By Dennis Ford, CEO, LSN
LSN has written extensively on several facets of the capital-raising process, from the various new types of investors active in the space, to the technologies most actively being targeted by investors. However, we have not yet delved into the actual timeline required to raise money. This is the big question, as most emerging life sciences companies exist in a life-or-death situation. A misconceived notion of the required timeline to capital is the kiss of death for many; this article seeks to correctly define this critical period in the life of a company.
First things first: all of your collateral must be in order – this includes getting the business plan written along with the necessary investor presentation documents (powerpoint, executive summary, and website – yes, your website is an investor presentation tool!). This is a multifaceted process, which goes far beyond just explaining the science. Adroit entrepreneurs will know that as they write their plan, they are also creating a brand and a message that they are delivering to a marketplace of investors, and hopefully beyond. When writing the plan, keep in mind that the document you are creating is for distribution, and that it will be compared and contrasted with other companies that are going after the same capital as you are. If you take the time to present the data and create compelling facts & forecasts around your plan, then you have a leg up. Technology, market sizing and financial forecasting are all important elements, but don’t forget the most important one: your plan is your identity as a company! It can take anywhere from 6-8 weeks to develop and write a business plan, and then a considerable amount of ongoing time to hone and edit it as you move through the fundraising process.
The next step is compiling a global target list of investors that are likely candidates. You need to do your research and outline all of the likely candidate investors. This includes researching past investments in products like yours, groups targeting your specific disease area, and other relevant criteria that are major components of your company. This is why it is so important to have a cohesive understanding of who you are before seeking out investors. You will also want to research & target investors that have declared that they have a current or future mandate for investment in products that are like yours. This can be easy if you decide to buy an up-to-date database of investors, such as LSN’s. Alternatively, it can be incredibly time consuming if you decide to do this by vetting a list of likely investor fits through Internet research. Essentially, this is a process that can take a few clicks of your mouse with a good database, or over a month (or more) if researched manually. Here you must remember that accurate, current information on investors and investor contacts is paramount. Nothing creates thrashing like out-of-date data.
Then it is off to the outbound marketing campaign, and actually contacting investors – creating dialogue that turns into a relationship and, eventually, nets you an allocation. Contacting investors is a tedious, time consuming, and difficult process. It takes incredible tenacity to work your investor list and stay on the mission. Most of the time you spend will be doing referred outreach, cold calls, follow up, and more follow up. Most meetings involve multiple incantations and various follow-ups. This is because, realistically, it takes 2-6 weeks to regroup between follow-ups. What’s more, repeated meetings with various stakeholders can take months. All in all, the process of creating dialogue and developing a relationship takes a serious commitment of time and effort.
This is why it is important to know and understand the cycles of a fundraising campaign. Fundraising used to be more product-centric, but now a big part of the investment is vetting and building a relationship with the executive teams. Fundraising is a numbers game, and if you do get an investor on your radar screen, and the interest is really there, it is a still at most a one-in-four chance of getting through the due diligence, and an even smaller chance of being selected and funded after that. The fact is you really have to find, develop, and maintain an investor target list that includes hundreds of investors that are a fit to go after. If you understand this process, you will understand why it takes a dedicated commitment to raise capital, and therefore, why it takes so much time.
The last step, which is similarly time consuming and expensive, is to get you and your lawyer negotiating and closing the capital allocation down, and getting the cash into your account. Although there are no hard rules on this process, here are some of the things I’ve observed:
- If you are fortunate enough to be in the right place at the right time with a compelling product or technology, you can raise your required capital in 3-6 months, but this represents a very small fraction of the players. Adding to this, angels, venture philanthropy, and patient investor groups can act swiftly, but they are a minority of investors. This is largely an issue of “passion versus risk” – meaning the venture philanthropy and patient groups move faster because of a sense of urgency in finding a cure.
- From my firsthand accounts with fundraising clients, somewhere between 6 and 12 months is a reasonable timeline to raise capital, assuming investor climate is suitable and proper campaign execution is present.
- The rest of the major categories of investors have firm “institutional” best practice investment processes. This means a stringent, time-consuming methodology and adhering to established protocols for the particular investment mandate. In other words, it takes time.
- 2008 and 2011 drastically elongated fundraising timelines (for obvious reasons) to 9-18 months. This is beginning to soften now, but things can still be tough.
- Investors are not going it alone anymore, so “herding” spells more time, as more players opt in.
- Entrepreneurs can plan on spending around 1,000 hours (or about 9 months), which is at the top of the bell curve in my estimate. The 6-9 month point is when you will have a good idea of your funding potential in terms of investor’s feedback and interest. If it’s not working out, something needs to change.
- A campaign is a living vehicle that needs to be honed and morphed as the investor reaction is calculated, which either enhances or delays your timeline.
- Finding the right investor fit is critical. If you don’t achieve this, you’re looking at churn, churn and more churn – which can be expected today.
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