Next Phase Newsletter

By Jack Fuller, Business Development, LSN

LSN is a big proponent of the importance of finding the right fit in potential partners. This is true for companies looking to develop assets together, finding the right CROs to outsource drug development, and especially in finding investment partners to help raise capital. Last week, I attended the Massachusetts Life Science Innovation (MALSI) Day, and I was incredibly pleased to hear that sentiment echoed by speakers and entrepreneurs throughout the day.

What we mean by fit is the list of criteria defined by a company/firm’s mandate. For example, with investors, a specific firm’s investment mandate may be to only invest in two or three companies in the next 12 months, targeting companies in the medical diagnostics field who also have a usable prototype. Any company that reaches out that does not fit these criteria has no chance of being funded, regardless of their value proposition. With this in mind, understanding an investor’s mandate is the most important factor when deciding whom to go after.

At the conference, I attended a panel where an Angel and a VC each lauded the importance of having a fit before the even reaching out to an investor. The question was then posed, “in the last 12 months, how many meetings have you had with people who reached out to you cold?” Both answered the same: “zero!” However, they were quick to point out that of all the people who reach out to them cold, the chances of them being a fit for their specific investment mandate hovers somewhere around 1%.

Needless to say, the audience (which was largely made up of emerging life science companies seeking capital) was outraged by this. Here is a room full of life science entrepreneurs, attending a panel about financing in the life sciences, and the panel tells them they have no chance of reaching out successfully. Just before a riot started, they explained the concept of fit. Investors in the life sciences are continually inundated with unsolicited business proposals that have less than a 1% chance of satisfying their specific investment mandate. They don’t have time to look at this unfiltered list, so they summarily dismiss everyone that hasn’t been filtered. The problem with the life science community is that the only real filter they currently have is through personal introductions or partner relationships.

Recently, LSN ran a boot camp at a local Boston incubator to explain to early stage scientists that part of doing a dedicated successful outbound marketing campaign is to take the time to research your look-alike companies and determine who has invested in them in the past. This uber investor list is paramount because they know your type of company, your marketplace and technology. Most importantly though, they have already pulled the trigger with similar companies. Next you want a list of investors who have self-declared “present or future mandate” to invest in a company in your arena or orbit.  This is more difficult but something in which we here at LSN specialize. This is particularly important when reaching out cold to investors.  For example, when emailing an investor you know has a mandate for small molecule cardiovascular therapeutics, it is incredibly impactful to have a subject header “CEO of cardiovascular small molecule company – in town next week – meeting request: First Attempt”  LSN has found that outbound campaigns to investors with whom there is a recognized fit results in a 15-20% open rate!

These two panelists were adamant that they are not opposed to people reaching out to them. However, the current method of blindly reaching out to every VC or Angel on the planet is not helping anyone find prospective deals. The old model of raising funds is being replaced with greater focus on connecting people who need to be in the same room together. LSN was founded on this principle, and is why LSN research spends so much time in dialogue with the investor marketplace. As a more efficient dialogue is created between companies seeking capital and investors looking for opportunities, the speed of product development increases, which in turn leads to a more robust industry with better patient outcomes.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

By Danielle Silva, Director of Research, LSN

As any emerging life science entrepreneur knows, just getting on an investor’s radar is an extremely arduous task. What many biotech firms do not realize, however, is that initiating a dialogue is only the beginning of a relationship that must be managed and maintained over time, and there are still many things that can cause a prospective deal to go south. To help prevent future headache, or even losing a deal during negotiations with potential investors, entrepreneurs should make a concerted effort to avoid some critical errors from the very start.

One thing that often raises a red flag for investors is an issuing company’s capital structure. Are the existing investors difficult to deal with? Is there risk associated with unfavorable terms from previous financings? How much risk of dilution is there due to existing convertible loans, etc.? Some key ways that entrepreneurs can avoid sabotaging future deals is by thinking strategically about how and from whom you raise your first seed capital. Make sure your investors are partners that will be easy to work with past the check-writing stage, and that the terms won’t deter future investors.

One effective method of ensuring a more favorable set of deal terms from the onset is via a non-participating liquidation preference. Here’s a hypothetical situation: If an angel investor invests $1 million in a company and negotiates a simple 1X non-participating liquidation preference, and then the firm is sold for $4 million, the angel investor will get $1 million and the remaining $3 million will be divided amongst the firm’s common shareholders. Obviously, some investors may have a higher multiple preferences, but negotiating non-participating liquidation preference with early investors can mitigate the risk that more institutional investors will not invest due to concerns over a firm’s equity dilution.

Another important component of a company’s capital structure is the capitalization table. A capitalization table is a cash-on-cash analysis of the percentage of ownership for investors and founders, the value of equity for each round of investment, and equity dilution. Some firms may have a large number of small investors that could cause issues for the companies owners or investors down the line. This is one of the issues that crowdfunding can cause, as it can attract large numbers of “unsophisticated” investors. If the entrepreneur should ever go down the road of “herding cats,” it is important to show prospective investors a clear strategy to repurchase as much equity from these “micro-investors” as possible, and convert any of the remaining preferred equity holders to common stock. Often just having a clear answer to an investor concern is helpful in itself.

Showing potential investors that you are business savvy and strategically-minded can be just as important as illustrating how compelling your product is. Avoiding these missteps proves to investors that you not only benefit yourself and the other stakeholders of your firm, but also that you have the ability to run a business.

These mistakes should be avoided at all costs when going through the due diligence process with investors. If you are an entrepreneur who is in the due diligence process with an investor, and do happen to have such setbacks, don’t be alarmed. Acknowledging that you have made these mistakes and speaking with your potential investor about how to resolve these issues will help show them that they are not just making an investment, they are forming a partnership, and that you are doing everything possible to generate a return on investment for themselves and future investors.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

September 16, 2013, 60 State Street, 33rd Floor, Boston, MA

By Dennis Ford, CEO, LSN

After attending a dozen or so investor conferences over the last year, I was amazed at how lopsided the attendance is. Presenters at these conferences – the folks looking to raise capital – are typically totally disproportionate to the actual “real live” investors with mandates to invest. In some cases, it’s astonishing; recently, I was at a three-day conference that had one 45 minute panel of VCs – and that was it! Even worse, most of these investor conferences are just a mosh pit of 3rd party service providers seeking funded startups to sell their products to.

Like any entrepreneur, I couldn’t help but think that there has to be a better way of matching early stage science with early stage investors. In light of that, LSN is pleased to announce Redefining Early Stage Investments, an ongoing global conference series focused on creating and maintaining a dialogue between emerging therapeutic, diagnostic, and medtech companies, and early stage life science investors.

As the name implies, this conference series aims to present the new landscape of early stage investments in life sciences, a rapidly shifting arena in which yesterday’s rules are no longer in effect. The traditional path to raise capital has been through friends & family, angels, government grants, and venture capital. Government sequestration and VCs with limited mandates has made the pool for capital in those two venues tenuous. However, new investors have entered the arena, and Redefining Early Stage Investments seeks to map out the new landscape.

So how is Redefining Early Stage Investments different? It seeks to fill the void left by traditional investors by identifying and actively including new categories of investors, including venture philanthropy, patient groups, corporate development, and virtual pharma. Previously, large institutional investors, family offices and wealth mangers would fund the VC channel, but subpar returns over the last decade have forced these entities to rethink past money manager-centric strategies, and now they invest directly themselves. These new direct investment players such as family offices, endowments, foundations, and pension funds are in it to win it, along with the other new active life science investor groups – hedge funds, mid-level private equity and angel syndicates. All the aforementioned entities have changed the life science investment landscape, and LSN wants to feature & connect these new players to the new innovators.

The conference will feature an exclusive partnering pavilion solely dedicated to early stage entrepreneurs and life science investors. Service providers will be there as sponsors, and there will be plenty of opportunities to meet with them as well. However, this investor conference is meant to be different in that it creates & facilitates meetings based on a common fit, which promotes compelling conversations and the development of qualified investor relationships.

The conference is an all-day event, set in the heart of Boston, the global hub of life sciences. It will feature eight unique early stage investor panels that will provide the latest perspective on the state of investments in the industry. These sessions will run concurrently with presentations featuring some of the hottest biotech & medtech startups in the life science arena.

Who should attend? Redefining Early Stage Investments is ideally suited towards emerging biotech & medtech companies seeking to raise capital or out-license technologies, early stage life science investors, companies seeking to in license emerging technologies, and organizations that sell products & services to emerging companies. Click here to register now!

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital

By Max Klietmann, VP of Research, LSN

LSN has been covering the impact of personalized medicine as it becomes increasingly feasible for implementation in a variety of clinical areas. This convergence of big data, genomics, proteomics, and bioinformatics is fundamentally reshaping the treatment paradigm. One particularly interesting effect of the proliferation of these technologies is the way it is impacting early stage research and development. The trend that the industry is leaning towards is the development of therapeutics designed for highly specific patient groups with a particular make-up of factors correlated to treatment efficacy. Essentially, drug developers are creating niche products in anticipation of an age of niche treatments and a totally different competitive landscape.

In the wake of healthcare reform, the question of treatment efficacy has become a critical factor in determining the future success of a product (considering the tightening of reimbursement guidelines). However, the ability to determine the factors related to positive outcomes on the genetic level allows for the development of more effective treatments for specific patient subgroups.

Many emerging biotechs have recognized this reality, and are thus beginning to focus more in effective treatments for small populations, leveraging the power of genomics technology, which is rapidly becoming more and more affordable. LSN closely tracks emerging biotech companies globally, and the trend is clear – it is becoming increasingly common to see emerging companies in the preclinical stage targeting so-called micro-indication areas, rather than blockbuster disease categories.

This strategy is also compelling for investors, who are able to now target major indication areas with a strategy similar to that of an orphan disease company. The result is more compelling trial data, a higher likelihood of approval, and diminished risk. Essentially, the trend is becoming one of smaller, more secure plays rather than the macro plays of past decades. It means a more stable industry, more predictable returns for investors, and better care for patients. However, it also means that fit is more critical than ever when finding the right partners in terms of investors and suppliers, as the industry as a whole becomes more granular and targeted.

Tags: biotech, biotechnology, CMO, consulting, CRO, family offices, Fundraising, investor, Investors, issue, letter, life, Life Science, life science nation, medicine, nation, news, newsletter, pharma, Pharmaceutical, private equity, research & development, science, startup, venture capital