and results in unproductive meetings that don’t move forward. The key is identifying fits and creating a global target list that is targeted with an institutional style outbound campaign. This should be done from the onset, to maximize campaign efficiency and win an allocation as quickly as possible.

There are a lot of investors out there who don’t have top-flight, headline-making funds.  They might even be deliberately flying under the radar, or maybe they’re across the world from you.  That doesn’t mean they aren’t actively looking for opportunities in your field, in your location.  Indeed, it’s in this long tail of potential investors – including investors that weren’t formerly known for backing startups, such as family offices and big pharma – where the equally long tail of biotech startups will find the investors who are a perfect fit for what they’re offering.  What we’ve found at LSN Research is that the only way to know for sure if an investor is currently actively seeking new life science opportunities is to make a phone call or write an email, and ask them.

Researching Your Investor Prospects

20 Feb

By Phubes Asavasatitporn, Research Analyst, LSN

PhubesAt LSN, we talk a lot about having an “up-to-date roadmap” when it comes to navigating the changing life science investment landscape. This means not only understanding who the new entities in the space are, but also how their investment strategies have changed, what type of technology each is interested in, how their investment timelines have been reconfigured in the churn, and so on. One topic that is less frequently taken into account, however, is the idea of actually mapping out an individual investment firm before a big meeting.

Fundraising executives will handle the process of mapping out a company in different ways based on a variety of variables – not the least of which is personality type. Some like to approach the problem much like a case study, spending weeks doing research on the prospect (and their peers’) management team, portfolio companies, investment interests and past deals. Others may prefer to simply go in with a general idea of a firm’s investment category, and then gather the rest of the relevant information first hand. Either tactic has its advantages, and more than likely, your actual efforts to plan for an initial meeting with an investor will be some combination of the two.

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While the investigative angle helps you to align your perception with prospective investors as prepared and informed, and may lend itself to stronger long-term relationships, it does have its drawbacks. For one, a fundraising executive’s primary goal should always be towards creating as many qualified investor relationships as possible. For this reason, spending too much time researching targets – and therefore not enough time making calls or knocking on doors – is taking away from the main task at hand. Incremental to this is the fact that too much research can lead the focus of a meeting towards verifying data and away from actually talking with the prospect. The key is striking an effective balance.

None of this is to say that data shouldn’t be verified, because it must. On the other hand, one of the worst mistakes an executive engaged in the fundraising process can make is to assume that their initial research on an investor entity was 100% correct. Information – especially regarding corporate structure and hierarchy – is constantly in flux. Indeed, it is hard to gauge how much time you should allocate to researching your prospects, but some general rules are to not mistake “less” for “none,” and try to find a happy balance between “too much” and “not enough.”

Whatever approaches you do take to investor meetings, keep in mind that the most important piece of any meeting is to lay the groundwork for a good relationship. Too many entrepreneurs make the mistake of believing that technology is not only the most important part of a deal, but the only piece that really matters. On the contrary, it is real conversations that lead to real relationships, and real relationships that lead to allocations. Do – but don’t overdo – your due diligence on your prospective investors, and approach each situation with a confident and friendly demeanor, and with enough attempts, the correct fit will eventually come along.

Formulating the Introductory Email to Potential Investors

6 Feb

By Michael Quigley, Research Manager, LSN

mike-2Having personally scheduled and held several hundred interviews with Life Science investors over the past year, I have developed and refined a formula for getting “in the door” with an introductory email. As anyone who has embarked on a fundraising campaign knows, initiating the dialogue is often the hardest part of the process. Few introductory emails ever get opened, and even fewer earn a reply at all. However, there are a few concepts and tactics that can increase your efficacy substantially when it comes to initiating a dialogue and locking in that first meeting. This article will share some insights from my personal experience that may be helpful in your email outreach.

The first thing that you need to understand when drafting an introductory email is that the entire purpose of the email is just that, an introduction. You will not close a deal with one email and this should not be your target. The ability to concisely introduce your technology in a professional and compelling way is what you should be aiming for. Drowning the investor with blocks of text and attachments may as well be a wasted effort. Investors are busy, and they don’t have the time to read through stacks of data. From the subject line to the signature, the email needs to be short, sweet, and to the point. A good rule of thumb is that if your email requires that the investor start scrolling to read all of it, then it may already be too long.

The subject line is crucial. The subject should be clear, and include information about your company that is relevant to the investor. For example, “Meeting Request: Novel Cancer Therapy Preparing to Enter Phase I Trials” is a great subject line for an investor with a declared interest in early stage cancer therapeutic development. Now assuming you are reaching out to investors in a targeted manner based on fit, they will naturally be attracted to this subject. Moreover, it shows you aren’t spamming and that you understand their interests. All of these factors increase your odds of getting opens and hopefully a positive reply. With larger investment firms, make sure you are targeting members of the team with backgrounds in areas similar to that of your technology. A little research can go a long way in terms of increasing email efficacy.

The body of the email should be a boiled down paragraph or two encompassing your team, a high level explanation of your technology and recent milestones, and your interest in having an introductory conversation. Keeping a few simple concepts in mind secure your greatest change of earning a positive response:

  • Your email should show you are knowledgeable, trustworthy and thereby credible. This can be done through a brief description (one or two sentences) of your personal background as well as a reference to the investor’s interests. Also, by keeping your email concise and targeted, you increase your credibility by demonstrating to the investor professionalism and respect for their time.
  • Your email should make further communication a logical choice for the investor. This should be achieved by demonstrating that your investment is a fit for the investor’s mandate. Research your targets well and explain why you are the ideal fit for what they are seeking.
  • Personal touches enhance your chances of getting a response. You need to demonstrate that you have put as much if not more effort into this email than the investor is taking to read it. Some ways to do this are mentioning something that recently happened with the investor that is relatable to your proposal. For example, “I noticed your firm has recently raised a new life science fund this spring” or “I recently read an interview you gave on the potential of personalized medicine.” This shows that you have done some research into the firm, and this is not a blanket email you are sending to every investor you can find. By showing the investor you took some care in your outreach and are already in context will greatly increase your odds of a response. On the opposite end – avoid starting emails with “Dear sir” or “to whom it may concern”- this screams mass-email and can be a big turn-off.
  • Calls to action get the ball rolling. You should offer the investor a few clearly laid out suggestions as to how to move forward. These should include the option to send the investor more information via email if they desire as well as some times to set up a potential meeting or call. By laying out options for how to move forward, you are bringing the horse closer to the water than by just saying something arbitrary like “look forward to hearing from you.”

By utilizing these recommendations you will greatly increase your odds of getting positive responses from investors. So develop your target list based on fit, identify the right contacts, and send out some introductory emails!

Interpreting Unsuccessful Investor Conversations

6 Feb

By Jack Fuller, Business Development, LSN

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Let’s face it, much of the time a fundraising executive spends courting potential investors leads to rejections. If the opposite were true, our writers and researchers here at LSN would have much less to talk about, and CEOs of biotech and medtechs would be able to spend a good deal more time on bringing a product to market. However, most savvy entrepreneurs understand that fundraising is a numbers game, and eventually their perseverance will pay off in the form of an allocation. However, few entrepreneurs spend enough time thinking about the investors that have said “no.” However, they are often not all saying the same thing, so paying attention to these rejections can be a helpful guide in improving your fundraising efforts going forward.

Let’s look at a typical scenario and break down what could actually be behind a negative response:

The Scenario: Let’s assume the investor appeared to be a good fit based on your research, and showed enough interest to listen to an initial pitch either in person or over the phone. Things seemed to go quite well, but after the initial conversation, the investor simply replies they have “considered the opportunity but have decided to pass.”

An ambiguous response like this will require you to reach out to the person to pinpoint the exact reason for passing.  Several factors may be at play, so let’s take a look at what may have happened.

Possibility 1: You were speaking with a gatekeeper and were disqualified before being passed on to a decision maker.

Understanding whom you are speaking with in the firm is of utmost importance.  Many times associates and junior deal sourcing individuals have less flexibility in how they evaluate opportunities as compared to senior partners.  These gatekeepers often act as filters and operate within certain boundaries to manage the deal flow going to the senior staff. They will often want to see certain materials such as a well-crafted pitch deck and executive summary that hits certain key points. However, their rejection may not mean you aren’t a fit in the decision maker’s eyes. If you think this may be the case, a polite and concise email directly to the decision maker may be an effective strategy. However, you should be very confident that you are in fact a fit, otherwise you may be pushing the recipient’s patience.

Possibility 2: Strong interest was expressed, however several aspects of the company did not match with the firm’s investment mandate.

Often the reason a dialogue with an investor fails is due to an identified mismatch between the company and the investor’s mandate.  The mandates of investors can range from ultra-specific to highly opportunistic. Many objections can be traced to several high level points: phase of development, indication, technology, management team, and capital structure requirements. While this may be a stumbling point for many discussions, it can also be used to your advantage if understood properly.

Before approaching each investor these mandate components must be identified and properly emphasized.    For example, you identify an investor looking for biotech companies specifically in Pre-clinical and phase 1 of development with a special focus on neurological disorders.  You then find out they are technology agnostic and will evaluate small molecules and biologics equally.  The emphasis in the initial discussions should then be placed on the indication and phase of development rather than the type of technology.

Possibility 3: They were never seeking to invest in the first place

It’s surprisingly common, but the truth is many investors look at deals even when they don’t intend to invest. They could be out of deployable funds, but want an ear to the marketplace or they could just be interested in doing some more research in a sector they are looking to invest in. These can be conversations that go on for a long time, because the investor genuinely wants to learn more. However, they end disappointingly, so don’t be afraid to be straightforward from the getgo – Ask whether or not they are actively seeking investments in your space and how many placements they seek to make over the next few quarters. This will keep expectations accurate and let you know if it’s worth spending your time on.

The reality is that fundraising is a numbers game, and inevitably, there will be a certain percentage of rejections (even with a targeted campaign). However, it can be extremely valuable to take some time to look at all of your investor conversations to see what you can learn. Understanding why you may not have been a fit for one particular investor will give you a leg up with future investors. Moreover, taking the time to examine rejections could potentially reveal some missed opportunities that could be rekindled with the proper approach.

Update on the FDA’s Breakthrough Therapy Designation

6 Feb

By Maximilian Klietmann, VP of Marketing, LSN

Max Smile 2The FDA launched its “Breakthrough Therapy Designation” program just over a year ago, and the initial data is in. Though results are mixed, the BTD could have a significant impact on investor behavior in the near future, as major indications could become as attractive as orphan therapies when it comes to time-to-market. This article will dive into exactly what the BTD is, what the initial program results look like, and what it means to the industry at large.

The BTD, as it is often referred to, is a program intended to accelerate the development and review of drugs for serious or life-threatening conditions. According to the FDA, an asset with at least some preclinical data showing “substantial improvement on at least one clinically significant endpoint over available therapy” qualifies for BTD. A company that has secured BTD is granted all of the FDA fast-track benefits as well as more intensive FDA guidance on an efficient drug development. Basically, this allows a drug with the potential to outperform existing therapies in a significant way to have the same shortened time to market that orphan therapies are able to secure. In short – FDA approval timelines for significantly improved cardiovascular drugs could be fast-tracked just like rare disease drugs.

So how does the data look on the first batch of applications to the program? So far the FDA approved 30% of the 113 applications for the BTD it has received, and about 60% have been denied from the program or voluntarily withdrew. However, the picture is still not clear on what the impact will be on actual drug approvals and whether the program will significantly reduce time to market. So far, the non-orphan BTD beneficiaries of the BTD have been mostly oncology treatments and anti-infectives, but the potential for other therapies to take advantage of the program is huge.

It will be important to keep an eye on this program, because the implications could spell some changes in terms of investor interests. This is especially true for investors in orphan diseases who are motivated by the fast-track to market. However, this is only true if the program can actually deliver what it promises, so watch for the first wave of program graduates. If approval rates are high and development time is short, it could spell big things for investors and entrepreneurs alike.

Source: http://www.fda.gov/regulatoryinformation/legislation/federalfooddrugandcosmeticactfdcact/significantamendmentstothefdcact/fdasia/ucm341027.htm

Hot Life Science Investor Mandate 1: Family Office Seeking Preclinical Therapeutics

6 Feb

A family office based in the Central United States is looking to make equity investments into companies ranging from $.5 – $5 million with a preference for the middle of that range. The firm is also willing to co-invest with investors they either know well or are able to get a strong reference for.  The firm looks to invest in seed and series A rounds and looks to take a significant stake in the company’s equity.  The firm prefers to invest in companies that are not located in an areas highly saturated with venture capital. The firm plans to make 3-4 new investments over the next 12 months.

The family office is currently seeking companies in the therapeutics space and is open to both small molecules and biologics. The firm is looking for companies with pre-clinical assets that have some animal data and will also consider companies in early clinical trials if the valuation is appropriate. The firm is open to review all indications and currently is working with companies in the neurology and antibiotics space. The firm would also consider investments in companies developing high tech medical devices and diagnostics with a special interest in companies that are bridging the gap between Biology and Software. The firm is not interested in investing in drug discovery platforms.

The family office is looking for companies founded by passionate entrepreneurs pursuing novel science.   The firm takes an active investor role and generally looks to take a board seat following investment. The firm is a value-added investor, including providing virtual management team services to support our portfolio companies that don’t have a full team on board.  The firm is looking for companies with pre-money valuations under $5 million, with a special interest in opportunities valued under $2 million.