By Mimi Liu, Research Analyst, LSN
There’s a saying in the data industry that data comes in two states: out of date, and very out of date. At LSN, we therefore believe it’s important to embark on your fundraising campaign with the most current information possible.
Before reaching out to investors, fundraising entrepreneurs will generally gather information on investors from sources such as their personal network or Internet searches. Alternatively, an executive may consult an investment banker or another professional who maintains a Rolodex of investor contacts. However, the relevancy and the value of the data from those sources are hard to verify.
LSN research staff have been tracking life science investors for almost three years, and have discovered that the only way to maintain accurate information is to follow up regularly with investors to verify that they are still actively investing and that their mandate is still the same. It’s hard to track detailed investment strategies based on a website alone; keep up a dialogue with investors to be aware of changes in investment mandates.
What are the main reasons that investment mandates might change?
The Changing Investor Landscape
In the life science investment space, there are often old players dropping out and new players entering. In the private equity and VC world, fund life cycles often cause previously active investors to cease allocating temporarily while the firm raises a new fund. There are also several reasons an investor might cease to invest in life sciences entirely: investment failures, key staff with healthcare expertise leaving the firm, or a change in strategy to focus on a different industry. Simultaneously, other investors are entering the life sciences fray for the first time. Technology firms, family offices, and large healthcare organizations develop an interest in investing in the life sciences and start to funnel their capital into start-ups. New VC funds are being formed. Also, more and more international investors, especially Asia-based investors, are now looking for new opportunities around the globe. Additionally, existing life science investors, such as big pharma firms, may expand the scope of their investments and shift their focus to early stage companies. Fundraising executives will want to keep an eye on new investors and add them to a list of potential targets.
Keeping Data Current
Your investor target list needs to be a living list. If the list you’ve gathered is based on old data, it’s due for an update. You may need to verify contact information, typical allocation sizes, and the firm’s investment focus. If a firm has raised a new fund, the fund may have a different mandate from previous funds; for example, one Boston-based investor that we’re in contact with previously invested from a fund that focused on therapeutics and medical devices, but this investor has raised a new fund that will focus on healthcare IT opportunities. By maintaining a dialogue, you can get access to future-looking information on the firm’s investment plans that goes beyond what is available on their website.
Verifying Third-Party Data
Start-ups sometimes work with third parties that help them raise a financing round, such as investment banks or fundraising consultants. When working with third parties, life science executives should ask: How current is their network? If you ask to see a target list of investors, you can then do your own research to check how up to date that information is. An LSN case study found that an investment bank had provided a start-up with many contacts that were out of date or irrelevant.
Although there are unpredictable changes in the investment landscape, getting accurate information can help entrepreneurs make the right list of targets. Moreover, following up with investors and being aware of changes in their mandates can have a meaningful impact on managing your target list. Before collaborating with third parties in the fundraising process, check that their network is up to date. For fundraising start-ups, accurate data is vital to constructing a target list of investors.
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