From seed stage through exit, convertible debt to reverse merger, funding strategies are critical for companies to secure the capital necessary for success. To help think through these options and the key factors that influence investment decisions, we hosted a panel discussion at Medical Alley’s The Great State of Pharmaceuticals & Biotechnology 2016 conference on August 17th. The panelists included: Carolyn Green, Executive Director of Strategic Investments at Pfizer, Laurie Halloran, Founder of Halloran Consulting, Maria Berkman, Director at Broadview Ventures, Brian Polzak, Managing Director at Aquilo Partners.
Building a plan
All panelists emphasize that the decision to invest (or not) is strongly influenced by whether the company has a well thought out plan consisting of three core components:
- Value-creating milestones
- A budget based on reaching key inflection points, not a burn rate
- Investor engagement
1. Value-creating milestones
Polzak reminds us that for biopharma “the end game is an exit”. Investors need to know what the exit is, whether it be an IPO or acquisition, and how a company will get there. To develop this strategy, companies “should work backwards [from the exit] to identify what major, inflection points need to be achieved”, instructs Berkman. Building this plan is challenging given the constantly changing regulatory, industry, and competitive landscapes. Bring in experts who have successfully executed a similar strategy. Demonstrating the ability to develop and meet a milestone-oriented plan builds credibility with investors. Meet with them to share the plan. Then follow up and show the results. Building this relationship and showing success to plan increases their likelihood to invest.
2. A budget based on reaching key inflection points, not a burn rate
Green emphasizes that investors not only expect companies to have thought through the key inflection points, but that they need to, “make sure they have enough money to reach the next inflection point plus enough left over to get to the one after that”. To this point, Halloran cautions that underestimating the capital required to achieve the next milestone is a big red flag to investors. But there are ways to save money also. Companies need to demonstrate that they can accurately calculate and manage their budget to execute their exit.
3. Investor engagement
“The right time to raise money is all the time”, says Green. Polzak advises that when companies engage investors, they should build in an extra six months to allow adequate time for them to go through their review process. Funding strategies for how and when to engage investors are necessary to secure adequate capital to reach milestones. Berkman tells companies to, “Choose the investor groups that you talk to wisely.” She continues, “The companies that do well don’t talk to 50 different VCs. Instead, they talk to a few VCs who focus in their area and have invested in similar companies in the past.”
In regards to early-stage funding strategies, Berkman suggests some alternative investors. The list includes angel groups, regional funds, foundations, and convertible notes. A more comprehensive list can be found in our earlier article published in Nature Biotechnology, The View Beyond Venture Capital. And for first round funding strategies of family and friends, stick to convertible debt. It avoids placing a valuation on the company which is always too high, and having a down round in the next stage of fundraising.
Pitching the plan
After building the go-to-market strategy comes pitching this plan to investors. Panelists reveal three key pieces of advice for a successful pitch:
- Know your audience
- Be interesting from the get-go
- Stick to your guns
1. Know your audience
Do your research. If they have invested heavily in your area of focus, don’t tell them the basics, tell them how you compare to what exits and what is in development. If it’s a family and friends or high net worth investor, covering the basics is essential.
2. Be interesting from the get-go
“Start with the ambition of what your company intends to be”, says Green. This will demonstrate that you know your exit and catch investors’ attention. After that, she goes on, “show that you have challenged your own assumptions, that you have done the studies to try debunking your own idea and that you know what your competitive advantage is.”
3. Stick to your guns
“Often times in the middle of the pitch, companies will get flustered and offer to change their plan per investors’ questioning. But investors want to see that you’ve done the work, know what you need and don’t stray from your plan,” Berkman.
To investors, a company’s exit and strategy leading to it can make or break their decision to invest. Create and pitch a well-thought-out plan. The result? Securing the capital necessary to build a successful life science company. For additional advice on building a successful life sciences company, see our previous articles: Where in the world? Hotspots for growing a life science company and Corporate venture capital: Science first.