Tag Archives: pharma

The Quest for the Perfect Investor Fit: How Much Does Life Science Expertise Matter?

2 Oct

By Danielle Silva, Business Development, LSN

Here at LSN, I speak with many life science entrepreneurs about investor fit. Typically, life science executives believe that fit is a one-way street, meaning that they need to do all they can to prove they are a fit for a prospective investor. While it is certainly true that an integral part of the fundraising process is proving that your company is a fit for the firm’s investment thesis, this is not a one-sided negotiation. It is just as important for life science companies to make sure a potential investor is a fit for what the firm is looking to attain, and therefore, finding a potential investor needs to be both a strategic and tactical play.

What many life science CEOs struggle with is whether they should favor investors that have expertise in a particular area versus investors that are experienced in a certain phase of development. The answer, by and large, depends on what the life science company is looking to achieve in the long run, but there is of course no easy answer to this dilemma. Many entrepreneurs consider the problem a simple one – why would you want an investor that doesn’t understand your technology, or one who does not have expertise in your particular indication area?

While it is certainly important for investors to have a basic understanding of your disease area, this is only truly important if you are seeking scientific advisors for your firm. If this is the case, then finding a partner that has expertise in your disease area may be favorable to finding an investor that has knowledge of your stage of development. But what if, conversely, the executive is seeking a quick exit or a recapitalization? In this case, it may be more attractive to find an investor with a laser focus on your particular area. These investors already have a great knowledge of the space and thus probably already have a solid network that will be willing to acquire the company once the firm hits certain milestones.

Most life science executives I speak with, however, are not seeking scientific advisors, and instead are seeking investors with the business acumen to help take their product from discovery to distribution. These companies would benefit from a relationship with an investor that has knowledge of their particular phase of development, and who can thereby help to scale their business. It is also very beneficial for companies to be partnered with investors who have a deep knowledge of their phase of the clinical development cycle. These investors will have the expertise to help life science firms partner with appropriate firms in the R&D services space (such as CROs and other service providers).

Again, there is no clear solution to this problem. If your company is seeking an investor with a deep network in the space, then choosing an investor with sector expertise may be the answer. These investors, however, may not be able to help you scale your business to the point where your firm is an attractive investment or acquisition target for a larger investor within their network. Simply put, the answer is convoluted, no investor is the same, and everyone brings something different to the table. Life science executives should clearly define their goals in terms of growth and exit before deciding on an investor based on sector fit versus development phase fit.

Creating a Dialogue with Life Science Investors

2 Oct

By Dennis Ford, CEO, LSN

I write about this subject often – I guess the main reason is that if I can get the message right, I can help educate life science fund-raisers that a current and accurate map does exist for raising capital. If you are in fundraising mode, please have an updated map. There, I said it!

The most interesting component of the fundraising dynamic is the concept of “introduction”. Scientist meets investor, buyer meets seller. One of the initial goals of any fundraising campaign is to get in front of potential investors, and this can be done in two general ways: the first being referral, and the second, fit. I will agree that a referral is often a good way to get a meeting, but many believe that it is the only way to get to a decent investor target.

Being a street-savy salesperson, I always get a bit riled when someone announces that referrals are the only way in. I mean, what if you get referred to an investor and he just simply doesn’t have a current mandate to invest, and if he did, it would be a medical device and you happen to be a therapeutic? My point here is that even though a referral may get you some preferential treatment in the form of a first meeting, there always needs to be a good fit. After all, it’s the final meeting that really counts. I am a big fan of the referral, but I am an even bigger fan of fit.

In my “sales guy mind,” the highest form of a qualified investor lead is a declared fit. A declared fit boils down to this: an investor actively declares a targeted and specific intent on investing in a certain part of the market. I think that is the highest form of investor target – self-declared mandate from the mouth of an potential investor. I mean, what else would a fundraiser want? OK, maybe I shouldn’t have asked that question… because I know the answer: a referred introduction, right?  No, wrong!

Of course, if you know someone who can provide an intro, that’s great. Sans that magical referral/intro, if you are a fit for the declared mandate, all you have to do is tell him via email or phone that you know what they are seeking and you are a fit. Honestly, that’s how it works. Spamming gets you a 1-2% hit rate, but reaching out based on fit gets you a 20-30% hit rate. Why? Because you match what the investor is looking for. Being armed with the knowledge of an investor’s current interest gives you the power to refer yourself.

Phase I of the JOBS Act: Are you ready for the general solicitation revolution?

2 Oct

By Lucy Parkinson, Research Analyst, LSN

Back in April 2012, the JOBS act was passed with the aim of (the clue is in the name) Jumping Our Business Startups. The SEC has moved slowly on implementing the JOBS Act and is saving the most innovative provisions for a second phase of changes, but as of Monday, September 23rd, the long-standing ban on making general solicitations to accredited investors has been rescinded. This will have a huge effect on the institutional landscape of investing, as companies can now use mass public advertising to look for investors, rather than being restricted to using funds from family, friends, and private networks of accredited investors.

So does your start-up’s fundraising campaign have to change? Not necessarily, but you may reap great benefits by using the new regulations to your advantage and seeking for investors with a wider net than was previously possible. However, obeying the restrictions surrounding general solicitation is not as straightforward as you might think. As such, any company looking to raise capital would be advised to spend some time with their lawyer before sending out a mass solicitation; similar to the domain of intellectual property, we could see an influx of law firms seeking to partner with emerging biotech companies to guide them through the regulatory quagmire and maximize their visibility with investors.

While many life science companies could benefit from following the new path laid out for general solicitations, some may wish to eschew the added regulatory burdens and stick with the old model that, in addition to accredited investors, allows them to ask up to 35 unaccredited friends and family to contribute to each funding round. This doesn’t mean foregoing all the benefits of the law; the investment groups themselves will have more room to advertise for contributions under the new law, and that may lead to investors having more dry powder to invest – particularly to under-the-radar angel firms, who have previously found it hard to advertise to prospective investors. Building partnerships with these lesser-known investors will remain as important than ever.

Will general solicitation be worth the added costs? It could be, and this is especially true for life science companies. One thing LSN has observed frequently about emerging types of investors in the life science space is that more so than investors in other industries, they often have personal motives. Essentially, what we’re seeing is funding provided by angels, family offices and venture philanthropy funds looking for more than just ROI – the founders of these investment vehicles often want to make an impact on the world by targeting a particular disease that has affected their life or runs in their family. So, when we start to see general solicitations blaring from every billboard, TV set or web search, life science pitches will have a unique draw that other startup prospects lack because in this industry, general and personal come together.

This distinction will only become more valuable when phase two of the JOBS Act rolls out equity crowdfunding. For that, we’ll have to wait until next year.

Hot Life Science Investor Mandate 1: Venture Philanthropy Seeks Early-Stage Companies for Several Allocations

2 Oct

A venture philanthropy group established in 2008 and based in the Eastern US makes equity and convertible note investments of approximately $1 million into companies seeking up to $5 million that are targeting cardiovascular and neurovascular diseases. The firm invests in privately held companies at both the seed and venture stage, and is planning on making 3-4 allocations over the next 12 months. The firm operates under an evergreen structure and is constantly seeking new investment opportunities.

The group is currently looking for companies in both the Biotech Therapeutic & Diagnostics and Medtech sectors. Within these sectors, the firm is opportunistic in terms of subsector, although they do have special interest in companies developing regenerative technologies. The firm’s main focus is on companies developing technologies for cardiovascular and neurovascular diseases – however, they will also consider investing in companies targeting diabetes and metabolic disorders. The firm looks to invest in companies with a product in preclinical or phase 1 of clinical trials for Biotech Therapeutics and Diagnostics, and companies with a product in development or prototype stages for Medtech.

As a venture philanthropy organization, the group is only willing to allocate to companies who have a clear impact on patient therapy and/or standard of care, an adequate level of IP protection, well-defined use of proceeds with quantifiable and achievable milestones, and a clear understanding of the next round of fundraising needs including how much and likely sources.

Hot Life Science Investor Mandate 2: PE/VC Hybrid has High AUM, Wide Range of Interests

2 Oct

A private equity / venture capital firm which was founded in 1994 and is based in the Western US manages a total of 7 funds with a combined AUM of $2 billion. The typical investment size is anywhere from $5 – $10 million initially, and up to $20 million over the lifetime of the investment. The firm provides both equity investments and convertible notes to companies located all over the globe. They plan to make 2-3 investments over the next 6-9 months.

The firm is interested in companies in biotech therapeutics & diagnostics, medtech, and biotech R&D services. They are also interested in other organizations in the biotech space, such as agricultural biotechnology or industrial biotechnology. In terms of subsector and indication, the firm is entirely opportunistic; however, they are not interested in companies that do not have a viable proof-of-concept for their technology, and strongly prefer to invest in companies that have entered into clinical trials.

The group prefers to invest in experienced management teams, and generally provides a professional to serve on company’s board of directors, in addition to assisting with operational activities. The firm will consider all management teams on a case-by-case basis, and may consider rearranging the management team if necessary.

Hot Life Science Investor Mandate 3: Seed-Stage VC Acquires Early Assets from Universities, Pharma

2 Oct

A seed-stage investor in emerging life science technologies that was founded in 2003 and is based in the Western US makes about 2 allocations per year. In the past, their typical allocation size has been between $2-5 million, but this amount may increase for future funds; the VC will be raising a new fund in the near future. Investments are made at the seed stage or in Series A venture rounds. The firm invests throughout the USA, and has evaluated investment opportunities globally. Investments are most often in the form of equity, but structures involving debt are also considered.

This group invests particularly in assets at an early, preclinical, stage of development, often acquiring emerging assets from university labs or from pharmaceutical companies. The firm primarily invests in therapeutic assets, and has also made investments in diagnostic technology. They do not invest in medical devices, and have not invested in industrial biotechnology innovation in the past, but is open to proposals in this area. Investments are considered in assets related to any indication. The firm prefers to invest in assets that do not have a management team, as the firm supplies management and technical expertise to develop the technology.

Hello World… ABC Life Science Company is Raising Capital!

26 Sep

By Dennis Ford, CEO, LSN

Hold the phone! We’re not there yet! Yes, the 80-year ban preventing companies from advertising and soliciting capital has now gone the way of the dinosaur. The September 23rd lifting of the ban heralded that change is afoot and will usher in a new set of rules and regulations. However, the devil is in the details, and until the SEC makes the new rules and regulations public at the end of this year (or next year), we are still in mostly in the dark.

What does this mean for life science entrepreneurs? One thing for sure is that now more than ever, make sure you act in concert with your lawyer regarding fundraising. For life science entrepreneurs, being able to freely let all aspects of your personal and professional networks know you are actively raising capital can’t hurt – especially now that it is OK to solicit using the bevy of online apps and tools that you now already manage. However, understanding that your future investors must be certified, accredited investors (once again, check with your lawyer) needs to be understood.

In a past life, I was part of a team that started a broker dealer, and the rules, regulations, compliance aspects, administrative tracking, logging and filing of all communications was extremely costly. It took a few in-house staff – as well as several outside, highly paid consultants to keep everything kosher. I bring this up because depending on how the SEC comes down on the aforementioned will largely determine how viable the new fundraising mechanism will be.

Cash flow is the enemy of most entrepreneurs, and if there is now a bevy of must have’s and must do’s to be compliant, then most cash strapped startups will be in a real pickle. The minimum, so far, though not yet cast in stone is that the entrepreneur will have to file a Regulation D form 15 days prior to a general solicitation for investment capital and explain in detail how they intend to go about it.

My last observation and personal opinion is to ask: where does this fit in for life science entrepreneurs? There is a well-known map that dictates that the path for startups is friends, family and angels for seed money, followed by government grants, and then institutional and PE/VC capital for growth.  If all goes well, I see this as an awesome mechanism for startups that need that first 250-500k to get started. So far, it appears that this could be done via a crowd funding portal or an outbound campaign to accredited investors that have declared an interest in your particular indication, sector or service. Stay tuned.