Archive | May, 2014

It’s Raining Investors Seeking Early Stage

29 May

By Dennis Ford, Founder & CEO, LSN

Dennis book

According to many pundits at conferences and across the internet, venture capital firms in the life science space have been shifting to later-stage investments. Despite significant activity among the other categories of life science investors, industry chatter still seems to be caught up with venture activity. However, when you take into consideration the full spectrum of investors that LSN tracks, the majority of investor interest is focused on companies with assets that are pre-clinical or in Phase I of clinical trials. But wait, there’s more! In this article we’ll be taking a look at data from the LSN Investor Database to highlight the case.

The chart below shows data from an export of the 1,000 most recently updated LSN investor profiles from the LSN Investor Platform with a stated preference in terms of development phase. It is clear that the overwhelming majority of these profiles have an orientation towards emerging companies with pre-clinical or Phase I companies.

 

image001

The chart below further validates this orientation towards early stage investments. It shows the distribution of 315 investors who have expressed their development phase preferences through a 1-on-1 conversation with LSN researchers.

c2

This stands in clear contrast to what is often cited as the overwhelming trend in the space. It is often claimed that investors are shying away from the early stage segment of the life science marketplace. However, most of the time, those who are pointing out this trend are referring to the venture firms who have moved further down the development pipeline or left the space. The remaining categories of investors seem to have moved to fill this gap, and the data validates this trend.

When you begin to look closely at the foundations, family offices, venture philanthropies, virtual pharma, mid-level private equity, patient groups, hedge funds, government organizations, angel groups and various corporate venture capital firms that are also investing, the landscape improves for early stage life science companies.

The advice remains the same – be open to all categories of investors, do your research, and identify those that are the best fit for your sector, indication, and phase. This is the basis of a successful fundraising campaign in today’s investor landscape.

Is “Stealth Mode” the Right Mode?

28 May

By Maximilian Klietmann, VP of Marketing, LSN

Max Smile 2

We’re in “stealth mode” is one of the most common buzz phrases LSN hears from emerging scientist-entrepreneurs. This is often the cited justification for a lack of Web presence, failure to create formalized materials, and an unwillingness to build a dialogue with investors. However, as noted in my article from last week, stealth mode ranks among the top 10 fundraising misconceptions.

Often, protection of ideas is the primary reason scientist-entrepreneurs give for being in stealth mode. As LSN’s CEO, Dennis Ford, likes to say, “Ideas are more like mushroom spores than lightning strikes: they spread organically and often pop up in several places at the same time. Execution is what determines your success.”

Another reason companies give for being in stealth mode is that they “aren’t ready to approach investors yet.” However, what many entrepreneurs miss is that the right time to approach investors is well in advance of when you need the money. It can take 9-18 months to raise capital, so starting early is in your interest. A proactive approach allows you to introduce your concept to investors, build relationships, and identify what needs to happen for your asset to become “investable” per that investor’s mandate. Then, when you are prepared to actually seek capital, you know who’s interested based on existing dialogue, and you know what questions need to be answered.

In short, it is important to consider the full implications of staying under the radar. There are clear tactical advantages to preparing your target investor audience for your concept. In fact, you may be hindering the progress of your company otherwise.

You don’t need to publicize your IP. Highlight your team’s expertise and story, and call yourself in “discovery mode” rather than “stealth mode.” Then, when you’ve got an asset in place and you need capital, you’ll be able to call upon the relationships you’ve established, which will help your fundraising campaign.

Get the investor world ready for you, and you’ll be ready for it.

First Loss Capital – What, Why & How?

28 May

By Michael Quigley, Research Manager, LSN

mike-2

I am always excited when I come across unusual life science investment models in my investor outreach. Recently, I learned about a fund whose primary investor, a philanthropic foundation, is providing the other investors in the fund with a “partial loss protection guarantee.” Under the guarantee, a first loss of up to 20% of invested capital is fully covered and 50% of any subsequent losses is also covered. This fund structure makes the risk/return profile for the investment much more attractive to investors and in theory will draw more total capital than in a traditional losssharing investment model. Basically, in an effort to get more investors to provide capital towards a specific indication, the foundation is voluntarily taking a bigger slice of the potential down-side.

This model known as “first loss capital” or “FLC” has been seen in other impact industries and social investments, such as education, home ownership for low-income populations, and healthy food for poor countries.  Providers of FLC historically have been endowments, foundations, and government organizations looking to catalyze a positive social outcome. These investors tend to have a deep focus on a specific target sector, and often a better understanding of the underlying risk associated with an investment than the generalist investors they wish to attract. By agreeing to cover a portion of the downside risk, they have the ability to bring more dollars to their primary cause.

The life science space is positioned for FLC to become a major financing solution. Increasingly, endowments, foundations, and government organizations are looking for ways to increase their impact by directly investing in emerging life science companies. If successful, FLC could be a tool for these organizations that stimulates innovation and growth in the biotech space by lowering the financial risk in a sector that is often perceived as high risk. The ideal outcome would be to attract the more financially motivated investors and bring more capital into the space.

Hot Life Science Investor Mandate 1: Global PE Firm Looking for Clinical Stage Devices and Therapeutics

28 May

A global private equity firm is looking to make direct equity investments into life science companies ranging from $5-25m, primarily in the USA and Europe, with the potential to invest in other areas if the right syndication opportunities are available.  The firm typically makes 10 new direct investments per year across a diverse range of sectors, including healthcare IT, therapeutics and medical devices.  The firm leads or co-leads financing rounds in about 60% of cases and takes a board seat in these instances, but on other occasions may syndicate with other investors and not take a board seat.

The firm prefers to invest in medical devices and therapeutics with the potential to become the standard of care in a large clinical area with unmet needs.  Focus indications include oncology, immunology, cardiology, diabetes, neurology, infectious diseases, respiratory disorders, pain management and psychiatry.  The firm prefers to invest in the later clinical stages (Phase II + III), but will consider opportunistic investments in earlier stage opportunities if the firm sees the potential for outsized risk-adjusted returns due to a market dislocation.

The firm also invests in healthcare IT companies that have a product already on the market and have attained revenue and customer adoption.  These investments are in a variety of market segments, including enterprise software, clinical management software, connected devices/equipment and direct-to-consumer products.

In the therapeutic and medical device sectors, the firm seeks to invest in companies with unique intellectual property and with strong investor syndicates who can fund late-stage clinical trials to completion.  In the healthcare IT sector, the firm prefers to invest in companies with at least $5m in revenue and strong, experienced management teams.  The firm performs thorough due diligence, looking at factors such as historical performance, size of market opportunity, revenue per customer and customer stickiness in addition to vetting the product itself and the management team.

If you are interested in more information about this investor and other investors tracked by LSN, please email mandates@lifesciencenation.com

Hot Life Science Investor Mandate 2: CVC of Large Pharma Looking for Therapeutics and Companion Diagnostics

28 May

The corporate venture capital arm of a large pharmaceutical company is currently looking to make equity investments into early stage life science companies. The firm has the ability to allocate up to $10 million dollars per company, generally in milestone driven tranches. The firm is able to invest in companies from around the globe and is actively seeking new investment opportunities.

The firm is looking for early stage companies working with therapeutics and companion diagnostics. The firm is open to review both small molecules and biologics as well as companies working with single assets or platform technologies. The firm seeks to invest in indication areas including Immunology, Oncology, Immunoncology, MS, and Fertility. The firm generally looks for companies with assets that are pre-clinical or in Phase I of clinical trials.

The firm is looking for privately held companies with experienced management teams. The firm looks to take an active role following investing generally taking at least a board seat. The firm is willing to both lead rounds and co-invest as a member of a syndicate.

If you are interested in more information about this investor and other investors tracked by LSN, please email mandates@lifesciencenation.com

Hot Life Science Investor Mandate 3: VC Looking for Early Stage Single Use Delivery Devices

28 May

A venture capital firm based in the Western United State is currently investing out of its 2nd fund. The firm makes primarily equity investments ranging from $50,000 to $5 million over the lifetime of the investment. The firm prefers to invest in companies located in United States although they are also open to review internationally based opportunities and are currently working with a few companies in Israel. The firm plans to make approximately 2 new investments over the next 6-9 months.

The firm is looking for seed and venture stage medical and diagnostic device companies. In these areas the firm is most interested in single use devices capable of delivering a therapy, and in indications such as cancer, cardiovascular and neurological diseases, orthopedic problems, respiratory conditions, and gastrointestinal disorders. While this is the firms primary focus, they remain open minded to other types of devices and indications as well.

The firm looks for professionalism in a firms management teams and is willing to work with firms that do not yet have a complete management team in place. The firm does not always look to take a board seat into companies however they firm does look to add value by developing strategic corporate partnerships in Japan when appropriate.

If you are interested in more information about this investor and other investors tracked by LSN, please email mandates@lifesciencenation.com

The Top 10 Most Common Fundraising Misconceptions

22 May

By Maximilian Klietmann, VP of Marketing, LSN

Max Smile 2In almost every case, the scientist-entrepreneurs approaching LSN are falling victim to one or more fallacies that are propagated through the industry. LSN is in a dialogue with over 5,000 investors around the world, and the reality is that what many entrepreneurs believe to be sound business logic could be dooming their companies. This article compiles the top 10  fundraising misconceptions so that you can avoid these pitfalls.

1.     Your existing network is enough. This belief is especially common among first-time fundraisers. They believe that the relationships they have are more than enough to get them funded in short order. However, after a few months, the enormity of the fundraising task becomes clear; it’s a numbers game and you will need a lot of investor candidates to call upon. A great article that dives deeper into this subject can be found here: https://blog.lifesciencenation.com/2014/01/23/a-word-on-when-to-go-outbound/

2.     Professional marketing collateral doesn’t matter. Often, scientist-entrepreneurs believe that the “science sells itself” and professional marketing materials are not necessary to raise the money they need. Nothing could be further from the truth. Investors receive thousands of unsolicited business plans in a year, and if you haven’t thought about how to set your company apart and effectively communicate the value succinctly, you’ve already failed in your outreach.

3.     Fundraising won’t take long. Many entrepreneurs naively assume that they can raise the capital they need in a few months. However, the reality is that finding the right investors and going through the due diligence process can take up to (and often more than) a year. From the outset, expect a minimum of 9 to 12 months (if you’re lucky) to raise the capital you need.

4.     Focusing exclusively on partnering. Fear of dilution, loss of control, and other factors can make entrepreneurs afraid of equity investors. This leads to an exclusive focus on asset partnering that drastically reduces the odds of moving the company forward. You need a global target list of all potential sources of capital. Only once you’ve cast a broad net and you’re in dialogue with several parties, do you have the luxury of being picky.

5.     More data is needed before speaking to investors. This may seem counterintuitive, but you need to speak with investors as soon as you can. If they want to see more data, they will let you know, but at least the line of communication has been established. Otherwise you are squandering valuable time and preventing your own progress.

6.     We’re in stealth mode. This is even worse! Ideas are more like mushroom spores than lightning strikes: they spread organically and often pop up in several places at the same time. In short, don’t worry about your ideas being stolen. You have more to lose by hiding yourself from the world. Get the world ready for your launch.

7.    We’re in due diligence with a VC. Fundraising is a numbers game, and most due diligence never leads to an allocation. Due diligence should not be used as an excuse to stop fundraising. In fact, it should encourage you to redouble your efforts.

8.     Exclusive focus on one category of investor. This is related to #4. Don’t be selective before you have options. As the saying goes, you miss every shot you don’t take.

9.    We’re not interested in talking to associate-level staff. Associate-level staff are the gatekeepers of the industry, and C-level staff operate largely on their recommendations. Never underestimate the value of anyone who could be a path towards getting funded.

10.  Issues around focus and organization. This is less of a misconception and more a point of frustration. Raising money today is a hard job that requires laser-like focus, determination, and a highly professional level of organization. Color-coded spreadsheets won’t cut it. Make the commitment from day one to make a minimal investment in the right cloud infrastructure to enable your campaign.

Avoid these mistakes and you’re well ahead of the curve. Best of luck and happy fundraising!