Module 6 - Early-Stage Life Science Financing: Venture Capital and Investments Flashcards
What are the fundamental for a successful life science ecosystem according to Stephan?
Science driven industry: Strong Science and research is essential
Complex and highly specialized industry –> Requires access to diverse and specialized talent
Medical innovation is costly. Funding required for:
1) Basic research – Scientific discoveries
2) Applied and translational research
3) Product Development and company funding
Professional funding and investors essential to drive success
How is the nordics in regards to life science innovation?
EU Innovation scoreboard: nr. 3!
The Nordics provide a large and increasing number of life science investment opportunities for Eir Ventures
The number of projects and companies with projects in clinical development is increasing in Denmark, Sweden and throughout the region
What is bootstrapping?
“Bootstrapping”
- Cut development costs – underfunding vs. cost efficiency
- Delay development
- Reduce “engagement” with international expertise/CRO’s
- Lack of international engagement –> lack of funding instills a local focus
What is the issue with the nordic ecosystem?
Lack of funding
Only few (6) Dedicated Life science investors exist in the Nordics
Lack of Capital a severe constraint for development of the ecosytem
How can companies navigate this lack of funding?
1) Bootstrapping
2) Alternative funding sources like:
- Funding from public markets –> Stockholm is by far the biggest IPO market in Europe. Smaller markets (i.e. Spotlight) caters to ‘micro-financings’
- Business angels and non specialist investors
- Soft funding/grants
- Crowd funding ?
What is a Venture Capital Fund?
1) Venture Funds invest capital provided by Limited Partners
2) Managed by investment professionals/partners (=general partner)
3) Specializes in specific sectors and business models
What type of venture funds are there?
Types of funds:
1) Closed end fund (10 year)
2) Evergreen fund
3) Strategic venture fund
How does the structure of a VC look?
Limited Partners –> VC Fund + VC Firm.
VC Firm + Limited Partners –> VC Fund
VC Fund –> Investments
How does the General Partners get payed?
General partners paid by management fee + carry
What level of return does VC seek?
Venture funds seek high returns (typically >3x), but accept that some investments will fail
What are general partners?
The investments professionals in the VC Firm, that handles the money from the Limited Partners (Investors)
Why does it matter to have local venture?
Can engage with local biotech ecosystems
Play a key role in building opportunities to international standards
Act as local cornerstone investor
What does early-life science funds require?
Early-stage life science financing requires:
1) Compelling, novel and innovative science
2) Address real unmet medical need
3) Good team and advisors
4) International perspective
What is syndication and why is it good?
A key to success is early syndication. Companies with international syndicates have much higher success rate
Syndication requires a local corner stone investor
What is the role of a specialized VC fund (like one within life science like Eir)?
1) Thorough diligence of science, plans and rationale
2) Challenge Founders, Plans, Management
3) Access to international network
4) Commercial acumen and understanding
What does the Nordic Investor base look like?
Six dedicated specialized Life Science investors based in the Nordics are actively investing
Number of life science investors have declined over the past two decades
Additional investors typically fall in other categories
1) Business Angels
2) Regional Funds
3) Non-specialized investors
What does investors look for?
1) Unique ideas/products addressing unmet needs backed by strong scientific rational and data
2) Reliable pre-clinical models and feasible clinical development path to PoC in human
3) Market accessibility and competitive differentiation
4) Strong patents or patent possibilities
5) Exit potential, e.g. attractiveness for the pharma industry after Ph1 or Ph2
6) Motivated and focused team
7) A plan!
Project/case one - was about? Did it have the requirements for investment?
- Galectin-3/galecto
Checklist:
- Experts in the field (invest in the humans/motivated/focused team)/high caliber management
- Unmet need in cancer + fibrotic disease (like liver, kidney, lung and myocardial) adressed in pre-clinical studies!
Cons:
- Acts upstreams, full modality not understood.
- Unknown if best for cancer or fibrosis
Eir invested in this (now we are at IPO for 100M USD)
Project/case two was about? Did it have the requirements for investment?Area
- Epigenetics/Epitherapeutics - histone de-methylases (KDMs)
Checklist:
- Experts in the field of research
- Big promise in many TA, mostly oncogenes (cancer)
- More of a technology platform than a product (=maybe harder for exit)
- World class science
Cons:
- Undefined team yet, unconcrete utilization of the technology/vaguely defined clinical indication.
- Few KDMs were structurally defined.
- “Drugability of targets, unknown
- Academic founder team without commercial experience (CEO, commercial collaborators and contracts with uni must be found/made)
Novo Seeds invested here, later bought by Gilead for 65Million USD (strong syndicate made for successful funding journey, got a strong management and international advisor team)
Why is syndication important?
- Spreading risk and ownership with the network and skills associated
What is an option deal?
Developing a project to a certain milestone where a venture fund can buy the company or project with a pre-defined deal. Can include a signing fee (to develop the project). Less than half of option-deals are exercised.
What is carry?
That the investment fund has to return the market standard return (8%). Anything above this, the funds get 80% and the venture capital firm get the remaining 20% (often distributed to the general partners - GPs).
Closed funds often have what kind of phases?
An investment phase of around 4-5 years where you can’t invest further afterwards, or have the limit raised.
What is a venture capital fund?
Partners get money from investors with the goal of investing in companies and exiting with a profit.
Management fee to find and manage the portfolio companies. Often see this in sector that are complicated, as you need the expertise from the team.
What is a strategic venture fund?
A fund associated with a specific pharma company (investing towards the strategic eye of the mother company)
What issue do we have in the Nordics in the eco system?
Average early stage VC funding is less than in EU, USA and China
How much venture funding does female founders get in the US?
2% of all VC funding despite owning 38% of businesses.
What kind of questions do male entrepreneurs get?
A promotion orientation style: when quizzing male entrepreneurs, which means they focused on hopes, achievements, advancement, and ideals
What kind of questions do female entrepreneurs get?
A prevention orientation, which is concerned with safety, responsibility, security, and vigilance
An example of a promotion vs. prevention orientation question is?
A promotion question would look into customer acquisition,
whereas a prevention question would inquire about customer retention
What is the issue?
1) Preventive orientation questioned entrepreneurs get less funding.
2) Entrepreneurs answered in the same orientation - perpetuates the cycle of bias.
Fortunately, there’s an actionable silver lining to our findings: If entrepreneurs change how they respond to prevention questions, they may be able to raise more funds
What are typical sources for capital for a startup?
1) Personal Capital
2) Friends and Family
3) Angel Investors
4) Foundations
5) Venture Capital
6) Partnerships
What are VC characteristics?
1) Usually not very early stage investments
2) Substantial capital amounts for substantial ownership
3) Active role in management and development
4) Often specialized
5) Pre-defined investment horizons (driven by funding cycles)
6) Often syndicates
What are corporate VC characteristics?
1) Large established companies making a VC unit
2) Financial and strategic objectives of accessing technologies, markets and exploiting synergies
3) More passive
4) Often offers operational support, access to partners and resources
What is a term sheet?
A summary of the key terms and conditions of an investment.
What does a term sheet contain?
1) Capital structure of the company
2) Governance
3) Mechanisms of the transaction
What are examples of Capital structures of the company
1) Convertible preferred stock: A stock that converts into common stock at a fixed price. Will get dividends before common stock.
2) Dividends: Dividends/payments at certain thresholds or events
3) Liquidation preferences: That preferred stock owners will be paid + accumulated dividends at a merger/aquisition/sale,dissolution etc.
What are examples of Governance in a term sheet
1) Stockholder rights
- Right of refusal
- Tag along right
- Drag along right
2) Protective provisions
What are examples of Mechanisms of the transaction in a term sheet
1) Binding, or non-binding
2) Closing conditions
You often end up with what as a biotech owner?
A small part of a very big cake
What are the stages of venture financing in a biotech company?
1) Start-up or Pre-Seed (Discovery)
2) Seed Capital (Discovery)
3) Early Stage / Series A/B (Pre-clinical/Phase I)
4) Mid-Stage / Development Stage / Series C/D (Phase II/III)
5) Later Stage / Expansion Capital / Series E/F / Outlicencing or acquisition (Phase III)
6) IPO or Acquisition; Exit (NDA/Market) (Phase I/II/III clinical trials and FDA)
Can also utilize bridge financing if in dire need of cash, often expensive though.
Valuation can be done how?
1) Valuation by Market Cap
2) Sunk Cost
3) Comparison based (benchmark)
4) Cash flow based (NPV)
