Healthcare and life science startups have the opportunity to network and engage in salon-style discussions with investors as part of the Ask the Investor sessions. They will be held during the breakfast segments of INVEST on the mornings of Tuesday, May 23 and Wednesday, May 24. Startups need to register to participate.
In an interview, he explained what his firm looks for in life science startups and provided an overview of its investment strategy.
How did you get into life science investment?
Life science opportunities are very difficult for due diligence. There are multiple challenging aspects to life science and investment opportunities. First and foremost, there is the science, which is very difficult to understand. Then you have the entire regulatory path. In the U.S. market there is the payer path — who pays for it? Part of that also is adoption. Then, as you have with every startup, you have the human resource aspect of it. Once you pile on all of these different factors that are critical to the success of the life science startup, it’s very difficult to find investors who understand all of those components and can do the proper diligence. I was talking about this with a bunch of other folks in the life science industry and said, ‘You know, we should really consider starting our own angel group that focuses exclusively on the life sciences and the deep end of the pool of life sciences — that area of the pool that is not otherwise served well by other investors.
We created this group in May 2012. We’re in our 11th year. We have a membership of approximately 50 people and growing and we get together on a monthly basis.
Our members traditionally would come from the Maryland to Massachusetts area, but membership has grown domestically and even some international members are considering joining our group as we invest all over the world.
What’s your criteria for investment?
We’re very picky. There needs to be commercially minded management, people who understand how to monetize the scientific opportunity. None of us are VCs, we’re not interested in jumping in and taking control of the company and managing the company. Until and unless people who understand the commercial path ahead are not only on board but are driving the effort of the company, we will not get involved.
We do expect to see some form of proof of concept. In the case of digital health, you probably also want to see some form of traction. When you talk about therapeutics, you want to see they have established a hypothesis that has some data to support it.
We are not interested in investing in companies that are going to require huge VC rounds in the future. We try to have as our targets, companies that could be what we call Angel friendly that will be able to exit with up to maybe $25 million in funding.
We’re also looking for products that will change the standard of care in markets that are growing and are going to be large.
Tell me about your sidecar fund.
A few years ago, we created what we call a sidecar fund that co-invests with us whenever we invest. This allows people who are laymen, we don’t have the scientific background or the time to do their own due diligence to invest in the same things that we do. The sidecar fund is an external fund that we run, which is for non members. It is a blind and passive fund that basically co invest or indexes our investments and works on an algorithmic basis. So basically, if certain criteria are met, if enough of our members invest in an opportunity, then that sidecar fund automatically co invest with us.
We are now on our second sidecar fund, which is a rolling fund that is constantly receiving and deploying funds. Our first sidecar fund started in 2020 and that’s been fully invested. We hope to be able to have between $5 million and $10 million in funds.
What are a few things that you would like entrepreneurs pitching to your organization to keep front of mind?
I like to tell entrepreneurs to focus on the return, focus on what’s in it for the investors when you present to us.
When you apply to us, your goal is to present to us, receive due diligence and receive the funding. At each stage of those processes, you want to be able to give us enough to go into the next stage. When you present to us, you need to show us that you understand the science and you understand the scientific challenges, you’ve thought enough about them, and have a reasonable solution to them. Show us the value of the opportunity, show us why somebody would want to buy you and why you are an exciting opportunity to invest in.
What are some of the easy fixes that startups can make to improve their pitch to you?
Understand what your strengths are. If you have an area of tremendous unmet need, and you’re able to solve that, then that should be one of your earlier slides in your presentation. You should understand what your strengths are and pitch it appropriately because your goal is to get us really interested.
The market ultimately dictates what the product is that it wants. The sooner you begin to channel the product to the market and not the other way around, the better because the market will always win. The sooner you understand this, the sooner you can begin to focus and mold your product so that it meets the demands of the market. When you start talking to big pharma, find out what kind of data will convince them to acquire you. Once you hear that enough, you can begin to focus your entire commercial path around getting that kind of data.
Pharma is constantly on the lookout for new science. The industry’s business model is evolved to take new science from the outside because it’s cheaper for them to buy something for hundreds of millions of dollars that has already proven itself enough, as opposed to starting their own programs that potentially could fail.
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