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!