Archive | Redefining Every Stage Investments (RESI) RSS feed for this section

Validating the New Investment Dynamic Between the US and Europe

10 Oct

By Max Klietmann, VP of Marketing, LSN

LSN tracks investor behavior within the life sciences on a global basis, and in recent times, an interesting trend has emerged in terms of capital dynamics between the US and the EU. Though early stage life science companies globally have fallen victim to the consolidation of venture capital, Europe has been particularly troubled. I wrote last month about an accelerating trend of investment dollars flowing into EU life science companies, but my theories were confirmed over the course of this week.

I attended a major west coast investor conference in San Francisco earlier this week, and I was astounded at the ratio of European companies represented among the firms seeking capital. Indeed, many of the conference circuit “veterans” agreed that this was unprecedented, especially for a west coast event. So without question, the capital environment in Europe has caused a mass migration of fund-raisers to turn towards US investors. Moreover, due to lower valuations among European companies driven by competition for financing, EU based firms are being invested in or snatched up at significantly lower multiples than comparable assets in the US and Canada.

I spoke with a few of the investors present (mostly VCs, but a few mid-level PE and virtual pharma folks),and many who historically were focused on US investments only. All of those that I spoke with agreed that European opportunities have become too compelling to ignore. In fact, I even met with a partner from a firm closing its first fund of approximately $100m in the coming weeks. The firm is exclusively focused on taking advantage of the significant opportunity that has arisen in the European marketplace.

So what’s the big deal? This trend has two significant benefits for the industry in my eyes. First and foremost, this is an opportunity for the European market to jump-start itself back into a relevant position in terms of commercialized innovation. This is a short-term benefit. In the longterm, there is a much more profound impact, which is that this temporary value gap between the US and EU is incentivizing a cross-over of investment. Many funds are dipping their toes into the European pool for the first time, and once the infrastructure and market familiarity is in place, the investment will continue. This means that investors have a larger pool of assets to choose from, increasing competition and market efficiency, and further globalizing one of the leading growth industries in the world. Welcome to the new economy, ladies and gentlemen.

Innovations at RESI: Diagnostics Gone Wild

10 Oct

By Lucy Parkinson, Research Analyst, LSN

When a potential investor approaches a diagnostics company, some of the first words out of their mouth are likely to be “How are you going to deal with the reimbursement problem?” At the Redefining Early Stage Investments Conference, we heard from diagnostic entrepreneurs who were rethinking the reimbursement model from the ground up.

A traditional business model for a diagnostics company involves persuading care providers that they ought to use the test, and then convincing HMOs that they ought to reimburse it. For a new product, this can be a tough sell; insurance plans often won’t specifically cover an innovative test, leaving the company to scratch for reimbursement on a case-by-case basis. They have to prove over and over that the test is more accurate or more cost-effective than the competition. Even companies providing an established product may find their revenues at the mercy of Centers for Medicare & Medicaid Services billing coding changes. Given these challenges, how can a diagnostics company build an attractive business plan that will win over investors?

Find the gaps in a divided marketplace. Most healthcare practitioners work in a highly specific area, yet many medical conditions manifest in ways that cut across these divisions. Sometimes, linked comorbidities are split between two different areas of medicine – for example, diabetes and eye problems. A diabetic patient might not have the time or inclination (or even the insurance coverage) to get their eyes checked out. An innovative business plan for an ophthalmic diagnostic might therefore include targeting clinics that deal with diabetes, and vice versa. We’ve heard from diabetes diagnostics looking to eye clinics for a new market; these related yet divided conditions show up all over the life science map, and diagnostics for many indications could take advantage of them.

Bypass the gatekeepers. We heard one diagnostics CEO say “I want to see people using our device in Walmart and CVS.”  If you have the right product – in this case, a device for a huge potential market that can deliver an automated result in minutes at a sub-$100 cost – you can seek direct routes to consumers. Similarly, the consumer market for wearable medical devices is exploding; this is, thus far, the only subsector of the medical device space where a company has successfully crowdsourced development of a product.

Rethink what your technology can do.  We heard from the developer of a diagnostic test so sensitive and robust that it can be administered entirely by mail, with the patient receiving a diagnostic kit at home and returning a swab straight to the diagnostic lab.  What is this company’s new business idea for this powerful new platform? Crowdsourced clinical trials. Rather than trial participants having to be regularly monitored by researchers at one location, they can be enrolled in the trial and then participate remotely, anywhere, anytime, bringing a huge increase in scale and a decrease in costs (including for participants).

Diagnostics might seem like a crowded field, but if your technology is powerful, a little innovative thinking about what it can do can completely change your approach to attaining revenue. You’ll stand out to investors if the reimbursement problem isn’t a problem to you at all.

Tags: , ,

An Introduction to Email Marketing for Fundraising Executives

10 Oct

By Alejandro Zamorano, VP of Business Development, LSN

One of the most valuable and cost-effective tools for a successful fundraising campaign in the life science space is email marketing. It allows you to introduce your firm to potential investors inexpensively, and on a scale unmatched by other forms of outbound marketing.

Today, services such as Constant Contact, iContact, and VerticalResponse offer Web-based email marketing platforms that greatly reduce the time and effort it takes to produce and distribute the many emails associated with your marketing campaign.

There are several other advantages to using outbound email marketing software. It’s cheap, simple to use and can be easily targeted. However, the single most significant advantage is trackability. After an email is sent, the software can monitor the campaign. Using tracking dashboards, a marketer can see the percentage of recipients who opened the email, clicked on the links, or requested to be removed from the list.

Going a step further, email marketing platforms can also list the email addresses of the recipients that carried out any of these actions. After an email is sent, the software can monitor the campaign. Using tracking dashboards, you can see the percentage of recipients who opened the email, clicked on the links, or requested to be removed from the list.

Example of an analytic dashboard

dash2This is the primary benefit of email marketing software; by knowing who clicked on your content and showed interest, you immediately have a list of good targets to call.

Example of a click report

clicksOnce your email is well-crafted and relevant to your audience, it’s time to send it out and begin following up with the most interested parties first. However, it’s not as easy as it may seem, and the phone canvassing metrics are not in favor of the canvasser.

What this means for the fundraising executive is that you have to be diligent. To start, it takes between 10-15 calls to get someone you have not met and want to start a dialogue with on the phone.

Once you finally get that someone on the phone and have started a dialogue, it can take 7-10 phone calls just to reconnect. After all that, if you manage to create a relationship and know someone fairly well, it can take 5-7 attempts to get a person on the phone. The most surprising statistic here is that most people give up after the first 3-4 attempts. The message here is to be persistent and tenacious, and whatever you do, just don’t give up. Your tenacity will impress investors, as it will speak to your commitment to advance the company to the next level.

The Quest for the Perfect Investor Fit: How Much Does Life Science Expertise Matter?

2 Oct

By Danielle Silva, Business Development, LSN

Here at LSN, I speak with many life science entrepreneurs about investor fit. Typically, life science executives believe that fit is a one-way street, meaning that they need to do all they can to prove they are a fit for a prospective investor. While it is certainly true that an integral part of the fundraising process is proving that your company is a fit for the firm’s investment thesis, this is not a one-sided negotiation. It is just as important for life science companies to make sure a potential investor is a fit for what the firm is looking to attain, and therefore, finding a potential investor needs to be both a strategic and tactical play.

What many life science CEOs struggle with is whether they should favor investors that have expertise in a particular area versus investors that are experienced in a certain phase of development. The answer, by and large, depends on what the life science company is looking to achieve in the long run, but there is of course no easy answer to this dilemma. Many entrepreneurs consider the problem a simple one – why would you want an investor that doesn’t understand your technology, or one who does not have expertise in your particular indication area?

While it is certainly important for investors to have a basic understanding of your disease area, this is only truly important if you are seeking scientific advisors for your firm. If this is the case, then finding a partner that has expertise in your disease area may be favorable to finding an investor that has knowledge of your stage of development. But what if, conversely, the executive is seeking a quick exit or a recapitalization? In this case, it may be more attractive to find an investor with a laser focus on your particular area. These investors already have a great knowledge of the space and thus probably already have a solid network that will be willing to acquire the company once the firm hits certain milestones.

Most life science executives I speak with, however, are not seeking scientific advisors, and instead are seeking investors with the business acumen to help take their product from discovery to distribution. These companies would benefit from a relationship with an investor that has knowledge of their particular phase of development, and who can thereby help to scale their business. It is also very beneficial for companies to be partnered with investors who have a deep knowledge of their phase of the clinical development cycle. These investors will have the expertise to help life science firms partner with appropriate firms in the R&D services space (such as CROs and other service providers).

Again, there is no clear solution to this problem. If your company is seeking an investor with a deep network in the space, then choosing an investor with sector expertise may be the answer. These investors, however, may not be able to help you scale your business to the point where your firm is an attractive investment or acquisition target for a larger investor within their network. Simply put, the answer is convoluted, no investor is the same, and everyone brings something different to the table. Life science executives should clearly define their goals in terms of growth and exit before deciding on an investor based on sector fit versus development phase fit.

Tags: , , , , , , , , , , , , , , , , , , , , , , , ,

Creating a Dialogue with Life Science Investors

2 Oct

By Dennis Ford, CEO, LSN

I write about this subject often – I guess the main reason is that if I can get the message right, I can help educate life science fund-raisers that a current and accurate map does exist for raising capital. If you are in fundraising mode, please have an updated map. There, I said it!

The most interesting component of the fundraising dynamic is the concept of “introduction”. Scientist meets investor, buyer meets seller. One of the initial goals of any fundraising campaign is to get in front of potential investors, and this can be done in two general ways: the first being referral, and the second, fit. I will agree that a referral is often a good way to get a meeting, but many believe that it is the only way to get to a decent investor target.

Being a street-savy salesperson, I always get a bit riled when someone announces that referrals are the only way in. I mean, what if you get referred to an investor and he just simply doesn’t have a current mandate to invest, and if he did, it would be a medical device and you happen to be a therapeutic? My point here is that even though a referral may get you some preferential treatment in the form of a first meeting, there always needs to be a good fit. After all, it’s the final meeting that really counts. I am a big fan of the referral, but I am an even bigger fan of fit.

In my “sales guy mind,” the highest form of a qualified investor lead is a declared fit. A declared fit boils down to this: an investor actively declares a targeted and specific intent on investing in a certain part of the market. I think that is the highest form of investor target – self-declared mandate from the mouth of an potential investor. I mean, what else would a fundraiser want? OK, maybe I shouldn’t have asked that question… because I know the answer: a referred introduction, right?  No, wrong!

Of course, if you know someone who can provide an intro, that’s great. Sans that magical referral/intro, if you are a fit for the declared mandate, all you have to do is tell him via email or phone that you know what they are seeking and you are a fit. Honestly, that’s how it works. Spamming gets you a 1-2% hit rate, but reaching out based on fit gets you a 20-30% hit rate. Why? Because you match what the investor is looking for. Being armed with the knowledge of an investor’s current interest gives you the power to refer yourself.

Tags: , , , , , , , , , , , , , , , , , , , , , , , ,

Phase I of the JOBS Act: Are you ready for the general solicitation revolution?

2 Oct

By Lucy Parkinson, Research Analyst, LSN

Back in April 2012, the JOBS act was passed with the aim of (the clue is in the name) Jumping Our Business Startups. The SEC has moved slowly on implementing the JOBS Act and is saving the most innovative provisions for a second phase of changes, but as of Monday, September 23rd, the long-standing ban on making general solicitations to accredited investors has been rescinded. This will have a huge effect on the institutional landscape of investing, as companies can now use mass public advertising to look for investors, rather than being restricted to using funds from family, friends, and private networks of accredited investors.

So does your start-up’s fundraising campaign have to change? Not necessarily, but you may reap great benefits by using the new regulations to your advantage and seeking for investors with a wider net than was previously possible. However, obeying the restrictions surrounding general solicitation is not as straightforward as you might think. As such, any company looking to raise capital would be advised to spend some time with their lawyer before sending out a mass solicitation; similar to the domain of intellectual property, we could see an influx of law firms seeking to partner with emerging biotech companies to guide them through the regulatory quagmire and maximize their visibility with investors.

While many life science companies could benefit from following the new path laid out for general solicitations, some may wish to eschew the added regulatory burdens and stick with the old model that, in addition to accredited investors, allows them to ask up to 35 unaccredited friends and family to contribute to each funding round. This doesn’t mean foregoing all the benefits of the law; the investment groups themselves will have more room to advertise for contributions under the new law, and that may lead to investors having more dry powder to invest – particularly to under-the-radar angel firms, who have previously found it hard to advertise to prospective investors. Building partnerships with these lesser-known investors will remain as important than ever.

Will general solicitation be worth the added costs? It could be, and this is especially true for life science companies. One thing LSN has observed frequently about emerging types of investors in the life science space is that more so than investors in other industries, they often have personal motives. Essentially, what we’re seeing is funding provided by angels, family offices and venture philanthropy funds looking for more than just ROI – the founders of these investment vehicles often want to make an impact on the world by targeting a particular disease that has affected their life or runs in their family. So, when we start to see general solicitations blaring from every billboard, TV set or web search, life science pitches will have a unique draw that other startup prospects lack because in this industry, general and personal come together.

This distinction will only become more valuable when phase two of the JOBS Act rolls out equity crowdfunding. For that, we’ll have to wait until next year.

Tags: , , , , , , , , , , , , , , , , , , , , , , , ,

Hello World… ABC Life Science Company is Raising Capital!

26 Sep

By Dennis Ford, CEO, LSN

Hold the phone! We’re not there yet! Yes, the 80-year ban preventing companies from advertising and soliciting capital has now gone the way of the dinosaur. The September 23rd lifting of the ban heralded that change is afoot and will usher in a new set of rules and regulations. However, the devil is in the details, and until the SEC makes the new rules and regulations public at the end of this year (or next year), we are still in mostly in the dark.

What does this mean for life science entrepreneurs? One thing for sure is that now more than ever, make sure you act in concert with your lawyer regarding fundraising. For life science entrepreneurs, being able to freely let all aspects of your personal and professional networks know you are actively raising capital can’t hurt – especially now that it is OK to solicit using the bevy of online apps and tools that you now already manage. However, understanding that your future investors must be certified, accredited investors (once again, check with your lawyer) needs to be understood.

In a past life, I was part of a team that started a broker dealer, and the rules, regulations, compliance aspects, administrative tracking, logging and filing of all communications was extremely costly. It took a few in-house staff – as well as several outside, highly paid consultants to keep everything kosher. I bring this up because depending on how the SEC comes down on the aforementioned will largely determine how viable the new fundraising mechanism will be.

Cash flow is the enemy of most entrepreneurs, and if there is now a bevy of must have’s and must do’s to be compliant, then most cash strapped startups will be in a real pickle. The minimum, so far, though not yet cast in stone is that the entrepreneur will have to file a Regulation D form 15 days prior to a general solicitation for investment capital and explain in detail how they intend to go about it.

My last observation and personal opinion is to ask: where does this fit in for life science entrepreneurs? There is a well-known map that dictates that the path for startups is friends, family and angels for seed money, followed by government grants, and then institutional and PE/VC capital for growth.  If all goes well, I see this as an awesome mechanism for startups that need that first 250-500k to get started. So far, it appears that this could be done via a crowd funding portal or an outbound campaign to accredited investors that have declared an interest in your particular indication, sector or service. Stay tuned.

Tags: , , , , , , , , , , , , , , , , , , , , , , , ,

← Older Entries
Newer Entries →