Screening Potential Life Science Investors

9 Oct

By Michael Quigley, Director of Research, LSN

mike-2Last week, we discussed some of the tactics and tips used by the LSN research team to identify potential investors in the life science space. Identification is a multistep process, however. After you have a created list of potential investors from your personal network, the conferences you’ve attended, the databases and websites that report on financing rounds, and LinkedIn, for example, you need to go through the names one by one to determine who is worth contacting given your particular opportunity. There are several criteria that potential investors should meet to make it into your pipeline.

They Should Be an Investor

This may sound obvious, however, it is important to consider. Many companies with names like ABC Ventures or XYZ Capital may seem as though they are investors when in reality they are consultants, service providers, and investment banks—none of which allocate capital. Spending time contacting these companies for an investment is not worthwhile, as they will look to offer you their services, not capital.

They Should Be Actively Deploying Capital

Many investors in the space have elaborate websites and massive portfolios, however, they do not currently have capital to invest. To determine if investors are active, the first data point you should look for is when they closed their most recent fund. The term closed signifies the end of the fundraising period for a fund and the start of the investment period. Funds that have closed recently (within one to two years) are ideal, as they still have significant cash reserves and can hold new investments for a longer period. Generally, any fund that is six years old or older will be making investments only into existing portfolio companies or companies from which they can exit relatively quickly, which makes them less than ideal targets. If fund information is not available, then you should look to previous investments to see how recently they allocated. If they haven’t made a new investment in more than a year, then more than likely they will not be a good fit. It is important to note that not all investors make their investments known, so it may take some digging to uncover previous investments—if they are online at all.

They Should Be a Good Fit for Your Opportunity

Determining if an investor might have interest in your type of technology and its stage of development can take a significant amount of up-front time, but it will save you from wasting hours down the road. Even with referrals, it is important to understand if you fit the mandate of the investor, otherwise the meeting will likely yield nothing. There are a number of factors to consider, and the first place to look is the investor’s website. Some investors clearly spell out their investment parameters, including indications, stages, and regions of interests, as well as current and past portfolio companies. Other investors, often hedge funds and family offices, provide virtually none of this information on their websites. In cases where such information is not readily available on the website, it is best to check various news sources for reported financings rounds in which that investor was involved. You should compare your opportunity to the deals the investor has previously participated in. Look at the size of the round, the country, the type of technology, the stage of development, and the target indication.

These are all factors to consider when screening potential investors. If an investor isn’t a fit with your opportunity, it is not worth your time to reach out. If an investor has invested in your type of technology but at a later stage, it is worth presenting your opportunity and getting on the radar for when you are looking to raise further financing. However, if an investor fits all your criteria and is active, you have found a strong lead for your campaign.


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