BOSTON – Panelists at Biopharm America debated strategies for early stage financing as they weighed the importance of a prestigious board, the wisdom of small deals by startups with pharma firms, and the likelihood (or not) that angel investors will help make the case with other backers yet to come.
They didn't always agree.
Moderated by Jeffrey Quillen, partner with the law firm Foley Hoag, the talk included forthright tips from speakers. Niles Kumar, of Novo Ventures, urged money-seekers to "know the space infinitely better than the investor at the first meeting. Oftentimes, [entrepreneurs] are so close to the easel that they forgot to think about the competition." Understanding what the nascent company is up against in the marketplace – and expressing as much to would-be funders – "shows a certain level of maturity" and provides assurance that the startup is "not just kicking the can down the road," he said. What's more, evaluating others at work in a given space (to the extent they are known) must be done carefully, since one company described as preclinical might be further along than another that hasn't reached the clinic either, depending on the science and technologies involved.
People in venture capital (VC) "have a great advantage, which is that we see a bunch of stuff, all day every day," Kumar said. "This is what we do." Developing relationships with them "just to get friendly advice" in a "non-pressured, risk-free environment" is a good idea, he said. It might even lead to the VC forking over some cash.
Lizabeth Leveille, head of business development and licensing at Merck Research Laboratories, wasn't so sure about fledglings tipping their hands early to investors, since first impressions are so important and the bio-newbie may not be ready. But, she said, plenty of other potential sources of counsel exist, especially in the Boston area. They can help focus early research when "you're hearing the same things over and over again" from more experienced people. "Take advantage of talking very early" to them, she said, before taking the argument to deep pockets who will make the decisions.
Alicia Irurzun-Lafitte, partner with UCB Ventures, advised preparation of another kind, too. "As you start knocking at the doors of VCs and get your face-to-face meetings, spend time learning about what each VC is doing," she said. "Spend time looking at their active portfolio. If they have already started investing in your space, they have one of your direct competitors in their portfolio. Go with that in mind. You don't want to find that out during the meeting."
When, and whether, to do early deals with pharma firms was another topic. "If you can raise a large amount of capital from institutionals, I would almost suggest you do that [instead]," Kumar said, "because it's not just money given to you [but] comes with a certain amount of expertise and company creation." He conceded that the choice "depends on what kind of technology you have in hand, and what type of capital is available to you at the time, [but] I'm of the opinion that if you think you have something that is going to play well and you can raise enough money, I would say don't do early stage pharma collaborations. It's always dilutive. It's dilutive in intent, it's dilutive in focus." Also, restrictions inevitably come with falling into "the fold of a bear hug of a big company," he pointed out. The pharma firm, for example, might forbid certain research to be published, even though the research might draw more funds for the company.
At early stage, 'it's the science'
Leveille begged to differ. "If you have a platform technology that has multiple opportunities to move forward, multiple targets for example, then partnering with pharma early on one or two targets to help prove that platform is going to be a fast way to get to proof of concept," she said. "You can utilize that data to negotiate the relationship, [saying,] 'I need to be able to provide these data to others so I can talk about what we've done together.' Pharma will work with you and say, 'As long as you don't say XYZ, you can use the data to find more money.'"
Kumar stuck to his guns, deriding platform companies with four-target deals involving small dollars up front and various options for the pharma firm on some candidates but not others. "Frankly, to me that means the management doesn't know what they're doing," he said. "Pick the target, raise the money and go do it. Don't let somebody else tell you the target. I have not seen many of those succeed." In the current environment, he added, "things that should be research projects are starting to become deals."
Quillen also asked about "friends, family and angels" – specifically how involved they should be before institutional investors are pitched. "On a medical device deal, you can still [have them in the mix]," said William Podd, president and director of Landmark Family Office. But "for the life science company, it's all changed," he said. "A seed [financing] now for a life science company can be $10 million. You're not going to get that from friends, family or angels. Those numbers just are not going to work."
On hiring a broker as go-between for financing deals, Irurzun-Lafitte offered flat guidance. "If you don't need to, don't do it," she said. "If you're trying to build a biotech startup, the expectation is that you're good at putting a network together or already have an established network, and you should get introductions through that network. It comes with a little bit of a negative note" to use a broker, "except maybe in a remote geography," she said. Kumar disliked the idea, too.
As for making sure of heavyweights on the board or scientific advisory board ahead of dealmaking, such a strategy might seem salutary. Kumar, though, said a rack of big names "doesn't do much for us" at an early stage. "It's the science."
Biopharm America ended Thursday.