Next Phase Newsletter

By Phubes Asavasatitporn, Research Analyst, LSN

At LSN, we talk a lot about having an “up-to-date roadmap” when it comes to navigating the changing life science investment landscape. This means not only understanding who the new entities in the space are, but also how their investment strategies have changed, what type of technology each is interested in, how their investment timelines have been reconfigured in the churn, and so on. One topic that is less frequently taken into account, however, is the idea of actually mapping out an individual investment firm before a big meeting.

Fundraising executives will handle the process of mapping out a company in different ways based on a variety of variables – not the least of which is personality type. Some like to approach the problem much like a case study, spending weeks doing research on the prospect (and their peers’) management team, portfolio companies, investment interests and past deals. Others may prefer to simply go in with a general idea of a firm’s investment category, and then gather the rest of the relevant information first hand. Either tactic has its advantages, and more than likely, your actual efforts to plan for an initial meeting with an investor will be some combination of the two.

While the investigative angle helps you to align your perception with prospective investors as prepared and informed, and may lend itself to stronger long-term relationships, it does have its drawbacks. For one, a fundraising executive’s primary goal should always be towards creating as many qualified investor relationships as possible. For this reason, spending too much time researching targets – and therefore not enough time making calls or knocking on doors – is taking away from the main task at hand. Incremental to this is the fact that too much research can lead the focus of a meeting towards verifying data and away from actually talking with the prospect. The key is striking an effective balance.

None of this is to say that data shouldn’t be verified, because it must. On the other hand, one of the worst mistakes an executive engaged in the fundraising process can make is to assume that their initial research on an investor entity was 100% correct. Information – especially regarding corporate structure and hierarchy – is constantly in flux. Indeed, it is hard to gauge how much time you should allocate to researching your prospects, but some general rules are to not mistake “less” for “none,” and try to find a happy balance between “too much” and “not enough.”

Whatever approaches you do take to investor meetings, keep in mind that the most important piece of any meeting is to lay the groundwork for a good relationship. Too many entrepreneurs make the mistake of believing that technology is not only the most important part of a deal, but the only piece that really matters. On the contrary, it is real conversations that lead to real relationships, and real relationships that lead to allocations. Do – but don’t overdo – your due diligence on your prospective investors, and approach each situation with a confident and friendly demeanor, and with enough attempts, the correct fit will eventually come along.

By Michael Quigley, Research Manager, LSN

Having personally scheduled and held several hundred interviews with Life Science investors over the past year, I have developed and refined a formula for getting “in the door” with an introductory email. As anyone who has embarked on a fundraising campaign knows, initiating the dialogue is often the hardest part of the process. Few introductory emails ever get opened, and even fewer earn a reply at all. However, there are a few concepts and tactics that can increase your efficacy substantially when it comes to initiating a dialogue and locking in that first meeting. This article will share some insights from my personal experience that may be helpful in your email outreach.

The first thing that you need to understand when drafting an introductory email is that the entire purpose of the email is just that, an introduction. You will not close a deal with one email and this should not be your target. The ability to concisely introduce your technology in a professional and compelling way is what you should be aiming for. Drowning the investor with blocks of text and attachments may as well be a wasted effort. Investors are busy, and they don’t have the time to read through stacks of data. From the subject line to the signature, the email needs to be short, sweet, and to the point. A good rule of thumb is that if your email requires that the investor start scrolling to read all of it, then it may already be too long.

The subject line is crucial. The subject should be clear, and include information about your company that is relevant to the investor. For example, “Meeting Request: Novel Cancer Therapy Preparing to Enter Phase I Trials” is a great subject line for an investor with a declared interest in early stage cancer therapeutic development. Now assuming you are reaching out to investors in a targeted manner based on fit, they will naturally be attracted to this subject. Moreover, it shows you aren’t spamming and that you understand their interests. All of these factors increase your odds of getting opens and hopefully a positive reply. With larger investment firms, make sure you are targeting members of the team with backgrounds in areas similar to that of your technology. A little research can go a long way in terms of increasing email efficacy.

The body of the email should be a boiled down paragraph or two encompassing your team, a high level explanation of your technology and recent milestones, and your interest in having an introductory conversation. Keeping a few simple concepts in mind secure your greatest change of earning a positive response:

• Your email should show you are knowledgeable, trustworthy and thereby credible. This can be done through a brief description (one or two sentences) of your personal background as well as a reference to the investor’s interests. Also, by keeping your email concise and targeted, you increase your credibility by demonstrating to the investor professionalism and respect for their time.

• Your email should make further communication a logical choice for the investor. This should be achieved by demonstrating that your investment is a fit for the investor’s mandate. Research your targets well and explain why you are the ideal fit for what they are seeking.

• Personal touches enhance your chances of getting a response. You need to demonstrate that you have put as much if not more effort into this email than the investor is taking to read it. Some ways to do this are mentioning something that recently happened with the investor that is relatable to your proposal. For example, “I noticed your firm has recently raised a new life science fund this spring” or “I recently read an interview you gave on the potential of personalized medicine.” This shows that you have done some research into the firm, and this is not a blanket email you are sending to every investor you can find. By showing the investor you took some care in your outreach and are already in context will greatly increase your odds of a response. On the opposite end – avoid starting emails with “Dear sir” or “to whom it may concern”- this screams mass-email and can be a big turn-off.

• Calls to action get the ball rolling. You should offer the investor a few clearly laid out suggestions as to how to move forward. These should include the option to send the investor more information via email if they desire as well as some times to set up a potential meeting or call. By laying out options for how to move forward, you are bringing the horse closer to the water than by just saying something arbitrary like “look forward to hearing from you.”

By utilizing these recommendations you will greatly increase your odds of getting positive responses from investors. So develop your target list based on fit, identify the right contacts, and send out some introductory emails!

By Jack Fuller, Business Development, LSN

Let’s face it, much of the time a fundraising executive spends courting potential investors leads to rejections. If the opposite were true, our writers and researchers here at LSN would have much less to talk about, and CEOs of biotech and medtechs would be able to spend a good deal more time on bringing a product to market. However, most savvy entrepreneurs understand that fundraising is a numbers game, and eventually their perseverance will pay off in the form of an allocation. However, few entrepreneurs spend enough time thinking about the investors that have said “no.” However, they are often not all saying the same thing, so paying attention to these rejections can be a helpful guide in improving your fundraising efforts going forward.

Let’s look at a typical scenario and break down what could actually be behind a negative response:

The Scenario: Let’s assume the investor appeared to be a good fit based on your research, and showed enough interest to listen to an initial pitch either in person or over the phone. Things seemed to go quite well, but after the initial conversation, the investor simply replies they have “considered the opportunity but have decided to pass.”

An ambiguous response like this will require you to reach out to the person to pinpoint the exact reason for passing.  Several factors may be at play, so let’s take a look at what may have happened.

Possibility 1: You were speaking with a gatekeeper and were disqualified before being passed on to a decision maker.

Understanding whom you are speaking with in the firm is of utmost importance.  Many times associates and junior deal sourcing individuals have less flexibility in how they evaluate opportunities as compared to senior partners.  These gatekeepers often act as filters and operate within certain boundaries to manage the deal flow going to the senior staff. They will often want to see certain materials such as a well-crafted pitch deck and executive summary that hits certain key points. However, their rejection may not mean you aren’t a fit in the decision maker’s eyes. If you think this may be the case, a polite and concise email directly to the decision maker may be an effective strategy. However, you should be very confident that you are in fact a fit, otherwise you may be pushing the recipient’s patience.

Possibility 2: Strong interest was expressed, however several aspects of the company did not match with the firm’s investment mandate.

Often the reason a dialogue with an investor fails is due to an identified mismatch between the company and the investor’s mandate.  The mandates of investors can range from ultra-specific to highly opportunistic. Many objections can be traced to several high level points: phase of development, indication, technology, management team, and capital structure requirements. While this may be a stumbling point for many discussions, it can also be used to your advantage if understood properly.

Before approaching each investor these mandate components must be identified and properly emphasized.    For example, you identify an investor looking for biotech companies specifically in Pre-clinical and phase 1 of development with a special focus on neurological disorders.  You then find out they are technology agnostic and will evaluate small molecules and biologics equally.  The emphasis in the initial discussions should then be placed on the indication and phase of development rather than the type of technology.

Possibility 3: They were never seeking to invest in the first place

It’s surprisingly common, but the truth is many investors look at deals even when they don’t intend to invest. They could be out of deployable funds, but want an ear to the marketplace or they could just be interested in doing some more research in a sector they are looking to invest in. These can be conversations that go on for a long time, because the investor genuinely wants to learn more. However, they end disappointingly, so don’t be afraid to be straightforward from the getgo – Ask whether or not they are actively seeking investments in your space and how many placements they seek to make over the next few quarters. This will keep expectations accurate and let you know if it’s worth spending your time on.

The reality is that fundraising is a numbers game, and inevitably, there will be a certain percentage of rejections (even with a targeted campaign). However, it can be extremely valuable to take some time to look at all of your investor conversations to see what you can learn. Understanding why you may not have been a fit for one particular investor will give you a leg up with future investors. Moreover, taking the time to examine rejections could potentially reveal some missed opportunities that could be rekindled with the proper approach.

By Lucy Parkinson, Research Manager, LSN

While there are many potential financing options for a fundraising life science executive to consider, few are more intriguing than family offices.  In the hopes of understanding more about how these institutions seek opportunities in the life science sector, I’ve taken a look at the last 30 family office mandates gathered by LSN research team to get some insight into exactly what’s making them tick.

We’ve covered family offices extensively before, but just as a refresher: Family offices fall into two broad categories; single family offices (SFOs) that are responsible for investing the assets of one family (typically with net worth of over $100m), and multi-family offices (MFOs) which provide investment guidance to several families, typically those with significant assets but not enough to justify hiring their own dedicated investment team.

Beyond this initial distinction, family offices can orient themselves in any number of ways, especially when it comes to direct investment in life sciences. This variety is apparent in the range of investment styles and interests represented by the family offices tracked by LSN:  Some notable examples include structured angel vehicles that make dozens of sub-$250,000 placements every year, and families that have created evergreen PE funds which allocate over $50m to each company that they invest in.  This variability makes sense, because every family is different, and each chooses a strategy that fits their personal goals – whether it’s advancing treatment for diseases prevalent in their family, investing strategically to enhance a pre-existing family business, or making use of their own expertise to select companies in the field where they made their money.  As I mentioned in a recent article, family offices are notably more likely to be specific about which sector of the life science arena they’re seeking to invest in.  However, this tendency seems to dissipate as allocation sizes increase; family offices that allocate over $10m per investment generally consider a broad range of life science opportunities.

Another notable data point from our family office mandates; they’re more likely than other investors to be opportunistic about which phase of development they prefer to invest in.  A full third of these 30 family offices will consider investing in life sciences companies at stages ranging from preclinical development to products on the market.  This flexibility is a huge draw for life science companies raising capital, who need the support of an investor who will be interested in backing them for the long haul. Understanding what a family office wants in this context is the key to successfully courting them for capital. Before you talk to a family office, you’ll have to understand who they are and why they are committed to a particular investment strategy. Most importantly, you must consider whether the family’s goals are aligned with your own.

It’s easy to understand how the personal qualities of family offices make them attractive to fundraising executives.  We often get asked how best to get an investment from a family office. The short answer is that more than anything, it’s about fit. Careful research and a highly targeted approach are the first step towards starting a dialogue with a family office – just do some careful research, pick up the phone, and go outbound.

By Maximilian Klietmann, VP of Marketing, LSN

Licensing deals comprise one of the most important aspects of the life sciences industry. However, many entrepreneurs fail to properly research the trends around biotech licensing, despite how critical these trends are to anyone seeking partnershipsor capital from big pharma. LSN’s Licensing Deals Database curates publicly available licensing deal data from around the world. A search for information on the past three years yields approximately 100 licensing deals for each year (99 in 2011, 101 in 2012, and 100 in 2013). This allows us to get a sense of some of the trends surrounding big pharma licensing activity, and what the data could mean for emerging biotech executives in 2014.

Increasing Early Stage Focus:

One of the most immediate trends shown by the data is an increased early stage focus as a percentage of deals. This reflects the trend of big pharma relying more heavily on in-licensing to augment R&D pipelines that LSN discussed in late 2012, when it was first emerging. Given the data and conversations LSN Research has had with several big pharma search and evaluation groups, this trend will most likely continue over the course of 2014, as big pharma continues to look at in-licensing as a source of innovative science to shore up pipelines.

Oncology and Other Major Indications Remain Hot: 

When it comes to trends surrounding specific indications, oncology is by far the leader. This indication area has consistently represented about 30% of licensing deal activity for the last three years in a row. This is good news for early stage companies in the space, as big pharma isn’t showing any signs of decreasing activity in this disease area. One good angle of attack for emerging biotech companies may be to position themselves with non-traditional approaches to cancer (for example, the increased buzz surrounding immunotherapies for cancer). Runners up in indication popularity are CNS and infectious diseases.

So What Does It Mean?

For early stage companies, this trend is welcome news. Resources and capital that were formerly out of scope for an emerging entrepreneur are becoming tangibly accessible. Also, the consistency of indication focus over the past three years shows stable demand for certain products, giving entrepreneurs some predictable trends to watch. The key is finding the right strategy for targeting these investors, and beating the competition to the punch.

By Alejandro Zamorano, VP of Business Development, LSN

Every major pharmaceutical company has a business development team that is in charge of identifying new products and technologies to target for strategic relationships, in-licensing, or acquisition. We’ve discussed the increasing number of big pharma companies targeting earlier stage companies before, and we’ve noted how big pharma is allocating more dollars towards external R&D. These organizations can be extremely attractive to entrepreneurs because they offer a plethora of great resources including technical insight, market expertise, and fantastic infrastructure (not to mention highly sophisticated sales and marketing).

However, for many emerging biotech entrepreneurs, the challenge of navigating a big pharma to find the appropriate contacts is daunting and can be discouraging if approached blindly. This article is intended to share some insight into how to approach these organizations and how to navigate your way through to the right people.

So how should a fundraising executive begin thinking about a big pharma strategy? The first thing to understand is that business development teams are interested in talking to great innovative companies. However, in order to be effective, you must first find all of the big pharmas that are a fit. Often, big pharma sees the world on the basis of indication areas (e.g. an oncology program, or a CNS program), so a focus on a specific indication is typically a good starting point. To find out this information, take a look at press releases, announcements, news articles and of course the company website. With this information in hand, you can narrow down which companies are actively likely to be seeking to in-license or invest in products like yours.

Your next step is identifying the right people in the organization. Big pharmaceutical companies can have tens of thousands of employees around the world, so it’s up to you to do your homework on who to target. Sometimes you can quickly identify the right target on the company website, but usually a little more digging is required. Searching through linkedin or Zoominfo can be helpful in identifying the right people. Try using combinations such as “search & evaluation,” “business development,” or “asset licensing.” A little creativity and patience can go a long way. Aim for a list of at least 20 or so target individuals.

This is where email your email skills come in. We’ve covered the nuances of email marketing previously, but we’ll briefly cover the concept here. The goal of your first email should be used to initiate dialogue, identify the right person to speak with, and hopefully arrange an introductory meeting. Some best practices are keeping your message clear and succinct and clearly state that you have done your research and believe there may be a fit. Be sure to make it clear you’d like a meeting with the appropriate person, and offer some available times.

If all has gone well, you’ll probably get a handful of responses or referrals to other people in the organization. However, don’t forget about those that didn’t reply – you can come back to these with “second attempt” or “final attempt” emails later to create a sense of urgency. The first person you hear back from will often be either a gatekeeper or an information gatherer. These parties will take a first pass on whether or not the conversation should continue. Clearly explain what research you’ve done, confirm your findings, and why you think you are a fit. Big pharma usually has a clear idea of what they are looking for, so explaining why you match their interests is crucial.

If the conversation goes well, you’ll likely be passed on to a navigator (someone who will help guide you through the evaluation process) or an evaluator. The evaluator(s) will examine your data and will ask you questions about your asset to determine whether it should be passed up the chain of command. If your product matches what the company is looking for and has passed the evaluation criteria, you will be recommended to the decision maker. This can be a single person or a group of senior executives. They are the ones with the final authority to get a deal done and write you a check.

Here are few concluding thoughts to help your efforts: First, make sure you are proactive and do not let things sit idle: Always find out what the next steps are and how to get to the next person in the chain. I’ve heard countless stories of entrepreneurs losing focus and letting the conversation go silent. This is almost always the kiss of death, so remember that it is your responsibility to move things forward. Second, do some research on other companies that recently struck a deal with one of your target pharmas. Asking for guidance or insight from them may help you be more prepared. Keep these items in mind and you’ll significantly improve your odds when approaching big pharma.