Every investor looks for great science, a competitive advantage, and a strong management team with relevant experience. With the growing emphasis on acquisitions as the likely exit, several key issues are a priority.
• Has the company identified the first indication for a lead product candidate? If the initial indication taps a niche market that is suitable for a small company, is there a larger potential market opportunity that will interest bigger companies?
• How will the product be reimbursed?
• Is the IP portfolio adequate for larger companies? A bigger pharmaceutical firm wants to see composition patents in key markets around the world.
• Are the clinical endpoints validated? If the company is carving new ground, might investors conclude that this will complicate the regulatory path?
With these elements in place, the opportunities to attract investment can improve dramatically for seed-stage companies. But the effort to identify both available and optimal funding options should also reflect some strategic thinking about potential investors. It is important to review websites including those of portfolio companies to get insights about a fund’s strategy. A few principles are worth noting.
• Investors need to invest their time efficiently. If you don’t have venture funds in your region, target investors who have already made investments in other companies in the sector and in your area. These investors will be better able to accommodate another local investment.
• Venture funds have distinct personalities. Before you knock on any doors, learn about the fund’s investment professionals, including their backgrounds, interests, and existing portfolio, to get a sense of what the team is looking for.
• Understand how much money each fund needs to put to work in a company. Larger funds cannot afford to put only a few million dollars to work. If that’s all you need, look for smaller funds or reposition your development plan to justify an initial investment of $10 million or more.
• Make sure you know a company’s funding cycle. A fund that is about to close is not a good fit for a start-up investment. It’s better to target funds that have had a recent closing.
• Identify the strongest possible industry connections for introductions. A mutual contact that can facilitate an introduction can significantly help to reduce the time to investment.
• Recognize that financing action at this early stage can shape a company’s image for years. The quality of the investor will have a lasting impact on a company’s ability to raise money in the future. Targeting quality investors should be a priority, eclipsing even issues such as valuation.
With more investment dollars trending toward early-stage life science companies and a growing number of specialized funds focused on the sector, it is clear that the climate for entrepreneurs to initiate businesses is better than it has been in the last five years. Understanding how your company fits into the larger financing market is the key to finding the right investor for your business.