By Lucy Parkinson, Research Analyst, LSN

LSN has been diligently tracking the evolution of the crowdfunding story as the JOBS act passes through the regulatory gauntlet. On October 23rd, the SEC announced interim rules for Title III of the JOBS Act, which covers securities crowdfunding. In summary, the proposed rules are as follows:

• A company may raise a maximum of $1 million via crowdfunding in any 12-month period.

• An individual may invest a maximum 10 percent of annual income or net worth (income greater than $100,000 anually) or either $2,000 or 5 percent of annual income or net worth, whichever is greater (income less than $100,000 anually). This is a total annual limit for each individual investor.

• Equity crowdfunding may only be conducted via a registered broker-dealer or registered “funding portal.”

• Crowdfunding requires an SEC filing 21 days prior to first sale, and requires scaled financial disclosure, including audited financial statements for raises of more than $500,000.

• The new unaccredited investors exception is separate from the new general solicitation exception introduced by Title II of the JOBS Act; under the rules as announced, you can’t combine the two by advertising your unaccredited investor round.

• Annual reports and possibly more frequent reports (depending on final SEC rulemaking) must be filed with the SEC by any company that completes a crowdfunding round.

So, emerging life science companies could stand to benefit from this new avenue of funding, but it’s shaping up to be both narrowly limited and highly regulated.

In addition to creating opportunities for millions of new potential investors, the new legislation has also introduced a new channel for this capital – the funding portal. Registered brokers will be able to act as funding portals, but we may see many new entities taking advantage of the new, less costly option of registering with FINRA as a funding portal. The new regulations state that a company can only crowdfund via one broker or funding portal each year, and as these portals tend to charge fundraising companies for use (typically by charging either a listing subscription or per-transaction fees) while letting investors use the sites for free, we should see intense competition between funding portals to sign companies up as users.  The portals will list investment opportunities and act as issuers of stock for liability purposes, but aren’t allowed to offer advice to investors about which companies to back, nor are they permitted to invest in the companies they list. (1)

Also, as mentioned above, the cap on fundraising is $1 million per year. That’s a hard limit. $1 million in new capital would be a boon to early-stage life science development looking to get of the ground, but in the highly capital intensive later stages, it’s unlikely to be a cure-all to fundraising challenges; a million dollars won’t pay for a Phase III trial. In addition, there is the regulatory/compliance challenge of dealing with potentially hundreds of new concerned investors who have to be provided with disclosures and regular financial statements regarding your firm.  This is a huge cost burden for a startup company to bear. And as crowdfunded equity can only be resold to accredited investors (an unaccredited crowdfunder can’t sell their stock to another unaccredited investor while the company remains privately held), these are likely to be long-term relationships unless the early stage crowdfunders are bought out by an institutional-type investor down the line.

The life science sector ought to fare better than most in the new world of crowdfunding; many people will want to invest in a cure for a disease that’s touched themselves or their families, and many more would like the opportunity to try out direct investing with a low barrier to entry and high potential returns.  But the reality of the life science industry means that many of these nascent cures will fail to reach the market, and we can’t know how new investors will react to these inevitable losses. This could be the start of a new era, but the proof will be in the pudding.

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(1) Crowdfunding Regulations Summary by Kevin Laws of AngelList

By Tom Crosby, Marketing Manager, LSN

Due to the degree of interest generated by last week’s Email Marketing Issue, LSN is continuing the discussion of outbound fundraising and marketing tactics for life science entrepreneurs. This issue is centered on the topic of phone canvassing, which can be a real challenge to execute effectively, even for seasoned life science fundraising executives.

As the investment landscape continues to change, the ways in which outreach is conducted has followed in step. The typical investor today is absolutely inundated with emails and phonecalls from life science CEOs hoping to secure a face-to-face meeting. For this reason, it takes a solid plan, laser-focus, and tenacity to orchestrate an effective phone canvassing effort.

So, if you’ve successfully got your email marketing materials set up, and your list of targets in line, keep reading for tips from LSN staff on the next step in the journey of fundraising – the ever-daunting followup call. Alternatively, you can click here to download LSN’s Phone Canvassing Workshop.

 

By Danielle Silva, VP of Business Development, LSN

Many life science fundraisers believe that the first step in phone canvassing is simply picking up the phone. Although the “smile and dial” method may sometimes work, it is much more effective to adopt a more strategic approach to phone canvassing and take a minute to understand your target before reaching out. Before speaking with an investor, you need to get a better understanding of the type of investor you are speaking with and get some further background on their firm. Taking a look at their past life science portfolio companies or past investments is also important to do if this information is readily available on their website or through press releases. You also need to understand who you should speak to, and realize that this person’s role or job title may not be the same for every kind of investor.

A good approach to getting more information is by again simply looking at the company’s website. Going through press releases, or the news portion of the company’s site can also be helpful, as well as using websites such as LinkedIn to get a better understanding of the right person to reach out to, as well as understand the structure of the firm you are contacting. Sometimes, finding the correct contact at the firm can be as easy as simply asking an administrative assistant who the person in charge of deal sourcing is, or who handles life science investments.

However, there is one pitfall to asking the secretary who the correct contact is. Often times this will be a red flag to the administrative assistant because it tells them you are not familiar with their firm. If they believe that you are cold calling, they are more likely to send you straight to the person’s voicemail, or give you a general company mailbox to send an email to instead of putting you directly in contact with the person. Even though you may be able to call back and the administrative assistant may not remember that you called previously asking to point you to the right person, this approach can often times be a way in which fundraisers get stonewalled. This is why a life science fundraiser needs to do as much research as possible before picking up the phone and dialing.

Before you start calling, you should also know the individual’s title as well as what their role is in the due diligence process for life science investments. In some cases, you can easily figure out the person’s role from their title – but sometimes it is much less obvious – especially in the case of family offices. You should always check their website to see if there is a description of this person’s role. If there is none, see if they describe the position on LinkedIn; even checking the groups the person is a member in on LinkedIn can be useful.

After doing some research on the person you are trying to get in contact with, the next step is determining a time to reach out to this person. Catching the person at the right time of the day is key. Although this may seem obvious, you should first check what time zone they are in, or simply do a search on Google with “time in” then the name of the investor’s city preceding the aforementioned phrase. If you’re on the East Coast, you will have to try to call European investors early in the morning, unless calling the UK, who you may still be able to reach around 12 pm. If you’re on the East Coast, trying to call the West Coast then it’s easiest to reach out to these investors during the afternoon. If you’re on the East Coast trying to reach investors in Asia, then you may have to dedicate your evening to trying to reach these investors. If you’re based on the West Coast however, you should dedicate the end of your workday to reaching these investors.

Above all else, being successful at phone canvassing necessitates that the fundraiser stay focused on the task at hand and committed to sticking to all of the aforementioned processes necessary to prepare for the call. For this reason, all other tasks need to be put at bay when you are engaging in a phone canvassing campaign. When you stay focused and start to make call after call, your number of calls will start to increase to 20, 30, and maybe even 50 dials. The mantra of phone canvassing is that it is a numbers game; to be successful, getting to this level of focus is key.

By Max Klietmann, VP of Marketing, LSN

Now that you’ve done your research on the investors you intend to target, it’s time to start dialing for dollars. But the most important stage of the planning process is anticipating both what you will say and how you will pitch your company. Investors get solicited by hundreds of companies a week, and generally have very tight schedules. Separating yourself from the other life science companies that contact these investors on a daily basis is vital to making an impression and starting a meaningful dialogue.

At this point, even very competent, outgoing, and savvy entrepreneurs can feel intimidated, discouraged, and afraid. Outbound marketing is hard work, and can be disheartening if you don’t invest time in preparing your pitch so that you can confidently pick up the phone and explain why you are an ideal prospect for an investor.

Your first step is to draft a concise and powerful elevator pitch that includes who you are, the reason for your call, and what your distinctive value proposition is – in short, what differentiates you from you competitors. You should get your initial pitch down to around one minute. Most deal sourcing executives or the individuals who head up direct investments have a thousand things to get done during their workday; listening to your pitch is most likely the last thing on their priority list, so you need to make the time while you hold their attention count. Remember to keep your pitch succinct, but be sure to hit on the key points, and make sure that you follow up in an email with your investor deck.

Once you have your pitch down, it’s time to call up the investor. Here it is important to be extremely on-point and have the ability to be attentive enough to pick up on the investor’s mood. Investors may frequently seem short or rushed on the phone; if this is the case, then you need to make sure that you cut to the chase in terms of your value proposition.  If the investor seems cheerful, then a lengthier approach may be appropriate. Just as no investor is the same, every conversation that you will engage in will be a little different, so being able to adapt quickly to the tone of the call is invaluable.

Believing that you will be able to reach a prospective investor on the first try is a common fallacy. The number of life science companies that are trying to engage these investors is staggering. You will most likely get the investor’s voice mail, or be asked to leave a message with the secretary. Now you’re faced with another quandary – to leave a message or not to leave a message? If you have the individual’s direct number and you were not transferred over by the company’s administrative assistant, then it is sometimes best to just try back at a later date.

However, sometimes leaving a voicemail does prompt a call back, so you may want to opt to leave an introductory voicemail. You should try to be even more succinct in your voicemail than your elevator pitch, so try not to leave voicemails exceeding thirty seconds. Also, always follow up with an email after your voicemail so the investor has your email address as well in case they prefer that mode of correspondence, which we at LSN have found is generally true of larger more institutional investors.

A week passes and you still haven’t gotten a follow up e-mail or phone call. This should not come as a surprise to you. Many life science fundraisers will simply assume that the investor is not interested in their company and will give up trying to get this investor on the phone. This assumption is completely incorrect. To be successful at raising capital, you need to be determined. This doesn’t mean that you should be pushy – but it means you need to be very diligent in your follow up process. You need to try to give the investor a call again, and leave another voicemail. The message you leave should reference the last voicemail that you left, as well as the follow up email that you sent previously.

An example of how to structure your outreach

Don’t fall into the rut of leaving messages with the investor’s administrative assistant. Many fundraising executives make the mistake of leaving their information with a secretary call after call. Instead of simply giving the assistant a message for the correct contact at the firm, start a dialogue with the assistant. Make sure you make a note of their name and next time when you call back be sure to say their name and start a conversation. You can talk about anything – even the weather to start a dialogue. The administrative assistant may open up after you engage them in conversation and give you valuable information that will help you contact the person next time you call.

Some executive assistants will not want to chat no matter how hard you try to get them to speak with you. If that is the case, just mention the fact that you have called a number of times and ask if e-mail is the best way to correspond with the person. You can’t just dial a number and expect to get the person on the phone. As a fundraising executive, you need to think outside of the box in order to get the right person on the phone, no matter how long it might take you.

By Dennis Ford, CEO, LSN

Following up with targets is one of the most essential aspects of the phone canvassing process. Fundraising is an extremely time-consuming and lengthy process. It’s easy to get caught up in a very good conversation and think that an investment is right around the corner. All you need to do is sign the dotted line, right?

While being optimistic about the fundraising process is certainly something you need to do to keep your sanity, you should not underestimate the time that it will take for you to complete this process. If you are lucky, you will get an investment in eight months (this is extremely rare). If you’re unlucky, you won’t see an investment for eighteen months… or perhaps you won’t ever see an allocation at all. However, you can greatly improve the odds of you getting an allocation if you embrace the marketing process.

The goal of finding an investor is not just to get cash; the end goal is to find a partner that can help you grow your business. The goal then that you should keep in mind for phone canvassing is that you are trying to establish a professional relationship with the investor. Even the investors that speak with you that are not a fit today may be a fit down the road – for instance, when you have more clinical trial data or you have a prototype of your device. You also never know whom that investor may know, so it’s always useful to keep a dialogue going.

How you follow up will depend largely upon your current relationship with the investor, their level of interest, and how you left off your last conversation. Below are some hypothetical situations, as well as some tips on how to handle your follow-up procedure. It is important that you establish a plan for follow up and stick to that plan. If you have a consistent plan, then it will help you to keep your prospects organized and keep the entire process streamlined and efficient.

One of the most important parts of the follow up process is to ensure that you have a fresh and up-to-date contact situation. Getting the correct contact details for an investor is important to do no matter what the situation is. You need to make sure you have the person’s correct name (this includes spelling) their title, direct phone line and e-mail address.

Now, for the hypothetical situations:

You speak with investor, and have a great conversation.

This is of course the ideal situation. If this happens, then a followup call should be scheduled. Depending on how well it went, you might even want to schedule a face-to-face meeting. You should not delay following up in any way, and rather, if you run into this kind of situation, it is best to set a date for follow up at the tail end of the conversation. Also, if you have not done so yet at the end of the call when you follow up you should also send your investor deck and any other supporting materials that may be interesting to a potential investor.

You speak with an investor who is interested, but doesn’t seem highly compelled.

Here is where it’s a good idea to ping them periodically to set up a date to touch base in the future. Make sure you find out a general time that is good to reach them, and coordinate a time to speak in the future. Also, you should try to see if they will be in your area at some point, or possibly attending any networking events or conferences where you will be; face-to-face meetings are always better than speaking over the phone, so meeting this investor in person could lead to mild interest becoming serious interest. This is why you should never pass up meeting an investor in person even if you believe they do not have a strong interest in investing.

You speak to an investor who seems to have little to no interest.

If this is the case, it is important to find out why, because it will determine whether or not it is necessary to maintain the relationship. Perhaps they’re not interested in your particular disease area or not familiar with the indication you are targeting. If this is the case, then it is probably not worthwhile to attempt prolong the dialogue. You should certainly make note of the points the investor found less compelling because you may learn some valuable information about how to approach investors in the future that have not necessarily invested in that disease area in the past. If this is the case, make a note not to spam this investor with follow up emails in the future.

Perhaps the investor does have an interest in your technology but you do not have enough clinical data for their liking. If that’s the situation, it is appropriate to follow up later down the line when you do have sufficient data. You should thus make sure to keep this investor on your list and e-mail them, highlighting the new positive data that you have collected.

Gauging the type of follow up that is appropriate will hinge upon the amount of interest an investor expresses and what your current relationship with the investor is. You need to stay extremely organized during this process and keep excruciatingly detailed notes. Don’t try to force an investor’s interest, and try to keep in mind that fit goes both ways. Try to allocate your time in an efficient way and spend the majority of your time keeping a dialogue with investors who are legitimate prospects.

In short, phone canvassing can be one of the most effective tools to reach out to investors – but only when executed properly. You need to remember to stay focused, train hard, and above all stay optimistic. Know that it is a numbers game, so the more investors you engage, the more success you will most likely have. At the end of the day, your perfect investor is out there, and it’s your job to find them, get your company funded, and continue to grow your business.