By Maximilian Klietmann, VP of Marketing, LSN

We’re in “stealth mode” is one of the most common buzz phrases LSN hears from emerging scientist-entrepreneurs. This is often the cited justification for a lack of Web presence, failure to create formalized materials, and an unwillingness to build a dialogue with investors. However, as noted in my article from last week, stealth mode ranks among the top 10 fundraising misconceptions.

Often, protection of ideas is the primary reason scientist-entrepreneurs give for being in stealth mode. As LSN’s CEO, Dennis Ford, likes to say, “Ideas are more like mushroom spores than lightning strikes: they spread organically and often pop up in several places at the same time. Execution is what determines your success.”

Another reason companies give for being in stealth mode is that they “aren’t ready to approach investors yet.” However, what many entrepreneurs miss is that the right time to approach investors is well in advance of when you need the money. It can take 9-18 months to raise capital, so starting early is in your interest. A proactive approach allows you to introduce your concept to investors, build relationships, and identify what needs to happen for your asset to become “investable” per that investor’s mandate. Then, when you are prepared to actually seek capital, you know who’s interested based on existing dialogue, and you know what questions need to be answered.

In short, it is important to consider the full implications of staying under the radar. There are clear tactical advantages to preparing your target investor audience for your concept. In fact, you may be hindering the progress of your company otherwise.

You don’t need to publicize your IP. Highlight your team’s expertise and story, and call yourself in “discovery mode” rather than “stealth mode.” Then, when you’ve got an asset in place and you need capital, you’ll be able to call upon the relationships you’ve established, which will help your fundraising campaign.

Get the investor world ready for you, and you’ll be ready for it.

By Michael Quigley, Research Manager, LSN

I am always excited when I come across unusual life science investment models in my investor outreach. Recently, I learned about a fund whose primary investor, a philanthropic foundation, is providing the other investors in the fund with a “partial loss protection guarantee.” Under the guarantee, a first loss of up to 20% of invested capital is fully covered and 50% of any subsequent losses is also covered. This fund structure makes the risk/return profile for the investment much more attractive to investors and in theory will draw more total capital than in a traditional loss–sharing investment model. Basically, in an effort to get more investors to provide capital towards a specific indication, the foundation is voluntarily taking a bigger slice of the potential down-side.

This model known as “first loss capital” or “FLC” has been seen in other impact industries and social investments, such as education, home ownership for low-income populations, and healthy food for poor countries.  Providers of FLC historically have been endowments, foundations, and government organizations looking to catalyze a positive social outcome. These investors tend to have a deep focus on a specific target sector, and often a better understanding of the underlying risk associated with an investment than the generalist investors they wish to attract. By agreeing to cover a portion of the downside risk, they have the ability to bring more dollars to their primary cause.

The life science space is positioned for FLC to become a major financing solution. Increasingly, endowments, foundations, and government organizations are looking for ways to increase their impact by directly investing in emerging life science companies. If successful, FLC could be a tool for these organizations that stimulates innovation and growth in the biotech space by lowering the financial risk in a sector that is often perceived as high risk. The ideal outcome would be to attract the more financially motivated investors and bring more capital into the space.

By Maximilian Klietmann, VP of Marketing, LSN

In almost every case, the scientist-entrepreneurs approaching LSN are falling victim to one or more fallacies that are propagated through the industry. LSN is in a dialogue with over 5,000 investors around the world, and the reality is that what many entrepreneurs believe to be sound business logic could be dooming their companies. This article compiles the top 10  fundraising misconceptions so that you can avoid these pitfalls.

1.     Your existing network is enough. This belief is especially common among first-time fundraisers. They believe that the relationships they have are more than enough to get them funded in short order. However, after a few months, the enormity of the fundraising task becomes clear; it’s a numbers game and you will need a lot of investor candidates to call upon. A great article that dives deeper into this subject can be found here: https://blog.lifesciencenation.com/2014/01/23/a-word-on-when-to-go-outbound/

2.     Professional marketing collateral doesn’t matter. Often, scientist-entrepreneurs believe that the “science sells itself” and professional marketing materials are not necessary to raise the money they need. Nothing could be further from the truth. Investors receive thousands of unsolicited business plans in a year, and if you haven’t thought about how to set your company apart and effectively communicate the value succinctly, you’ve already failed in your outreach.

3.     Fundraising won’t take long. Many entrepreneurs naively assume that they can raise the capital they need in a few months. However, the reality is that finding the right investors and going through the due diligence process can take up to (and often more than) a year. From the outset, expect a minimum of 9 to 12 months (if you’re lucky) to raise the capital you need.

4.     Focusing exclusively on partnering. Fear of dilution, loss of control, and other factors can make entrepreneurs afraid of equity investors. This leads to an exclusive focus on asset partnering that drastically reduces the odds of moving the company forward. You need a global target list of all potential sources of capital. Only once you’ve cast a broad net and you’re in dialogue with several parties, do you have the luxury of being picky.

5.     More data is needed before speaking to investors. This may seem counterintuitive, but you need to speak with investors as soon as you can. If they want to see more data, they will let you know, but at least the line of communication has been established. Otherwise you are squandering valuable time and preventing your own progress.

6.     “We’re in stealth mode.” This is even worse! Ideas are more like mushroom spores than lightning strikes: they spread organically and often pop up in several places at the same time. In short, don’t worry about your ideas being stolen. You have more to lose by hiding yourself from the world. Get the world ready for your launch.

7.    “We’re in due diligence with a VC.” Fundraising is a numbers game, and most due diligence never leads to an allocation. Due diligence should not be used as an excuse to stop fundraising. In fact, it should encourage you to redouble your efforts.

8.     Exclusive focus on one category of investor. This is related to #4. Don’t be selective before you have options. As the saying goes, you miss every shot you don’t take.

9.    “We’re not interested in talking to associate-level staff.” Associate-level staff are the gatekeepers of the industry, and C-level staff operate largely on their recommendations. Never underestimate the value of anyone who could be a path towards getting funded.

10.  Issues around focus and organization. This is less of a misconception and more a point of frustration. Raising money today is a hard job that requires laser-like focus, determination, and a highly professional level of organization. Color-coded spreadsheets won’t cut it. Make the commitment from day one to make a minimal investment in the right cloud infrastructure to enable your campaign.

Avoid these mistakes and you’re well ahead of the curve. Best of luck and happy fundraising!

By Dennis Ford, Founder & CEO, LSN

Providing shared space, services, equipment, and expertise to budget-conscious scientist-entrepreneurs who are looking to prove a hypothesis and launch a company is the mission of life science incubators. And they have helped many start-ups.

However, increasingly, scientist-entrepreneurs are disappointed with what they’re finding. LSN hears a lot of complaints because we are in dialogue with a lot of the firms that populate these incubators. They acknowledge that incubators are less expensive than going it alone. Still, they say the lab space is too expensive, the promise of seeding seasoned players who can augment the founding team often goes unfulfilled, and there’s little to no tactical fundraising support.

The last point is particularly important since the life science industry is poised at the entryway of a new golden age. However, this advancement will not happen without capital. The lack of fundraising support will stymie not only the technology of individual companies but also the growth of the industry.

“Packaging” a company is a core function that I-Banks and underwriters perform when preparing a firm for an IPO. They spend many months grooming and coaching the fundraising executive team, getting the story straight, developing the brand and message, and creating professional marketing collateral in order to have a successful road show. These key elements have not yet been incorporated into early stage fundraising, despite an obvious and compelling need to raise capital.

In addition, although many incubators profess to have strategic partner connections, in reality, these connections can fund only a limited number of opportunities.

Incubators are largely out of synch with new fundraising best practices. What incubators offer from a marketing perspective is “pie in the sky” strategy and “perfect pitch” role-playing scenarios, leaving the scientist-entrepreneurs generally clueless as to how to prepare for raising capital and unprepared for the reality of connecting with a partner in the marketplace. Everybody understands their marching orders, but hardly anybody has been given the training and tools to carry out the mission. LSN calls this void “the last three feet,” which involves understanding how to put a tactical fundraising campaign together that enables the vetting of target investor fits, meeting these investors, and securing allocations.

Of course, it’s easy to criticize and point out flaws, and most of the senior staff at the incubators I am familiar with are working overtime to improve overall efficiencies. The incubator executives genuinely want to help commercialize the technology of their constituents. And no one disagrees that there is more to do and a need for more compelling programs to facilitate commercialization. However, to have a profound impact, successful incubators must focus on tactical programs to help the scientist-entrepreneurs navigate “the last three feet” to get their products to market.

 

By Michael Quigley, Research Manager, LSN

LSN identifies and contacts new life science investors worldwide on a daily basis. Over time, the research team has developed several methods for getting a foot in the door when we don’t have a prior relationship. We’ve written previous articles about preparing introductory emails. However, this article describes techniques that can be used when those emails go unanswered.

In our experience, receiving a response to an investor email largely depends on three factors: investor fit, clarity of message, and a respect for the investor’s process. In other words, you need to find firms that are likely to have an interest in your opportunity and then reach out to the appropriate people with a lucid email. However, if you have done this and haven’t heard back, these tips may help stimulate a response.

The Second Attempt

Resending your initial email with “Second Attempt” at the beginning of the subject line has proved to be successful. This may sound forward or aggressive, however, investors are generally not offended. In fact, they often respect the persistence of an entrepreneur. Investors usually don’t have the capacity to read all of the emails they receive, which is why this approach can work. I’ve even been thanked for the reminder on occasion.

The Admin: A Secret Weapon

Administrative assistants are the gatekeepers of the investor world. As such, they have a tremendous amount of power and knowledge. They screen calls and emails, coordinate meetings, and often understand more about the interests of their firm than you might think.

When you have been unable to reach an investor, attempting to contact the admin with a request for help can often prove fruitful. Whenever speaking with an admin, be it by phone or email, it is crucial that you be courteous, as he or she will be passing your information up the chain and you want to give a positive impression. By having your verbal message or succinct email passed on by the admin, you are again demonstrating respect for the time and process of the investor, as well as showing persistence in a professional manner, something investors love to see in entrepreneurs.          

A Quick Question

When all else fails, send an email with the subject “Quick Question” (or something similar) and a clear, direct message that reads: “Is XYZ Ventures seeking new investments in the life science space? I have been trying to get in touch with the firm for some time but without success.” This can be effective because it is often an easy email for an investor to respond to. Then, when you have begun an email dialogue, you can easily introduce the investor to your opportunity with a brief email, pitch deck, and executive summary.

There are instances where this technique or the others won’t work. However, they will help you improve your odds. Good luck!

By Maximilian Klietmann, VP of Marketing, LSN

Join LSN for the next Redefining Early Stage Investments Conference at the iconic Fenway Park—home of the Boston Red Sox.

This conference will be the best one yet, attracting more scientist-entrepreneurs, investors, and strategic partners from around the world.

RESI was created to connect emerging biotech and medtech companies with active, early stage life science investors. The conference provides a venue for companies and investors to find each other, have a dialogue, begin a relationship, and determine if there is a compelling fit for both parties.

The RESI panels will feature 10 categories of life science investors who will provide insight into how they choose companies to invest in. If you are interested in attending, sponsoring, exhibiting, or receiving more information about RESI, click here to contact Tom Crosby, Conference Manager, or call 617.600.0668.

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By Alejandro Zamorano, VP of Business Development, LSN

On the global life sciences conference circuit, events are usually divided into two categories: partnering and non-partnering conferences. Partnering conferences are different from the classic “fixed agenda plus networking reception” format in that they provide an online portal that allows attendees to identify one another in advance and schedule one-on-one meetings.

When it comes to raising funds for your emerging life science company, partnering conferences constitute the industry standard, offering a distinct advantage to savvy fundraising executives. However, because the quality of these conferences varies, it is important to understand how to successfully navigate the system and effectively connect with the right people.

The first key element is to determine how much work the conference provider has put into the partnering system. This can make or break your efficacy as a fundraising executive. All too often, the profiles in the partnering system are not populated, and the search ontology isn’t tailored to the attendee base, rendering the partnering system largely ineffective.

A matching platform is only as good as the data it contains, and there are only a handful of conferences that allow companies to import full profiles into their systems, and only one or two sponsors that manually curate the profiles to ensure completeness in advance of the event. These are the cream of the crop when it comes to partnering conferences, and they make it easy to identify fits quickly and efficiently.

However, because most partnering conferences are not hands-on when it comes to their databases, there is a significant amount of noise. This forces busy executives to manually research each prospect to see if a company is a fit. Most executives fail to do their homework simply because it is too labor intensive, resulting in an untargeted or shotgun approach when they send out meeting requests. This causes not only inefficiency but also leads to frustration on the part of investors who find themselves inundated.

A big pharma licensing executive recently remarked to BioWorld:“Many of the nation’s young biotechs ignore even the most fundamental rules of engagement by failing to do basic homework. More often than not, when we’re contacted by a potential partner, [the request] has nothing to do with our strategy.”

As the industry advances, more conference providers will increasingly recognize the importance of a well-curated partnering system. But what should a biotech entrepreneur do in the meantime? Fundamentally, it’s a question of doing some careful research and identifying a “short list” of key people you need to meet based on a clearly identifiable fit. This can be done well in advance of an event, and your partnering request messages can be carefully tailored to show you are a potential fit.

Rather than trying to send out 100-plus requests over the 48 hours before an event, a methodical approach during the 10 to 15 days prior allows you to carefully identify who is a fit. This will improve your ratio of accepted meeting requests and will provide you with a much more productive partnering experience.

Remember, investors and your potential partners are there to meet companies like you, so don’t be afraid to reach out, but do keep it targeted. One well-crafted message to a likely fit beats ten vague messages to unlikely fits any day.