Pitching to a Foundation? Be Prepared for These Issues

19 Nov

By Lucy Parkinson, Director of Research, LSN

Earlier this year, we offered an in-depth exploration of foundations that provide funding to startup companies. Many foundations and patient groups are now interested in working with startup companies to fund projects that further their mission, and while many life science companies could benefit from approaching foundations for funding, there are certain criteria that foundations typically have to follow in order to bring their support for startup companies in line with their broader mission.

While each foundation is unique, here are a few criteria that we’ve repeatedly seen raised by foundations. If you’re pitching to a foundation for funding, you may wish to keep the following considerations in mind.

Will your company commit to supporting the foundation’s mission?

One fear shared by several foundations that we’ve spoken with is that they’ll provide capital to a startup company and that capital will then not be used in a way that benefits the foundation’s mission. For example, a foundation might provide financing to trial an asset in a specific indication area, but the startup may later pursue a different primary indication in order to access a more attractive market opportunity. This can be a particular frustration for foundations focused on rare diseases with few or no current treatment options. Similar situations may arise for foundations that have broader missions, such as supporting regional economic development or improving access to healthcare.

For this reason, foundations that support startups are often concerned about their ability to provide direction to a company, as well as financing. The foundation may wish to take a board seat, or to acquire rights to an asset they’ve funded in order to have a say in its future development process. To win the support of a foundation, it’s essential to demonstrate a commitment to their goals.

Can the asset be de-risked with a low-cost study?

As we reported previously, foundations generally focus on funding preclinical studies; when working with a startup company, the foundation’s goal is generally to produce evidence that will make the asset more attractive to financially motivated investors, who can then fund further development. If it’s possible to produce compelling proof of concept data with an exploratory study, a foundation may be very interested in your work.

Is the company developing a sustainable solution?

In the past, foundations have generally focused on basic research; if a foundation is interested in working with startups, it’s because they want to see the discoveries they’ve funded turned into cures that can be used by patients. However, in order to bring a product to market, it’s essential that the startup have the ability to become a sustainable business over the long term. While a VC might just be looking for one or two home runs in a broad portfolio of life science assets spread across different indications, a foundation wants every dollar to count in the fight against a rare disease. Therefore foundations sometimes fear that startup funding may be wasted due to the startup becoming reliant on philanthropic support, or failing to raise follow-on financing.

In addition to asking the kind of due diligence questions that you might expect from a financially motivated investor, the foundation might have concerns that include the ability of patients to access the product, and the willingness of other investors to finance the later stages of clinical trials.

Does this investment fit in with the foundation’s other programs?

While some foundations solely focus on funding medical research, many have a broader mission to care for patients with a particular disease; for these foundations, funding may be split between advancing medical knowledge and providing care to patients in the present. Foundations are often concerned about balancing these two goals when working with a startup company. Can the startup’s long-term financing needs be addressed without conflicting with the foundation’s other programs? Some foundations are wary of the conflicting demands of an investment that may generate ROI and their broader, purely charitable programs.

LSN has often stressed that CEOs will have to pitch in different ways to different types of investors; if you’re applying to a foundation for funding, the above points will guide you in positioning your company. Foundations often have significant value add as investors, with access to patients, key opinion leaders, and deep expertise in their fields; it’s important to understand what they will need from you in return for their support.

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