By Christine A. Wu, Research Analyst, LSN
What is the best way to get to family offices? What trends are they looking at and what do they evaluate when looking at companies? The Medtech Family Offices panel answered these questions at LSN’s RESI Boston conference in September.
The panel was moderated by Colin Widen, CEO of Boston Innovation Capital, LSN’s subsidiary company. Our panelists include:
- Maria Berkman, Director, Broadview Ventures
- Brian Grulke, Principal, Volcano Capital
- Oded Levy, Managing Partner, Blue Ox Capital
- Ron Paliwoda, President, The Paliwoda Group
- Alejandra Paredones, CEO & Founder, BSI Capital
The regulatory environment is ever changing.
“The [life science] industry is organized chaos,” Oded Levy of Blue Ox Capital described. Organized because there are rules in the delivery system and method of providing care, and chaotic because everyone is trying to position themselves as strategic investors. Yet at the same time, the key for investors is to answer whether the management strategy is applicable to the market, and whether or not the market will accept it.
Companies must pay attention to the outside world and the overall market. “The market is going to change dramatically over the next 4-5 years,” Levy added, “rates will be higher and cash will be much different.” Furthermore, the spectrum of buyers is changing dramatically. “If it was only healthcare companies interested in the past, now it could be Google or Oracle.”
Since the industry is continually changing, “if you’re able to get an exit, take it,” Ron Paliwoda of The Paliwoda Group advised. Yet if the science is significant and the company is growing tremendously in profit, “I’ll hold onto it.”
Family Offices evaluate on science, legalities, and vision.
For a number of investors, including Paliwoda, the most important evaluation is the science. “You can’t throw a Kim Kardashian and say [the technology] is cool. It’s the science – that’s how we rank our opportunities.”
Along with considering due diligence and time to exit, Alejandra Paredones of BSI Capital emphasized the consideration of the cost of legalities, especially as a foreign investor.
Levy added the importance of a legal system. “Everyone is rosy and opportunistic once they enter, but it’s not how much money we make, but how we can protect investors when [companies] get in.” There should be a strong operating agreement between the investor and company allowing the investor to have a say on a number of items, such as capital events, hiring, compensation issues, and the financing committee.
Paliwoda added the importance of the vision because “if you want our relationship to be purely transactional, we’re not interested.” The investor wants to know how he or she can add value to a company’s vision through other assets aside from capital. “I want a relationship that can last longer than just one project.”
Investors look outside the big science ‘hubs’
The panelists debunked the myth that family offices only look at the big science hubs (i.e. Boston, New York, Silicon Valley, etc.). “I love roadtrips!” Paliwoda immediately responded.
Currently in due diligence with three companies outside of the traditional hubs, Maria Berkman of Broadview Ventures addressed that the only real, though minor, concern these companies face is recruiting talent to build the company, as the traditional hubs have more access to greater talent. “But it’s nothing to shy away from,” Berkman assured, “It just means we have to help more and be aware that we have to be more hands-on.”
Companies, here is your advice –
- Have a strong, collaborative management team. “There’s strategy, then there’s equity. What’s your strategy? Are you the right people to execute it? If not, would you listen to us? If you’re not going to listen to us, we don’t care, even if you have the best product in the world,” Levy explained.
- Connect to family offices first through someone you know and trust. “Lawyers, portfolio CEOs, someone from their network” Brian Grulke of Volcano Capital explained. “A warm introduction de-risks management risk enough so that we can feel comfortable to set up a meeting and hear the story,” Berkman added.
- Make your last step a cold email. Both Grulke and Berkman identified several successful opportunities that had come through cold emails, though “make it a final step.” For Paliwoda, “A cold email for us is trash and junk. We never see it.”
- Make sure you are a fit before reaching out! “I get a lot of emails everyday with companies that are not a fit.” Paliwoda described, “It’s easy to put those in the trashcan.”