Summary:
VCs talking about current investment climate in life sciences (IPOs vs M&A) and describing investment approach and requirements. Need for big ideas, IP and strong management team. Also includes some business plan tips. (Published: 06/08)
Notes:
- investing in life sciences has changed over last few years
- used to be enough to have IP on a gene or a new method to form a company
- no longer sufficient
- venture funds trying to lessen risk in a less certain market
- big movement away from funding academic innovation
- funds pursuing lower risk approaches
- eg. spin-out drugs from pharma companies
- yet despite these changes, VCs still looking for the next great idea
- VC capital attracted by life sciences has increased:
- as long as there's an exit strategy, interest will continue
- life sciences IPO market has been pretty bad
- M&A market more interesting
- pharmaceutical and medical device industries continue to acquire small companies and are paying pretty strong prices for them
- question about how long this will continue
- if it starts to drop of, then there's really rough times ahead for biotech industry
- VC requirements
- big ideas
- not incremental approaches
- got to really open a new way of thinking about a problem
- risky is OK, just has to be very bold
- intellectual property
- idea has to be able to be covered by IP rights
- want a technology that company can protect
- so investors can recoup or expand upon funds put into creating the product
- VCs can help out with protection
- strength of management team
- lot of energy, creativity and skill
- some early stage VCs will set a management team up
- VC approach
- sources: looking at business plans, scouring literature, contacts
- some begin with an unmet need and subsequently hunt for a technology
- some start with thinking about the type of company they might want to invest in
- getting going
- from idea to point where more funding is needed: ~1.5 years
- first step: talking science
- learning about the science for months
- educating oneselves, with company's help, about:
- specifics of the technology in excruciating detail
- company's prospects as a business
- what company is going to require in order to be succesful
- building financial model
- tries to take needs and future plans of the potential customers into account (e.g. pharmaceutical or medical device companies)
- helps investors assess how much funding the company will need
- molding the mission of the company
- taking scope of the whole field, especially competitors
- company should ideally have a lot of different projects going on that are independent to spread the risk
- need to think big about the opporunity
- people
- VC will find CEO and others to run the company
- investors become members of the board
- match-making and recruiting people to run the company
- business plan best practices
- being bold
- need to think big; academics often think too small
- has to be a big thing
- cannot be incremental
- assembling the best minds
- big names in management section, if possible
- big impact on investors if the leading people in the world are somehow involved
- thinking broadly
- take in full scope when describing market and competitive environment
- many startup don't understand the full range of competitors
- place yourself in shoes of potential customers:
- what would they want and where else can they go to fulfill that need
- don't define competition too narrowly
- being realistic
- when comparing company with other succesful companies, don't focus solely on the exceptional successes
- people need to understand what is more likely the average outcome for a company
- build a model based on hitting the average outcome as opposed to hitting the exceptional outcome
