Archive | October, 2015

Medtech Family Offices Talk Trends and Evaluation Criteria

29 Oct

By Christine A. Wu, Research Analyst, LSN

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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:

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 –

  1. 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.
  2. 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.
  3. 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.”
  4. 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.”

Raising Capital in Health IT

29 Oct

By Cole Bunn, Research Analyst, LSN

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Successfully articulating the value proposition of your digital health/medicine product or service and receiving funding requires a great deal of thought and careful consideration to your message. Not only is it a particularly noisy space, the fact that it garners interest from both traditional tech as well as healthcare investors means you need to tailor your message considerably based on the investors level of understanding and expertise in the various aspects of your opportunity.

Each sector differs in key characteristics affecting business models, including metrics of success; typical timelines and financing required to bring a product to market; product attrition rates; the importance of regulatory oversight; the types and importance of IP; reliance on, timing of, and types of revenue; and relationship to the eventual consumer and target markets [1]. In order for the health IT entrepreneur to succeed in such a laborious endeavor, a well-thought-out, cohesive business model and a complete understanding of the investment landscape is a must.

As with any fundraising campaign, the importance of understanding the types of investors who are playing in a space can’t be overstated. Additionally important is understanding that these different types of investors are going to have different rationales for investing in Health IT, and your strategy for approaching them should reflect this.

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Figure 1 | LSN Investor Platform | Data as of October 28, 2015

Taking a look at the LSN investor database gives an idea of what types of investors are most interested in Health IT companies. Nearly 500 of the investors that LSN has spoken with have stated an interest in Health IT companies. Figure 1 shows a breakdown of the investor by type that are interested in looking at these types of companies.  Although traditional venture capital and private equity firms are highly involved in Health IT, if you aren’t targeting the rest of the field, then you’re missing half of the investors interested in your type of technology.

Given the stringent regulatory requirements healthcare products face, partnerships with pharmaceutical companies are very valuable for companies in the digital health realm. These companies have many valuable assets and capabilities in healthcare, such as large clinical trial networks, existing patient, physician and payer relationships, and deep biological and medical expertise that can be brought to bear on challenging digital medicine problems [1]. These strategic value-adds can accelerate the progress of an early stage health IT company.

Depending on what camp you are coming from (biotech/pharma or tech/SaaS) you will need to meld pieces of each into your pitch to investors. The most drastic differences between the two industries would be the time to get a product to market and the funds required to do so. Being able to foresee and address special situations that are likely to arise in this dynamic, emerging field will be a big difference maker for investors and partners alike. Given that digital health companies are somewhere in between the tech and healthcare industries (or rather a combination of the two), that puts them in a unique position, and will require that they approach fundraising with very tailored and well-thought-out messaging.

Click here to watch a panel of VCs discuss the Health IT landscape at last year’s RESI San Francisco conference.

  1. Steinberg, D., Horwitz, G., & Zohar D., Building a Business Model in Digital Medicine. Nature Biotechnology 33, 910-919 (2015).

Going to a Conference? 3 Tips for Traveling While Fundraising

29 Oct

By Shaoyu Chang, MD, MPH,  Senior Research Analyst, LSN

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Travel is an essential business expense for early stage companies. One conference plus a 1-2 week road trip per quarter can cost anywhere from $22,000 to $35,000 per year. It’s important to get the most out of your time on the road.

Experienced scientists are used to attending academic conferences. They do their research, prepare a poster or talk, speak and answer questions from the audience, take a good rest in the hotel, and head home. Some fundraising scientist-entrepreneurs fly out with the same mentality; as a result, they are missing out on big opportunities to grow their business.

Just this month, an LSN client attended an event in the Midwest where, based solely on online research, it appeared that the investors in attendance were generally looking for later stage opportunities. However, after reaching out and shaking hands in person, he found they are currently open to opportunities at an earlier stage than was historically the case, and were impressed with his company’s investment pitch.  The entrepreneur now has ongoing conversations with several of these investors. This is just one example of how meeting in person can create more opportunities than simply sending an email or making a call.

This article provides a few tips on planning business trips and making them productive:

  1. Research the best conferences

There are a plethora of investor conferences all over the globe, focused on healthcare, hi-tech, philanthropy and more. Entrepreneurs should identify the best conferences for their technology type and stage of development, where they are likely to meet the most relevant partners.

Be wary of conferences that make large promises regarding investor attendance but do not release the names of the firms that will be in attendance. Oftentimes these groups will lump investment banks and even service providers under the investor category to inflate their numbers.  Do your research on current and past attendees to really get a grasp on who will be going. Contact companies that have attended in previous years to hear their experience; an unbiased option can be very telling of an event’s value.

  1. Use outreach tactics to schedule strong strategic meetings

Even when there are no conferences taking place, if you are actively fundraising you will be in dialogue with potential investors from all over the world. If you’re visiting an investor far from home, look at other potential investors in the area and hit them up with a cold call or email.  In addition to progressing the conversation with the investor you’re visiting, you can uncover and meet with investors who would not have been available to meet had you stayed at home.

A quick outreach often works wonders: “Hello, I wanted to ask if it would be possible to set up a meeting in two weeks as my team and I are going to be in town. We are very flexible and can meet any time, including breakfast and dinner.” The sentence “we just happen to be in town and close by” fills in any scheduling holes. LSN has found that with a sense of urgency, investors are more likely to get back to you.  Use this to your advantage.

  1. Line up additional meetings

Flying to a city to attend only a single event is a waste of time and potential opportunities, and in the world of fundraising where one meeting can make or break a campaign, no opportunity should go to waste.  Think of a region like a big mall. Always identify the prize accounts in the area, such as major industry players, medical centers, and investors that are a good fit. Often there are secondary accounts nearby. When attending a conference, don’t limit yourself to only the groups attending the event but also reach out to major corporations or medical centers.

Don’t be afraid to cast an even wider net than usual in determining who is a likely fit for your opportunity. Be resourceful. Ask someone who understands your product, “now that I am flying to X city, who else should I go after in this region?” It’s amazing how much intelligence you can gather this way. A successful entrepreneur can work from one high-profile meeting to a week of meetings.

An outbound campaign is essential to keep your business alive and growing. This article highlighted the importance of traveling and hopefully helps you plan for your next business trip.  Feel free to check out our blog for tips on other aspects of outbound fundraising that will help you land those meetings: how to build a successful pitch deck, and how to write a compelling partnering message.

Hot Life Science Investor Mandate 1: Northeast-Based Family Office Seeking Biotech R&D and Healthcare IT

29 Oct

An investment group is based in Northeastern United States and invests on behalf of family offices and institutions, and makes direct investments in a variety of sectors including healthcare & life science. Investments in early-stage companies are typically in the form of equity, whereas debt investments in later-stage companies may be considered. The firm’s allocations are highly variable but are generally over $1m, and are typically at least $3m. The firm primarily invests in US-based companies but Canada-based and other international companies may also be considered.

Within the life science sector the firm has diverse interests, with a primary focus on healthcare services companies, including biotech R&D services and healthcare IT services. The firm is also interested in medical devices in late-stage clinical trials, or which are already approved. Investments in therapeutic drug development may be considered but only at later stages (Phase II or later).

The firm seeks to invest in solid management teams who are developing a product based on proprietary, patented technology which addresses a large market need. While the firm may consider investments in pre-revenue companies, they require that a company have a defined path to revenues and will be profitable within three years.

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: Western Europe-Based Pharmaceutical Company Seeking Aesthetic Technologies

29 Oct

A private specialty pharmaceutical company is headquartered in Germany with offices all around the world. The firm’s venture fund focuses on early stage companies, and positions itself to be a strategic corporate partner to develop and support innovative technologies to commercialization in areas for growth opportunity – specifically focused solely in the aesthetics and cosmetics space. The firm currently manages a $30 million (€25 million) fund, and typically makes $1-$5 million investments. The firm is seeking 4-5 investments in early-stage companies, start-ups including spinout companies from academia. The firm is geographically agnostic, and is open to investments from all over the world.

The firm focuses only on aesthetics with an anti-aging focus, including skin rejuvenation and body shaping and modification. The firm is open to all therapeutics, medical devices, and healthcare IT, as long as the technology serves an unmet need/gap in the aesthetic marketplace. The firm has historically invested in injectables, toxins, topicals, cosmetics, and devices. The firm typically looks at seed to early stage companies, and specifically focuses on pre-clinical to clinical stages and pre-concept to concept devices.

As a strategic corporate partner, the firm hopes to bring its own expertise and internal resources to the table. As not only an investor, but also as a strategic partner, the firm anticipates being able to offer advice, support, and consultation for the early-stage company to leverage its global comprehensive network of experts within the firm. The firm offers R&D, clinical, regulatory through to commercial, sales and marketing expertise. The firm believes that providing these services and support to a start-up company is a substantial value-add and will help partnered companies grow and develop with the ability to tap into the firm’s expertise. Thus, the firm will help fill the management team with their global network of internal resources, along with providing all the aforementioned services.

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: Western US-Based VC Fund Investing in Diagnostics and Therapeutics

29 Oct

A boutique venture capital firm is based in the Western United States. The firm invests in growth and expansion-stage technology and life science companies. The firm closed its second fund in 2015. The firm prefers to make growth stage investments in Series B, C and D rounds, typically co-investing with other institutional investors. The firm leads about 30% of the investment rounds it takes part in, with allocation sizes varying according to the needs of the round. The firm focuses on companies located in Southern California and other regions underserved by venture capital such as Utah, etc. The firm is actively seeking new investment opportunities, and anticipates that the second fund will invest in over 15 companies.

In the Life Sciences, the firm seeks to invest in diagnostics, therapeutics, and also selectively in medical device opportunities. The firm is opportunistic in terms of subsectors and indications. The firm generally seeks therapeutics that are at least in Phase III and diagnostics and medical devices that are very close to or with FDA approval. The firm historically invested in vitro diagnostic tests and medical imaging.

The firm generally co-invests with top tier institutional investors, and for companies based in Southern California the firm may act as a local lead investor to bring a syndicate together. The firm seeks companies with a strong and experienced 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 4: China-Based Pharma Seeking Oncology, Respiratory System, and Anti-infective Assets

29 Oct

A specialty pharmaceutical company is headquartered in China with offices in Hong Kong and California. The company focuses on product development and sales and marketing in four therapeutic areas: clinical nutrition, oncology, antibiotics and respiratory system. The company is interested in forming partnerships with biopharmaceutical companies that are interested in entering the Chinese market. The company is flexible in terms of partnering models, which includes in-licensing, co-development, exclusive distribution, joint venture, and product acquisition. The company is actively seeking products from the US and Europe.

The company is currently seeking products in the following therapeutic areas: oncology, respiratory system, antibiotics, clinical nutrition, and cardiovascular. However, the company is equally interested in other areas with unmet medical needs in China (such as CNS, GI, Nephrology, etc). The company will consider both small molecules and biologics. The firm is most interested in NCE or NCE-like molecules. The firm will only consider biosimilar or generics if there are no similar products or very few players with identical chemical/biological structure in China. In terms of phase of development, the firm will consider marketed and early-late clinical stage products for the five listed areas above. For other therapeutic areas, the company is looking for assets that have obtained regulatory approval in the US or Europe markets.

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