Early Stage Investors Go Global

10 Apr

By Dennis Ford, Founder & CEO, LSN

Dennis bookDoes it make sense for a life science fundraising executive in Europe to look internationally for early-stage funding? Should U.S. based firms look at investors in Europe and Asia?  As the folk singer Bob Dylan sang “the times they are a changing” and the answer is yes!

To someone looking to fund a life science startup ten years ago, the funding possibilities would have been primarily local.  Government programs and angel networks are almost invariably regionally-focused, as are many VCs (particularly within the long tail of smaller VC funds that used to provide capital to life science start-ups, many of which have now closed their doors).  However, the new investors on the stage today are typically much broader in scope.  Large pharma companies and global PE companies that used to focus on mid to late-stage opportunities are now looking to capture the value of emerging technologies; from the opposite direction, medical foundations that used to support only basic biology research are now focusing on getting new breakthroughs out of the lab and into the marketplace, and while some foundations are regionally based, many are looking for advancements in their field globally.  Family offices, too, are most often interested in opportunities worldwide.

To an entrepreneur unaware of how the world has changed around him, regional investment can become a self-fulfilling prophecy; the entrepreneur will focus their fundraising campaign on the traditional, mostly regional sources, and never reach out to the new global investors that might be very interested in the opportunity.

LSN Research in collaboration with Venture Valuation, Biotechgate Database has examined the geographical scope of the investors who take part in early-stage life science deals.  We looked at the trove of financial data available via the BTG Company Platform, and took a sample of small financing rounds ($10m or less) raised by companies developing a preclinical or Phase I therapeutic product.  From this sample, we aggregated a list of all the lead and co-investors who had participated in these deals, and then we took a more detailed look at each of these investors and assessed the range of their activities.  To keep things simple, we categorized the scope of each investor’s allocations as

1)    Global, anywhere on the planet where companies are a fit for investor.

2)    Continental, North America, Europe or Asia.

3)    Regionally, focused on small discrete geographies like Massachusetts, California, or specific countries in Europe.

Sample 1: From Biotechgate Company Database

 Lead and Co-investors that have Allocated <$10 Million to Pre-clinical or Phase I

Sample 2

As you can see, about 25% of the investors that are active in these early stage deals reported in BTG financing rounds database are global investors. To further support this, we also pulled data from investors in the LSN Investor Database who are willing to allocate under to $10 million in a single round into Pre-clinical and Phase I stage therapeutics companies.

Sample 2: From LSN Investor Database

Investor that are willing to Allocate under $10 Million and are looking at Pre-Clinical and Phase I

sample 1

About half of the investors who take part in early-stage funding rounds are regional or continental players.  Government organizations dominate the regional category, and most angel networks are regional in scope, as are many VCs.  It’s worth noting that the BTG data is historical, and we can expect regional-based investment to be a shrinking category in the immediate future, as recent cutbacks to both US and European government funding in the name of austerity and sequestration will reduce the role of regional government in life science financing.

The other half of the investors in our sample are looking for opportunities more broadly, whether that be across a whole continent (such as pan-European investors and firms that look all over North America for opportunities) or worldwide.  Global investors include many big pharma firms and their corporate VCs, who naturally look worldwide to fulfill their strategic needs.  While some foundations are focused on regional development, many are eager to support important work in their fields of interest no matter where it’s taking place.  We also found that most of the family offices in our sample are global in scope, as are some VC and PE firms.  Wherever your life science company is located, you can look to these investors as sources of funding.

Early Stage life science investment is in transition.  This means that there is a clashing of the old ways and methodologies and the generally accepted status quo. The investor available categories have morphed as new players fill the void left by the early stage VC investors.  The challenge today is to get everybody up to speed on who’s who in the market place and educate the players on how to find the best fit for their capital needs. Below are 4 points to keep in mind when developing a fundraising strategy.

1)    Life Science fundraisers are in two camps.  One camp still hangs on to out-of-date strategy that the investor market process and protocol is as follows friends and family, angels, government grants, followed by VC’s.   This might have been true 5 years ago but is no longer relevant as new players have entered the arena and VCs have waned due to lack of funds and unproven track records.  The new process looks more like this: friends, family, angels, funding portals, government grants, followed by parsing the new investor landscape and determining who is a best fit for a fundraiser.  These new investors including single and multi-family offices, venture philanthropy, patient groups, corporate development, private equity, hedge funds, pensions and foundations.

2)    While many believe that emerging life science companies cannot canvass and get allocations from global investors and that their market place is limited to only regional investors, this is simply not true; each investor type has its own modus operandi, and while some might be local, such as angel networks or regional VCs, a corporate venture fund, foundation or a patient group may have no such requirement and will invest globally.  The profile and strategy of the life science investor determines their investment sphere.  The new investors on the stage today are typically global in scope.  Large global pharma companies that used to focus on late-stage opportunities are now looking to capture the value of emerging technologies; from the opposite direction, medical foundations that used to support only basic biology research are now focusing on getting new breakthroughs out of the lab and into the marketplace, and while some foundations are regionally based, many are looking for advancements in their field globally.  Family offices, too, are most often interested in opportunities worldwide.

3)    Investors are moving upstream and this creates a trend that in turn moves other investors to join in. Previously only certain investor types made early-stage investments, but now traditionally mid to late players are getting involved early and this then creates a pull on the rest of the investor base.  This makes early stage a topic of consideration for all the mid to late stage investor categories. Investors are demonstrating that in order to remain competitive you need to form early alliances and partnerships with emerging companies, or you will miss out.

4)    It has been well documented that VCs in general have underperformed in the early stage life science space and therefore have not been able to garner investors into their funds, forcing a tactical regrouping of their early stage strategies.

Global Investors Making Early-Stage Deals in Europe

As LSN’s mandate data makes clear, many life science investors are looking for opportunities all over the world.  Recent history bears this truth out; financing rounds for European biotech companies often feature investors whose activities are global in scope.  Here’s a few representative examples of investors from outside Europe who have participated in small, early-stage European biotech and medtech financing rounds within the last 3 years.

Broadview Ventures is a family office based in Boston that invests in early-stage cardiovascular and neurovascular breakthroughs worldwide.  The firm’s recent global investments include Finland-based Laurantis Pharma and Israel-based Vascular Graft Solutions Inc.

Industrial Bank of Taiwan Management Corporation manages a Boston-based life science venture fund that has made investments worldwide.  The firm’s portfolio includes Netherlands-based To-BBB.

New Leaf Venture Partners is a venture capital firm with offices in New York City and San Mateo.  New Leaf is primarily focused on the US but has nevertheless made several recent investments in Europe, including investing in Karus Therapeutics in 2012.

The Michael J Fox Foundation is based in New York City and provides research grants of up to $2.5m to biotech companies in the Parkinson’s disease field.  Since 2010 the foundation has offered grants to at least three European companies – Hermo Pharma Oy, AFFiRiS AG, and Sapiens Steering Brain Stimulation GmbH.

SV Life Sciences is based in Boston and has additional offices in San Francisco and London.  The firm has made several investments in Europe, including investments in seed rounds for companies such as Autifony Therapeutics, Vantia Therapeutics, and Bicycle Therapeutics.

And finally, many global pharmaceutical companies based outside Europe invest in early-stage biotech and medtech opportunities within Europe, including Merck, Johnson & Johnson, Astellas, Mitsubishi Tanabe, AbbVie, Takeda, and Baxter International.  These companies invest in Europe both via strategic in-licensing and acquisitions and also via their corporate venture capital funds.


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