Life Science Investing is Different than Software Tech Angel/VC Deals

Life Science Investing is Different than Software Tech Angel/VC Deals.

 

Companies seeking early stage investment in their biotech, life science, medical device or digital healthcare companies face al

 

l the hurdles that software tech companies face – and then some more.  Many of the hurdles have to do with misconceptions that people have about life science investing, and others have to do with the real differences that exist in this market.  Companies raising money in the life sciences have to go through all of the things that tech companies do, plus more, in able to successfully raise funding.  

Life Science companies should consider attending the RVC/CBSA BioScience HyperAccelerator to help them through the process. We guarantee participants will be amazed with the quality and usefulness of this unique content that can be found nowhere else!

 

What BioScience Companies Need to Know

Time-Lines – there are a lot of investors who think that all life science deals take ten years or more because of the huge regulatory hurdles that have to be overcome, and that the capital requirements could be in the hundreds of millions before the company gets to an exit.  These investors are missing out on lots of great opportunities.  What they don’t realize is that companies rarely move all the way down the regulatory pathway before achieving exits if they’re developing a novel drug, for example.  Usually the hurdle is Phase 1 Clinical Trials before a company is acquired, so the pathway can actually be shorter than for some tech investments.  Also, many companies are working on repurposing existing drugs for new uses.  In this case, all they need to prove is efficacy for the new use which can be a relatively short process.  Devices, in contrast to drugs, can achieve FDA approval in just months in some case.

 

FDA Regulatory Risk – many investors who don’t understand the biotech space have heard horror stories about the capricious, costly and time consuming process of FDA approvals.  While these fears are not totally unfounded, most companies pass through the process in a relatively short time and at low cost.  We budget about $50,000 and six months for a 510K approval process in some cases.  Angel investors have special opportunities to invest in pre-FDA approved companies because valuations typically double or triple after FDA approval, resulting in good returns for investors.  

 

Liquidity Events (Exits) are more obvious for many biotech, medical and life science companies because there is a clear playing field with companies that are regularly acquiring companies as a part of their innovation strategies.  There are enough players that companies who are intentional about crafting the best exit can create a situation with multiple bidders to result in the highest exit valuation.  Even if the exit pathway seems clear to founders, their presentations should include a clear description of their exit strategy in order to bring the most investors on board.

 

Intellectual Property is Critical – while most tech and software companies have dropped patent filing altogether, IP is the core to creating value in the life science and medical space.  Granted patents are always best, but at least having patents pending with a strong defensive strategy is critical for success.  Companies will also need to be able to demonstrate that they’re not infringing on the patents of others.  We’ve seen companies who we’ve found to be infringing on patents which made them uninvestable.  This is something that companies should research well and be able to demonstrate instead of doing a lot of work, only to have investors find that the project is dead on arrival after several years of effort.

 

Team Considerations – tech companies often suffer because they have a bunch of coders who’ve been working for years to come up with a product, but they don’t anyone on marketing, finance, or business strategy.  Life Sciences can have these problems when they’re staffed with teams of smart PhDs who don’t have the experience or track record to be able to raise funds, transform from a research organization to a marketing organization, or to understand value creation for acquirers.  Make sure your company has the appropriate finance and marketing team members on board before raising money.

 

Market Fluctuations – it seems like biotech is always way up or way down and the current market position may influence investors’ desire to jump on-board with these companies.  Founders should be prepared to talk about trends in the industry and why their company will be providing value that either transcends the current market situations, or that the investment cycle is expected to be long enough to stretch beyond any current market challenges.

 

Marketing Strategies for life science companies are going to be significantly different than for tech or other physical product companies.  Some life science companies build an expensive and time consuming strategy that involves hiring and training a sales force who then try to forge relationships with doctors and hospitals in competition with some of the largest and well funded companies in the world.  If the company survives that process and gets to an exit, then the first thing that the acquiring company is going to do is to fire all those salespeople and add the company’s product line to their own and get their own sales people up to speed on marketing it.  So, life science companies should think about how they add value to their acquirers.  Is their value primarily the product itself, the team, the market share, the sales organization, research under way, or something else?  Make sure that you’re not pouring resources into something that won’t create value for your acquirers.  With that being said, companies will need to establish a market presence in order to validate that the product is of interest to customers and will be a success in the market.  This benchmark may be achieved with as few as one thousand sales.  These can be achieved through forging partnerships with sales organizations rather than starting from scratch.

 

Valuation  for life science companies seems to have a significant spread which may be caused by inexperience on the founders’ side, or by the uncertainties in the market.  Companies that want to raise funds quickly should price their shares competitively with other startups and keep in mind that not every startup ends up with a five hundred million dollar exit.  

 

Life Science founders have a lot of opportunity in front of them if they understand their market and how to take advantage of it.  Founders should be prepared to dispel myths and to focus on the clear strategy they have for product development, regulatory strategy, marketing and exit.  These will lead to most investor interest and fastest pathway to funding.  Life science and medical investments currently comprise about 30% of venture capital investment which shows that investors recognize the opportunities that this space brings.  Founders and investors alike should have a clear understanding of the differences between life science and software/technology investments and how to take advantage of them.

 

All companies raising capital should be well versed not only in the specifics of their industry, but should also prepare solid strategies and complete the following steps before starting their fund-raising activities.

Ten Steps for LifeScience Companies to Prepare for Venture Capital

  1. Exit Strategy Canvas – identify comparable transactions in the market for both dollar amount and multiples of revenue.  Identify early, mid and late stage values the company presents to acquirers. Identify who the acquirers are at each stage of the company’s development.
  2. Business Model Canvas – this is the core business strategy document that allows a company to understand their unique value proposition, their customer, the channels used to reach customers, core metrics, partners, and how they spend and make money.  This one-pager is key to understanding the key concepts behind any company.
  3. Strategic Plan – Not your grandpa’s strategic plan, but a two-page document that provides a roadmap from where the company is today through its growth.  This is the difference between success and failure during Q&A with investors and for the company overall!  Research shows that companies with written strategic plans outperform those without plans by 65%.
  4. Go to Market Plan – people take this for granted when they’re heads-down in the science or tech development, but this is the key risk companies face – getting customers to actually buy the product.  Without a strong go to market plan, you’re out of luck with investors who are always concerned about this key risk.
  5. Proforma – you need more than a great idea to raise money, you’ll need to model out your use of funds, needs for capital, revenues and expenses.  A good detailed proforma that is well researched and validated is a must for planning your business and for determining your capital needs and valuation.
  6. Finance Plan – you need to know how much to raise now (this is harder than you think) as well as your future raises between now an exit.  You’ll need to know this to help model your cumulative dilution and to understand what the major milestones are that you’ll need to achieve at each level of funding.
  7. Valuation – let’s make this simple.  You can’t raise money without knowing your valuation, regardless of whether you’re using equity or convertible debt.  Go through five valuation models and play them off of eachother to have a defensible position when it comes time for negotiation.
  8. Term Sheet – this is the key document used in negotiating the deal.  Make sure that you’ve got a term sheet in your pocket before you meet with investors so you have a solid understanding of the key terms and how they’re used in venture deals.  
  9. Executive Summary – When investors ask for information, they’ll want a two-page executive summary and pitch deck.  The executive summary has all the core elements of your company in a concise format that investors can use to determine their interest in moving forward.
  10. Pitch Deck – when you get in front of investors you’ll need a pitch deck to present your information.  Get this done professionally so that you can communicate effectively in a highly competitive capital market.

 

Life science companies can get templates, education and mentor assistance in creating all of these in a two-day BioScience HyperAccelerator hosted by Rockies Venture Club and the Colorado BioScience Association.   The two day workshop is $995.00 per company and includes a one-year membership in the Rockies Venture Club for the primary participant and a free subscription to the IdeaJam platform to help companies securely get feedback and input on their Provisional Patent Application.  Companies using the IdeaJam platform can file patent applications in a fraction of the time and cost of using patent attorneys.

Apply to Join the BioScience HyperAccelerator here ===> https://rockiesventureclub.wildapricot.org/event-2614776

 

The Next Session is August 29-30th in Denver.  Apply by August 22 for preferred admission.

 

Pitchfest 2017: Meet the Companies

Rockies Venture Club (RVC) is turning up the heat for the summer 2017 PitchFest on Tuesday, August 8th at the Denver Metro SBDC! Five companies will be presenting their startups to investors and entrepreneurs alike. PitchFest is one of the most anticipated seasonal events RVC hosts each year for the local startup community.

All are welcome to attend, and may register here. Additionally, the event is available via livestream if you wish to attend virtually. Please check out the following companies that will be pitching for this years event below.

The Food Corridor

The first online marketplace for food businesses to find commercial kitchen space. Food businesses may find and book commercial kitchens, commissaries, processors, co-packers, and food storage spaces. Commercial kitchen owners can more effectively utilize their assets, providing additional revenue streams to commissaries, schools, food banks, churches, restaurants, and more. TFC provides online booking, payment processing, disbursement, and CRM within a seamless, efficient marketplace. Revenues are generated through monthly SaaS subscriptions and platform fees.

BeVisible

A social media career network that connects U.S. Latinos with each other and to companies that are searching for new talent. BeVisible fills a void that established career platforms have not, promoting Latino participation in career platforms. For example, Latinos have the lowest participation rate on LinkedIn of any minority demographic; 18% vs. 28% for African Americans.

BSN Live

A hyper-local, digital, sports network that aims to be the first and only sports network in America that can covers every sports team in the country, every day.

PowerGrow

Provides patented renewable powered greenhouses that can grow 800% more produce per acre, while using 90% less water; while delivering locally grown, organic produce, reducing waste and creating local jobs. This revolution allows growers to farm less land, save water and earn more money, enabling people to eat healthier, waste less, create local jobs, and conserve natural resources PowerGrow is changing the way the world is fed by powering the future of food!

Shotzr

The on-demand way to source imagery for social media marketing. Shotzr targets the growing expansion of social media marketers with their solution, providing legally sourced and locally captured images for marketing.

We look forward to seeing you there!

Can Women be Angel Investors?

Women make up the fastest growing community of angel investors and it’s changing the face of Angel Capital for the better.

Angel groups like Rockies Venture Club have been beating national averages for investing in women and minority led companies with 54% of our portfolio consisting of women and minority led companies vs a national average of just 14%.  But in order to balance the ecosystem it’s important not just to invest in women led companies, but to engage women angels who can help mentor startups and who can gain experience serving on the board of directors of some of the startups they invest in, thus paving the way for increasing the number of women on corporate boards at all levels.

Research shows that companies with women on boards out perform those with no or few women.  Companies wit

RVC Women Investor Network

h the highest percentages of women on their boards outperform their less diverse peers by 66%.  We have certainly seen these trends in our portfolio companies and are committed to developing further diversity in our community.

We have launched the RVC Women’s Investors Network  (WIN), led by Barbara Bauer.  The network has had several well-attended events that focus on angel education and making connections.  The group is based on four principles that play on women’s strengths:

Engagement: Programs that allow people to work together and share wisdom of crowds to make good decisions and great investments.

Give Back: WIN members have years of business experience and they want to be more than just a check – they like to mentor and coach up and coming companies.

Act From Knowledge: Women like to understand the landscape before they jump in and invest.  No more “fake it until you make it” – that can cost thousands for new angel investors!

Education: Classes, workshops and “get to know an angel” events provide deep venture capital knowledge to get WIN members up and going quickly and confidently.

If you’re interested in engaging with the group, volunteering, or just learning more, consider attending the WIN Luncheon at the Angel Capital Summit, Tuesday March 21 on the DU Campus.

Click HERE to register

If you’re interested in learning more about Angel Investing and Venture Capital, you should definitely attend the full Angel Capital Summit.  Tuesday-Wednesday March 21-22 in Denver.

Click HERE for more information and to sign up.

Want to learn more about Rockies Venture Club?  Check us out at www.rockiesventureclub.org

Impact Investing Night 2016

Impact Investing Night 2016: Keynote Speaker

Each Watson semester is an intensive fifteen week program in which scholars receive weekly mentorship and coaching sessions, free international legal support (through a partnership with Thomson Reuters), training in the hard skills and frameworks to take their ideas to the next level, and a community of peers that will last far beyond Watson. We aim to be the Olympic training ground for next generation change makers and you can expect the experience to be both challenging and fun. Below are four key elements of each semester. Speaker Eric Glustrom, Watson University’s founder, will be discussing how to measure the impact of an investment.

dBMEDx is a medical device company waging war against health-care acquired infections . We recently launched the BBS RevolutionTM, a next generation bladder scanner that battles both CAUTI and patient-to-patient transmission while delivering the quadruple aim of better outcomes, lower costs, more satisfied patients and more empowered providers. We are seeking growth capital to support our efforts to exit in 3 – 5 years. We have FDA clearance, CE mark, 5 patents and we’re generating revenue! Learn More Here

Intuitive Innovations delivers products and services for older adults that improve quality of life, independence and safety. Products combine technology and universal design that’s high tech on the inside, intuitive on the outside, and fashionable. Intuitive’s first product, the I Love You Band (I?U) comprises a watch, a PERS (personal emergency response system), and multimodal communication capabilities which collectively improve connectedness while providing peace of mind to loved ones. Learn More Here

Revolution Systems develops and sells the Revolution, a sorting line that is configurable, scale-able, self balancing and upgrade-able. Incumbent suppliers offer specially designed systems on a project basis that are elegant, but expensive and rigid. Revolution Systems’ focus on local communities and businesses, has resulted in an affordable system that can grow and adapt as the needs of the program change. Focus on smaller markets and creation of a flexible product allows us to achieve scale more easily than our competitors, reducing product cost to put recycling within reach of small communities and businesses. Learn More Here

Wave Solar is making an Impact with our Solar Steam Engine. A complete energy system for your home or small commercial building that provides electricity, heat, hot water and air conditioning, all from solar thermal panels plus natural gas. Given the back-up energy, the system will work in bad weather without storage, or work all night long as a back-up generator if the power grid is down. One percent of our systems will be installed for free in schools in third world countries. These systems will be reconfigured to purify dirty water into drinking water, provide a refridgation for a school, and run off garbage as a back-up energy source. Learn More Here

This event is available to be watched via livestream!

Why Venture Capital may not be a Silver Bullet for Startup Funding.

alternatives to venture captialVenture capital is a great solution to many startups’ finance problems, but it’s often not the best solution and, even when it is the best solution, it often works best as a part of a suite of financial solutions rather than a silver bullet that solves everything in one move.

Venture capital, including angel investment, is the most expensive type of capital out there. So why would so many people be intent on going for the most expensive option when others exist?  A typical VC is looking for a return of 60% or greater on their investment – compounded annually.  That means that at three years they want 4X. At five years it’s 10X. At seven years it’s 25X and at 10 years it’s a whopping 100X return on investment.  All of these are 60% compounding returns.

Venture capitalists need big returns to help offset their big risks.  About half of their investments might result in a complete loss of invested capital, so they need to have investments capable of being home runs in order to pay for all the losers.

There are different ways to create a capital strategy for startups who want to both grow fast, but minimize dilution and reduce the cost of capital.  Rather than using just one very expensive type of capital for their startup, they may use a suite of different sources that are appropriate to the phase of development.

Early Stage – Before VC

Early stage companies have many sources of capital available to them, even if they don’t know it.

SBIR (Small Business Innovation Research), Advanced Industries Proof of Concept and many other federal and state grants are available for early research and proof of concept.  Often these are expensive research projects whose risk is much greater than can be justified even for venture capital.  Startups that use these sources of funds can increase their value and decrease their technical risk without any dilution to the founders.

Another source of early stage funding comes from specialty service providers.  Attorneys and CPAs will often defer compensation or work out an equity deal in exchange for early work.  You might be able to get your patent filed for zero out of pocket costs using this kind of deal.

In Revenue

Companies that are in revenue have lots of new non-VC sources of funding available.  Consider accounts receivable finance to cover your rapidly growing need of cash to carry AR through thirty to ninety days before it gets paid.  Some lenders will even lend on purchase orders so you can get the capital you need to buy the components you need to build your product.

If your product is a SaaS (Software as a Service) platform, then your cost of goods is going to be people, not product.  Consider using Equity Compensation for all or part of your payment to your developers.  There are both individuals and development companies who will swap a portion of their compensation for equity.  You’ll need to have a good handle on your valuation, but why not give equity directly to your developers rather than give it to VCs who give you cash which you then turn around and give to developers?

So, there are many more types of finance options available to you than can be described here.  The main point to remember is that you are not required to use just one mode of funding.  Look at all of the available sources and design a suite of solutions that provides the best solution to your situation.

To learn more about how to use creative funding along with venture capital, or instead of it, consider attending the RVC’s Colorado Capital Conference November 15-16, 2016.  If you’re not in Denver on those days, you can register to participate in the conference via live-feed.

More information and registration at www.coloradocapitalconference.org

Colorado Capital Conference

 

 

 

Peter Adams

 

Peter is Executive Director of the Rockies Venture Club, Managing Director of the Rockies Venture Fund and teaches in the Colorado StaVenture Capital for Dummieste University MBA Program.  Peter is co-author of Venture Capital for Dummies, (John Wiley & Sons 2013) Available at Amazon, Barnes and Noble and your local book store.

 

 

 

Attractive Pitch

The first pitch to investors is in many ways the company’s first date. It is the investors first experience with you and your company.  The end goal is to receive a second date. Yet, with many top notch pitches coming through it takes more than just a solid proof of concept and innovative idea to gain interest. Read more

Voice In A Pitch

Rockies Venture Club has a monthly workshop entitled Pitch Academy. Pitch Academy takes entrepreneurs though the art of the pitch. Yes, it is an art. Slide formation, understanding what information needs to be included and general presentation are all touched upon. A key element of any successful pitch is the voice. The voice acts as a hook. Whether excited or coolly confident, the voice grabs, or loses, the audience. Regardless of product or visuals, if the voice is flat there will be minimal interest. Voice elevates a good pitch, to a great one.

Read more

What you need to know about Angel Investor Syndication

There’s a lot to know about angel investing, but the one thing most people miss is how to syndicate a deal.  Almost every angel investment deal in an entrepreneur’s company is a syndication and there’s a lot more to it than just getting a bunch of investors together.   Read more

MailDeck and CCC featured on 9NEWS!!

On Tuesday August, 25th 9NEWS Tech Correspondent Scott Yates discussed MailDeck, the company that was voted at RVC’s Summer PitchFest for having the best pitch and the best investment opportunity. Read more