By Maximilian Klietmann, VP of Marketing, LSN

In this newsletter, we often discuss how emerging life science entrepreneurs should think about their fundraising strategy. This week, we’re going to look at the fundraising process from the perspective of a couple of investors.

I called a corporate VC fund and a family office in the LSN network; each is actively making allocations and has a mandate to make at least five investments over the next year. I asked a simple question: What does your typical month look like?

The deal-sourcing executive at the corporate venture fund was quick to say, “We get a lot of referrals, but more often than not, they’re only generally targeted. There are a few people in my network who really understand what we are looking for. I trust their judgment, and they pass me more relevant leads. However, most of the referrals I get aren’t great fits for us.”

Entrepreneurs should keep this in mind. You may get referred, but that doesn’t mean you are going to get funded. You may even get a meeting, but very often it will be what we at LSN refer to as mercy meetings: investors agree to meet with you not because your technology is a fit but because they feel obliged because you were referred, or thought they’d do you a favor. Such meetings rarely lead to anything substantial and investors will not spend a lot of time on.

“On average, I probably get 30 to 50 business plan submissions a week,” remarked a manager at a California-based family office. “Some are referrals, but most are unsolicited emails.” That equates to about 1,500 to 2,500 business plan submissions in a year for an investor that is looking to make only five investments. “Simply put,” he said, “I can’t reasonably go through that much information. I have to make a decision whether or not to continue reading after the first few sentences.”

This underscores how important it is for entrepreneurs to succinctly communicate their value to investors. “I’m sure there’s some great technology I’ve passed on, but if the CEO can’t tell me why his company is special in the first page, I’m not interested in doing business,” noted the family office investor.

So how many meetings result from unsolicited submissions? Answers from the interviewees varied from 15 to 30 meetings a month. This is an average hit rate of one out of ten. However, only a fraction of these ever move into due diligence and ultimately get funded. At the end of the process, a typical ratio for these investors is approximately one allocation for every 300 potential deals they come across.

How do emerging scientist-entrepreneurs improve their odds then? An accurate and up-to-date global target list of relevant investors that are a fit is critical. However, it’s not productive if you can’t immediately communicate why you are a great fit for an investor. This requires crisp marketing collateral that clearly explains what sets you apart from the other 30 to 50 proposals an investor received that week. In addition, you should stay focused and get as much feedback as you can. If an investor passes, ask why—that might be all it takes to get them to take another look and agree to a meeting.

By Lucy Parkinson, Research Manager, LSN

LSN gathers data on early stage life science companies and investors worldwide, but we also track global licensing activity and trends through the LSN Deal Platform. We analyzed 20 pharma deals that were publicly announced from January through April and spotted three trends that offer a glimpse of what the industry may expect from pharma-licensing activity in 2014.

Orphan Diseases Are Hot

About 25% of the pharma-licensing deals so far this year involve an orphan or rare disease asset.  The accelerated approval pathway for these drugs is driving pharma strategies toward small biotechs that have cultivated expertise and assets in these rare diseases.

Discovery and Target Validation Platforms Are in High Demand 

As big pharma companies have trimmed their in-house R&D operations, they are increasingly turning to outside partnerships for very early stage drug discovery. Four months into 2014, about 40% of the licensing deals in our data set relate to discovery and target validation.

Collaboration Continues to Be a Popular Model

Traditionally, big pharma companies license assets and are wholly responsible for drug development. However, as BioAssociate observed regarding 2013 deals, collaboration models are becoming more popular, because pharma companies can de-risk their strategic investments: they license assets early and collaborate on the development. Of the deals in our platform that involve assets rather than a discovery platform, over one-third are known to be structured as collaborations.

What These Trends Mean for You

Big pharma’s interest in orphan diseases, partnerships for early stage drug discovery, and collaboration for drug development bode well for small biotech companies. A deal with a large industry player can provide a source of revenue and a stamp of approval, both of which are helpful if you’re looking for investment. Collaboration in particular means that you can retain more control and influence when it comes to your assets.

In addition to big pharma companies, an increasing number of virtual pharma investors are focusing heavily either on licensing or acquiring assets rather than simply investing in biotech companies. These are typically investors that specialize in putting assets through clinical trials and then exiting through a deal with a big pharma company. Partners such as these could provide another pathway for your company to reach the market.

Source: http://bio-associate.blogspot.com/2014/01/biotech-pharma-2013-licensing.html

 

 

By Michael Quigley, Research Manager, LSN

As we enter the so-called “golden age” of life sciences, there is no shortage of funding opportunities for savvy investors. This has not been lost on angel groups.

There has been a significant rise in the number of angel groups targeting early stage life science companies. In the past year, approximately 25% of all angel dollars invested has been in the healthcare sector. Angel groups are making not only more investments but also larger ones, and their focus is longer term.

Syndication has allowed angels to take more substantial positions and to take advantage of the many opportunities available since the contraction in the VC sector. Also, the rise of capital-efficient life science startups, which outsource development, has allowed angels to place more bets and be longer-term players. Granted, angels like all investors prefer a low-risk investment with a fast turnaround, but the changing landscape in the life science arena is enticing them to increase their holding periods in order to achieve that profitable exit.

At LSN we actively track over 150 angel groups, one-third of which are looking to make investments of $1 million or more prior to any syndication. That’s a much higher investment than the $100,000 to $200,000 angels are often identified with. Moreover, many of these groups are becoming increasingly sophisticated in terms of their investment mandates and industry focus. As syndication continues to become more prevalent, angel investors could become important players in the course of a company’s fundraising cycle.

Sources:

http://www.fosters.com/apps/pbcs.dll/article?AID=/20140504/GJBUSINESS_01/140509798/0/FOSNEWS

http://www.lifescienceleader.com/doc/angel-investors-look-at-biotech-0001