Reaching Out to the Pros
There are many VC firms that specialize in investing in biotechnology and life science companies. To get them to invest in your company, however, you have to meet and impress them. It is at this stage that the quality of your communications and informational materials becomes much more significant.
You need to help investors understand the value of your company and your chances for commercial success. Be sure to have a written business plan and a concise executive summary. If you have never written these before, get a consultant who can help you.
VCs will rate the strength of your technology, intellectual property, development plan, and your management team. Ironically, often they want proof that you could survive without their backing. They see themselves as investors not lifelines. In practice this often means that they will turn you down the first time you see them but may become interested a year later if you return after having made good progress.
Once you generate some interest among a group of VCs, you will typically need a lead VC to negotiate terms and to help bring in other investors to fill out the financing round. Without a lead, most VC deals cannot proceed.
The lead VC will move forward in developing the term sheet for the deal. VCs will want to set terms that favor their interests and reduce their risk. You will need to negotiate effectively. Some issues to keep in mind at this stage are provisions related to dilution in the event of future financings, terms related to an IPO including dividend and liquidation procedures, and what happens if the company is sold.
You might also need to bargain on VC involvement in your board of directors. It is essential that you use a lawyer who has successfully negotiated all these issues and more.
Remember also that VCs will be thinking about their exit strategy from your company even before the deal is executed. They want to make a return on their investment and get out one way or another. You need to position your early decisions so that your company remains well capitalized until your next financing option. You never want to be acting out of desperation when making such arrangements. The best time to raise money is when you don’t need it.