By Dennis Ford, Founder and CEO of Life Science Nation, Creator of the RESI Conference Series
The 800:3 Rule: It’s a Number Game
A fundamental principle governing this ecosystem is the 800:3 rule, which underscores the need for a robust pipeline of opportunities to yield tangible results. Whether you’re a startup seeking investment or an early-stage fund scouting for technology assets, the journey involves identifying and vetting a vast pool of potential targets to unearth the right partners. This rule, ingrained in the fabric of the industry, highlights the importance of persistence and strategic targeting in navigating the complex landscape of early-stage life science ventures. It is all about getting out of your region and entering the global marketplace. Whether you are funding a startup or a fund manager, you are playing a numbers game. That is, you need to get a list of partners that potentially fit your initiative criteria, and then you need to canvas that list and have an adroit process in place to qualify or dismiss the target. It’s a tedious, resource-intensive process where activities ebb and flow over the campaign’s life cycle. Preparing for and executing a partnering campaign, and understanding all the challenges are crucial for success, and underestimating and being unprepared can increase the chances of failure. This is one of the reasons why there is a 90% failure rate with startups in the life science arena.
I will give two examples of this rule, one that applies to a startup seeking investors and licensing partners and the other to a fund seeking assets to enhance their portfolio. The 800:3 rule suggests that a company needs to identify and vet around 800 potential partners or investor targets to secure three deals. The startup needs to find a lead investor and several co-investors to form a syndicate for the round. LSN’s partnering database, which is sold to startup CEOs, will routinely generate 800 potential targets based on a startup’s stage of development and product. This metric underscores the importance of casting a wide net and engaging with numerous potential global partners or investors to secure successful opportunities. For startups, underestimating the amount of effort and time it takes to secure funding and partnerships is a common mistake. The second example is of an early-stage fund seeking technology assets. When LSN interviews investors and licensing partners as part of the curation of our partnering database, we typically discuss the metrics in finding and vetting startup candidates for investment. Repeatedly, we hear the same metrics where, over a year, a fund will see 800 or so startups and invest in only a handful. This highlights another challenge startups face: they have the need to stand out from the hundreds of other startups vying for funds – how do you become one of the 3?
The Buy-and-Sell Side: Understanding the Dynamics
At the heart of the early-stage life science arena lies the interaction between the sell side, represented by nascent startups emerging from academia, and the buy side, comprising a diverse array of investors and licensing partners. According to estimates from LSN, the global ecosystem boasts around twelve to fifteen thousand nascent startups, each vying for attention and support from the buy side. The buy side encompasses a broad spectrum of investors, from angels and family offices to Big Pharma and MedTech, to VC and PE and government agencies. With specific mandates or opportunistic agendas driving their portfolio and product pipeline investment decisions, these entities play a pivotal role in shaping the trajectory of early-stage startups. The life science partnering ecosystem revolves around the stage of development and product of the startup, and the vetting of a founder, team, and technology can take anywhere from 9 to 18 months on average. LSN estimates about five thousand active early-stage capital investors and licensing partners comprising ten categories covering seed rounds, up to two million, series A rounds, 2-10 million, and series B rounds, 10-50 million.
Challenges and Opportunities
For startups venturing into this arena, the road ahead is fraught with challenges and uncertainties. From navigating the transition from academia to industry to acquiring new skill sets in sales and marketing, the learning curve is steep and unforgiving. Furthermore, staying abreast of fundraising trends, fostering collaborations, and navigating global expansion pose additional hurdles for these budding entrepreneurs. Startup CEOs must build a strong network of collaborators, understand market dynamics, and harness the power of strategic partnerships.
The key is to get out there and speak to as many people as possible. Whether or not this leads to a fundraising opportunity, making connections and getting feedback will play a critical role in moving a company forward. Remember that it is a numbers game, and the more relationships you have, the more you are stacking the odds in your favor.
