Next Phase Newsletter

By Lucy Parkinson, Director of Research, LSN

When speaking to life science companies about their financing progress, there’s often a sense of ‘grass-is-greener’ problems. Medtech CEOs think it’s easier to raise money in biotech; early-stage CEOs think it’s easier to raise money for later-stage companies with human proof of concept data; neurology companies think it’s easier to raise money in oncology or cardiology. We hear a lot of these stories at LSN and they often contradict each other! Realistically speaking, most of the investors that an entrepreneur will speak to will decide not to invest in their company. It’s therefore easy to read too much into a rejection note. This week, we’ll therefore take a look at the data in the LSN Company Platform on what’s really getting financed right now, and at what stage.

The LSN Company platform records a wide range of financings, but this article focuses on data on equity investments into privately held companies in biotech and medtech during 2016. Not all financing rounds are announced when they occur, and the platform only records financing rounds for which some data is available; that said, the platform includes data on about twice as many biotech financings as medtech financings. Financings in other sectors, including healthcare IT, instrumentation, industrial biotech and biotech R&D services were also recorded.

In some of the rounds it was possible to identify the stage of equity financing that occurred. This isn’t always cut and dried, as many life science companies raise bridge rounds or issue convertibles, and seed financing in the life sciences may come in the form of a grant rather than an equity investment. However we’ve found that where stage data is clear and available, most of the recorded financings occurred at the seed stage, with a drop-off that steepens beyond the second-stage (Series B) financings. This data covers equity rounds into privately held companies only, so those that obtained financing by other means (such as a major partnership, venture debt, or an IPO) aren’t included in this data set.

In biotech, we’re able to identify the indication areas in which the companies are operating. Many life science companies are working on assets in multiple indication areas, and some assets cut across multiple indication areas; for example, a company targeting HIV may be counted as both an infectious disease company and an immune disease company). The below chart shows the top indication areas: oncology remains the most financed area by far, followed by CNS, infectious disease and immunology.

Where are life science companies receiving equity investments in 2016? Looking solely at biotech, medtech and healthcare IT companies, we found that our dataset mostly consisted of financing rounds in the USA. However, biotech and medtech investment is occurring all over the world, with many companies getting funded throughout Europe and Asia. Here are all the countries in which we have data on more than one financing round in 2016:

While capital is more abundant in some areas than others, we see investment occurring worldwide in a wide range of life science technologies. We also see new names continue to surface in the fine print of these financing rounds, and by identifying the participants from the data, LSN can begin to build relationships with new investors in the space. Keeping an eye on financing round data is crucial for raising money in the life sciences – both to know the current landscape, and to keep your mind open to the potential investment sources out there.

By Lucy Parkinson, Director of Research, LSN

One of the greatest difficulties in raising early stage financing in the life sciences is that many investors balk at the development timelines involved in biotech and medtech opportunities.  VC investors in particular are driven by short term fund lifecycles; particularly if you are receiving an investment late into a fund’s investment period (which may extend 2-3 years after the fund is closed), the VC will be often looking for the possibility of an exit in under 3 years. Angel investors and evergreen funds may also operate under similar horizons, as they rely on successful exits to generate capital to make further investments. Beyond structural constraints, from an investor’s perspective, time is money; their rate of return is directly governed by how long their capital is tied up in your company.

Everyone knows that it takes a long time to develop and commercialize a new drug, medical device or diagnostic. It’s estimated that it takes 11-14 years to move a drug from preclinical testing to the marketplace. Yet many investors step into this marketplace with a 2- or 3-year investment horizon. Early stage companies must therefore learn how to get in step with investors when it comes to timelines.

It’s important to understand that early stage investors most often don’t intend to remain invested in a company all the way to commercialization; rather, they want to deploy capital to enable a company to reach an important milestone that can be used to generate an exit opportunity.  If your company has a long development path ahead, it’s therefore vital to identify these milestones and provide investors with a map that will demonstrate your near term opportunities for value inflection.  A company can also look for potential ways to accelerate their development path.  Recently one LSN client created a new clinical development plan that would provide significant results much sooner than their original plan; this has improved their investor traction tremendously.  In the biotech world, many companies look for potential applications of their products in orphan diseases so that they can pursue an accelerated plan.

Alternatively, a company can focus on investors who are looking for longer term opportunities. This may include family offices or strategic investors; however, it’s important to reach out to every possible category of investors, and having a timeline that can provide value to both short-term and long-term investors is important for increasing your potential to receive investment.

By Caitlin Kramer, Research Analyst, LSN

Agriculture is the base of modern society, and makes up nearly a third of the global carbon footprint. Many current sociopolitical conversations revolve around GMOs, use of pesticides and antibiotics, and the future of sustainable food in the face of an ever-growing population. Biotechnology has increasingly sought to step up to these challenges of sustainability, though not always as successfully as anticipated (biofuels) or without controversy (GMOs), and in the back seat compared to biotech’s role in therapeutics. Yet, innovation in this space still sees strong interest from investors – 152 investors mention an interest in agbio in their mandates on the LSN Investor Platform. A majority of the investors LSN tracks that are interested in Agbio are open to investing as early as the seed stage.

Figure 1. Data taken from LSN Investor Database on 13 Oct 16.

The LSN Company Platform contains 951 agbio companies, broken down by country below. China and India, the world’s two most populous nations, comprise 30% of the agbio companies tracked in the platform. Italy, the world’s largest producer of wines and a lead producer of olive oil and various fruits, comes in third.

Figure 2. Data taken from LSN Company Database on 13 Oct 16.

LSN tracks a wide variety of investor interests and company sectors globally. Agriculture biotechnology is an important area of investment and innovation for countries around the world that has not escaped our notice.  We’ve found a wealth of early stage financing available for agbio companies, with interest from every investor category.