L10 Funding your biotech venture Flashcards
VC
Venture Capitalists = investors at early stage
- Help start companies
- High risk, high return
- Don’t invest in established companies
- Invest in companies that could be the next Facebook or Tesla, invest in “crazy” ideas
Need someone who’s done it before and interested in investing in it to start up a company from a good idea
What do VC do?
see onenote
- entrusted to manage other people’s money
- seeking to make 3-5x capital gain and an IRR (internal rate of return) >20%
- each investment is high risk, high reward
- many investee companies will fail, those that success must give large pay-off
General partner + limited partners = VC fund => investee
For a VC to make its own returns
- need to exit portfolio within life cycle of the fund
- ensure that it can provide a return to its LPs (limited partners?), at a pre-agreed return rate of X% per year (often compounding interest)
- achieve a return beyond a pre-agreed hurdle, to be able to participate in profit shares
Essentially VC are looking to buy low, sell high (low risk, high returns) - how do they do this?
See onenote
Only a few things allow that to occur
- hidden/unrecognised value
- risk
In lifescience VC typically restrict themselves to just a few types of risks
- technical, primarily
- Invest in technical risk, regulatory risk e.g. Invest in the possibility that your compound/polymer is good enough that the clinical trials can progress
- try to avoid or mitigate other types of risks (e.g. regulatory, market, execution)
Value creation is fundamental to every VC when evaluating opportunities
Sources of funding - 6
- grants
- banks
- family, friends, not unusual in start-up phase
- angel investors, high net-worth
- strategic investors
- venture capital
Venture money can be expensive
Investors money that they put into Brandon Capital also accumulate compounding interest, Brandon Capital has to make sure they make enough money to pay them back
How to ensure Brandon Capital can pay them back:
- Invest in product that is further along in the development phase so it sells quicker, compounding interest is a lot smaller when the compounding period is shorter
What do VCs look for in a deal?
see own onenote side notes
- fantastic science
- unique point of difference
- strong IP
- team
- clear path to exit
Start with the end in mind - the exit, return on investment
most investments fail (<1% make it to a patient)
- 25% of early stage programs fail
- 40-60% fail in phase 2 clinical trials
investor must return >5 times their money on an upfront payment to make a profit across the portfolio
is the exit going to be big enough?
Target product profile
- how will this tech address unmet needs in this indication?
- how will patient benefit?
- what will it claim on the label?
Payors
- how will it be reimbursed?
- is there currently a cost code? (A method of grouping individualcostsbased on their nature or function)
- positive health economics?
Healthcare reimbursement
Healthcare reimbursement describes the payment that your hospital, doctor, diagnostic facility, or other healthcare providers receive for giving you a medical service.
Often, your health insurer or a government payer covers the cost of all or part of your health care.
Providers
- can the doc change $ for this?
- does it fit with clinical management?
- will it be adopted?
Partners
- why will they buy?
- when will they buy?
- how much?
- how do they make money?
- does it fit with current strategy?
- are there multiple acquirers?
The Exit - a path to exit
what does the company need to do to reach viable exit points?
- how much will it cost?
- how long will it take?
what are the major risks?
- go/no go decision points
what is the regulatory path and associated hurdles/milestones and clinical outcomes/endpoints?
Team
- does the team have the requisite skills and experience?
- can the team achieve the milestones in the development plan?
- what and when will additional human resources be required?
- can we all work together?
Strong IP
- What is the IP position?
- what claims are likely to be achieved?
- will it protect the competitive advantage?
- what are the potential “work arounds”?
- will it have value to an acquirer?
Unique point of difference
Why is this tech/opportunity different to all competitors? what makes it unique?
- MoA? First in class?
- best in class? if so, why?
why is it going to be the best option when compared to competitors in the target patient group? is it actually clinically relevant?
what solutions are competitors developing?
- main MoA
- SWOTs (strength, weakness, opportunity, threats
why will your idea win over others?
Fantastic science
new drug targets or approaches (devices) key in treating diseases with compelling supporting biology
- field has world leading peer reviewed papers (founders and/or others)
- clinical association/validation
new compositions or the potential for new compositions:
- prototype device or
- biologics and/or “drug like” compounds
that can be developed into new drugs/devices e.g. IP
Standard VC term sheet
a term sheet if an offer to invest in a company (or to start a company)
used by all investors: VCs, angels, private equity, strategic investors
provides concise summary of the terms of an investment
- intended as an outline only
- provides a negotiating document to see if a deal can be done
term sheets provide road map for legal documentation
generally non-binding
Info
- amount of investment, tranching
- valuation
- form of investment
- liquidation preference, qualifying exit
- governance: board composition, preference shareholder approvals
- IP license agreement/research agreement
Valuation
valuation = pre-money = how much is the idea worth?
Standard VS term sheet: valuation
see onenote and side notes
Case studies - do we invest?
see onenote slides
How do you approach a VC?
see onenote slides
- identify VC fund you want to target
- do not cold call, find a way to get an introduction
- prepare your pitch
- do not laugh if we ask if you’d invest your money
- agree on your key message before approaching VCs
- we are not coy, we will ask you…4 questions
- be prepared for due diligence
- be prepared to defend your thesis but also be willing to take feedback
- be prepared for a “no” but could become a “maybe”
- what are the critical elements to converting “no” to a “maybe”
- how you handle feedback is often part of your due diligence process
