By Dennis Ford, Founder & CEO, LSN

I recently presented on Fundraising Best Practices at the FreeMind Group’s 11th annual Non-Dilutive Funding Summit in San Francisco, to an audience comprised of scientist-entrepreneurs and fundraising CEOs. The Fundraising Best Practices session helped create context and understanding for these entrepreneurs around issues related to branding and messaging of their firms. The presentation also explains why organizing a global target list of investors that are a fit for your sector and stage is vital to an efficient fundraising process. Last but not least, I discussed and debunked some of the myths around fundraising, what works, and what doesn’t work.

Many of the concepts covered in the presentation are expanded upon in LSN’s book, The Life Science Executive’s Fundraising Manifesto.

 

By Christine A. Wu, Research Analyst, LSN

At RESI San Francisco, a panel of Venture Philanthropy investors engaged in a stimulating conversation addressing patient access for underserved populations, assessment of “positively impactful” technologies, and their relationships with traditional venture capital investors, among many other topics.

Moderated by Christopher de Souza of Broadview Ventures, panelists include:

• Lindy Fishburne, Executive Director, Thiel Foundation & Breakout Labs
• Rachel Rimsky, Associate Director, Research Partnerships, The Michael J. Fox Foundation for Parkinson’s Research
• Daniel Smith, VP of Innovative Technologies, Autism Speaks
• Patricia Zilliox, Chief Drug Development Officer, Foundation Fighting Blindness

Patient Access for Underserved Populations

The panel addressed patient access, particularly regarding support for underserved populations who may not have health insurance coverage or access to intervention. Dan Smith said that Autism Speaks takes a deep dive into the reimbursement pathway to make sure interventions are available to those who otherwise wouldn’t be able to afford the technology. Autism Speaks also requires that, once a product is on the market, a certain percentage of the previous years’ sales would be dedicated towards matching giveaways or cost reductions for a specific population.

Both Foundation Fighting Blindness and The Michael J. Fox Foundation (MJFF) provide education for payers. MJFF holds seminars to educate communities on unmet needs in symptomatic Parkinson’s Disease (PD), and where the disease-modifying research is today. Rachel Rimsky added that MJFF also performs big data analyses with communities in the regulatory and payer sides for them to fully understand the unmet need and how to best approach provision and reimbursement.

Weighing “Positively Impactful” Technology

While life science-focused foundations tend to be indication-focused, Breakout Labs and Broadview both have broader venture philanthropy mandates as LP-backed investment firms. Lindy Fishburne and Chris De Souza defined “positively impactful” opportunities to deliver a breakthrough technology to market. “We’re not going to engage in opportunities where you’ve taken an existing technology and turned the widgets around differently,” Fishburne explained. “We’re looking for brand new, breakthrough technology with a new way of looking at a problem, like two sequences coming together for the first time.”

Typical questions Fishburne asks include: “is this a scientific breakthrough? If it were to work, would it matter and is it not just incremental? Is this a team with a structure set up to enter the market and have a shot in becoming successful?”

De Souza agreed, “It’s a matter of looking at the revolutionary, not the evolutionary.”

Relationships with Traditional Ventures

Panelists discussed their relationships with traditional VCs, varying from due diligence collaboration to referring companies to investors for follow-on funding. Zilliox added that while VC due-diligence partnerships are helpful for creating a new company, the exit strategy is more difficult to agree on because the mission and motivation are not always in agreement.

As Breakout Labs invests early, the firm considers the traditional venture world during seed funding as an important part of their model. Fishburne explained that much time is spent on understanding and building the venture investor network in order to introduce their companies to them at the appropriate times to forward relationships. 

Biggest Challenges for Venture Philanthropy Investors

On the scientific research side, Rimsky said that the biomarker field is currently the Fox Foundation’s biggest challenge. Smith acknowledged that addressing the diversity of the autism population and their needs is their greatest difficulty, since autism-related conditions vary among individuals.

On the business side, Zilliox said her biggest challenge is working with companies with no knowledge of the path towards commercialization – “that is my biggest nightmare.” Fishburne further pointed out that there is a delicate balance in finding the right people to lead companies: “Unfortunately there are some scientists that should just be scientists.”

Helping portfolio companies to raise follow-on money from the bigger players is another challenge. Fishburne explained that there’s a lot of incentive to step back and say “I’d like to see more” and the endpoint they’re racing towards keeps moving backwards.

The final challenge is maintaining the attraction of their focus area of research. Managing expectations and keeping the community engaged even when discussing long-term projects has been difficult given the longer research timeline for such breakthrough discoveries.

Final Remarks

1. “Foundations have a lot of deep expertise on the table that’s overlooked at times,” Smith said, “The mission focus can especially bring you more forward than you realize.”
2. Venture Philanthropy investors are more open to high-risk, interesting projects
3. Foundations have a huge access to expertise and are always open to conversations to think through different approaches.
4. Particularly for these panelists, venture philanthropy investors are always on the look-out for new opportunities, especially for follow-on funders to advance early stage companies.
5. For platform technologies, in order to approach indication-focused firms, you must have data where you’ve made a real claim for that specific indication. “It’s not for you to come in to us with a platform technology, but as an application of the platform that meets our mission,” De Souza pointed out.

By Shaoyu Chang, MD, MPH,  Senior Research Manager, LSN

This year’s JPM saw more than 1000 attendees from China. As the world’s second largest healthcare market continues to grow at a steady pace, Greater China-based investors have shown an expanding appetite for biomedical deals. Despite regional differences, we have observed a few common, interesting trends based on our interaction with investors from China, Hong Kong, and Taiwan.

New Players Enter the Arena

Against the backdrop of the recent market turmoil, Chinese regulators are laying the groundwork to attract capital for small innovative businesses, such as the Strategic Emerging Board to be launched in the second half of 2016. Investors are optimistic. Traditional healthcare VCs based in China have successfully raised new funds. The space is now crowded with new investors from other industries, ranging from information technology and manufacturing to textile and real estate. They all want to seize the opportunity of long-term growth in healthcare.

Increased Cross-border Activities

While biomedical innovation in Greater China has shown great momentum in recent years, partially fueled by the quantity and quality of foreign-trained returnees, many investors see Greater China as catching up in this game. ‘No research, development only’ has become a popular business model for many startups from this region. In addition, the generous supply of capital creates a fear of overvaluation of Chinese businesses. In search of good quality, fairly priced deals, an increasing number of Greater China investors are setting their eyes on technologies emerging from US and Europe.

China Angle Is a Big Deal

Regional collaborations between Japan, Korea, China, Taiwan, Singapore, and Australia are common. However, US-China or Europe-China deals remain challenging in multiple aspects from deal sourcing to due diligence to post-investment management. Some of the most active investors do not care where the investee is based because they are constantly on the fly. The majority of them, however, would like to see a ‘China angle’ so that they can leverage their local resources. A typical example may be a Chinese-led business in Europe or North America looking to expand to Beijing or Shanghai. In other cases, a US or EU-based company may build a relationship through a manufacturing site, joint R&D agreement, or distribution partnership.

Investors Test New Sourcing Methods

Traditional Greater China investors rely on their personal network for deal-sourcing. When it comes to cross-border deals, they tend to co-invest in rounds with presence of a strong local lead, typically one or several renowned VC funds. In recently years, creative investors are testing bolder approaches from sending scouts to setting up offshore funds to creating incubators in major biotech hubs. The idea is that the closer you can get to the source of innovation, the better chance you will spot a technology that no other investor has spotted before.

Mismatch between Health Innovation and Traditional VC Model

With a few exceptions, the majority of Greater China healthcare funds we spoke to operate on a traditional VC model within a 7-10 year horizon. Angel investments are few and scattered. This might be due to the fact that many investors enter the space without full appreciation of the biomedical R&D and life cycle management. The typical exit for early stage investments is primarily in the public market, while M&A is seldom the option, if ever. The VC-collaborative startup formation model that has gained traction in the US is essentially nonexistent in Greater China. The inflexibility in investment models can potentially clash with the long and risky development timeline of healthcare technologies.

Conclusion

Greater China investors are cautiously optimistic about healthcare venture investment domestically and globally. Many of them believe the recent market downturn is only a temporary correction or even a sign of market maturation. If you were a life science startup in Greater China and not blessed by one of the few wealthy angels, you might face years of painful bootstrapping. A roadmap to access early stage capital globally will be critical. For US- and EU-based startup entrepreneurs, it is essential to proactively develop a strategy for engaging Greater China investors at an early stage of your business. As an increasing number of investors are testing innovative approaches to collaborating and investing, we expect to see more creative deals in the future.