By Lucy Parkinson, Senior Research Manager, LSN
While creating a target list of investor contacts is a good first step on your road to financing, lists have to be used strategically. It’s important to refine and prioritize your investor targets before embarking on a fundraising campaign, and in this article, I’ll explain how we conduct this process at LSN.
LSN’s primary goal is to help life science companies connect with investors who are a suitable fit for their opportunities. By searching the LSN Investor Platform, a fundraising executive can create a Global Target List (GTL) of potential investors in their company. This list typically includes 250 to 500 possible investors—enough to create a considerable amount of outreach work. So how can the list be filtered so this work can be conducted most effectively?
Our strategy is to divide this list into tiers, ranked by the quality of fit between your opportunity and the firm’s investment thesis. By using this method, you can focus on the most relevant life science investors first. Connecting to these highly promising targets may lead to securing a lead investor to anchor your raise, which will make it easier to fill out the rest of your financing round.
After generating a GTL, our next step is to go through the list and read each investor’s mandate one by one. This takes time, but it’s crucial if you want to focus your outreach effectively. You may find that several investors have specific criteria that your company doesn’t match; for example, you might discover that an investor is only interested in companies based within a very small geographic area, or associated with a particular university. It’s important to identify these “deal-breaker” criteria before wasting effort on initiating contact. We mark such investors as “Not a Fit” for the opportunity.
But among the investors who are relevant to your company, not all fits are alike. As we read through each investor’s criteria and areas of focus, we can divide these investors into three tiers: Strong Fit, Opportunistic Fit, and Tenuous Fit. We then tag each profile with a tier in our CRM system to allow for more efficient outreach.
So how do we define these three tiers?
A Strong Fit is an investor that has a specific interest that applies to your company in some regard. Perhaps the investor is highly focused on a certain medical indication or technology that you are addressing. For example, if an investor has expressed a particular interest in therapeutic platform technologies in the neurology space, and that’s exactly what your company is developing, you’re going to want to prioritize this investor! As you study each entity on your list, keep an eye open for a specific area of alignment, whether it’s a particular patient population or a field of technology that is of interest to the investor, or perhaps an underlying investment theme your company fits within, such as delivering care more cost efficiently. This is how you can identify the strongest fits that require the most urgent outreach and the most frequent follow-up.
The second tier consists of Opportunistic Fits. For these investors, you’re definitely in the ballpark of what they are interested in, but they’re not specifically focused on what you have to offer. Some life science investors are open to a wide range of approaches within certain parameters; for instance, they might have a general interest in preclinical therapeutic opportunities throughout North America, but they haven’t displayed a specific focus on technologies like yours. As these investors have a potential interest in what you do, they should be the targets of the second wave of outreach; you might not follow up with them as frequently as you would with the first tier, but there’s a strong potential for dialogue.
In the case of a Tenuous Fit, while there is a potential basis for a match between your company and the investor, you likely do not represent a typical deal for them. For example, if an investor focuses on companies based in the Northeast U.S., and your company is based in Toronto but is a good fit in other regards, it may be worth asking if they’d like to talk to you about the opportunity. Or perhaps the investor is interested in your area of medicine but usually only considers companies at the IND filing stage, whereas your lead asset is already in Phase II trials. Even though this company does not represent the perfect fit, they might prove to be a very important contact. In LSN’s experience, outreach to these “tenuous fits” has frequently resulted in good strategic connections and sometimes future investment opportunities. For example, the investor may be able to act as a “pointer,” that is, they may be able to refer you to another investor who is really interested in your field, or to other important strategic connections for your company. It’s therefore important to approach these “tenuous fits” as people with whom you want to have a conversation about your company, not necessarily as sources of capital; a broader discussion might reveal areas where you can work together, or might lay the groundwork for an investment in a future financing round.
Once you’ve categorized each investor into one of the above tiers, you’ll have a detailed picture of the investor landscape for your company. It’s a vital second step to take after generating your global target list. By executing this process, you’ll know where to make your first forays into fundraising, what to expect from each investor conversation, and how to focus your follow-up efforts, and will increase your odds of carrying out an efficient fundraising campaign.
Earlier this month Life Science Nation’s RESI Conference at the TMCx in Houston was home to a panel of representatives and experts in the Family office world who spoke to how their groups go about sourcing and making investments in the therapeutic space. Key topics discussed include the position of family offices in the investment ecosystem, the differences and similarities between family offices and other investors, how family offices go about identifying opportunities, and what these particular groups are looking for right now.
In this latest edition of the summer reading series, we will be explaining the importance of understanding where your opportunity fits within the marketplace. Knowing who you are and how you compare with other companies in the space is crucial in determining the investors to whom you should be reaching out, what you should be highlighting in your marketing materials, and, in some cases, whether you need to “pivot,” or change, your commercialization plan.
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