With JP Morgan fast approaching, as well as the Biotech Showcase and Medtech Showcases and RESI, all in the same few days of January, we have put together some key guidelines for those of you seeking funding. These are the common refrains we hear over and over again from investors and successful entrepreneurs and start-ups, as well as some nuggets pulled from last weeks Chicago Innovation Showcase.
Founding investors have an inordinately high sensitivity to dilution. This is counter-productive. I am not sure I have ever met with a first-time entrepreneur who did not think they should retain 80% of the company, even with a $20M raise. (JW, take note) Whatever you have created, it will go nowhere without cash to grow. And getting investors without giving an appropriate equity stake will simpy not happen.
Raising money is hard. Raise what you think you need and more. Don’t raise based on a best case scenario, raise based on a worst. As Ashish Khanna said at the recent CIS day about raising Series A, then B and then going public: “It is as hard every time” Guidelines on Series B? (Bill Gantz) If you give up 20% of the equity but you get the money you need to move forward, get it. Don’t get hooked up on the price.”
Build Credibility and Relationships.
What will the next few rounds look like and who are the ideal investors? Plan your activity to socialize and network the company with these investors well ahead of time. Show them the plan with milestones, and show them a year later with milestones accomplished. Let them see progress, and gain confidence in the plan and team. This was the approach Rebiotix took, allowing for a successful $5M Series A followed by an effective $25M Series B. Best options for finding an investor fit with your company can be found in our recent Nature Biotechnology article, and in our recent blog post here.
Show you what you know. Investors think about where things can go wrong. You should to, and go ahead and talk about this. Show that you understand where there may be issues, and how you will recover from any setbacks. The more you show you know, and have a plan for contingencies, the more credible and successful you will be.
Focus on the Basics.
The key to gaining interest from investors are the following three basics of the business:
- Science. Clear and compelling, from scientists who are leaders in their field.
- Management. Gravitas in the executive team. An experienced CEO who has done it before is the quickest route to gaining funding. But if you do not have this yet, look for investors who are comfortable with mentoring management.As we discussed in an earlier post, Martin Heidecker says Boehringer Ingelheim Venture Fund (BIVF), for one, is willing to fund a first-time CEO.
- Plan. A clear plan, with inflection points based on milestones that reduce risk and improve the odds of success. Milestones include not just clinical and product development, but licensing, partnerships, and additional funding (in the form of non-dilutive options as well as traditional funding).
Raising money is hard. Raise what you think you need and more. Know what you need to be successful in terms of money and milestones to carry the company to the next successful pivot point. Focus your fundraising round to be big enough to get you to the next inflection point. So put your plan together, and develop your pitch.
We’ll see you in San Francisco in January!