Getting Funded

Earlier this week life science entrepreneurs and life science professionals all gathered at Nutter McClennen and Fish for a half-day bootcamp that was an intense study of everything a life science company needs to know to get started in business.

Topics ranged from building the business model to protecting your IP. For a taste of what our Venture Fast Tracks are like you can see the short video clip below. In the spring we will be hosting another Venture Fast Track that focuses on all high growth startups.

Are you a life science company and missed out on the Fast Track? Join us next week for Accounting 101 for Life Science Companies hosted by Moody Famiglietti & Andronico in Nutter’s offices.

This was originally posted on April 19 by Micah Rosenbloom on his blog. View the original post here

Timing is everything – especially when it comes to raising a round of capital. My Founder Collective colleague Eric Paleyand I discuss (and debate) it often. Here are some observations having been an advisor to two recent TechStars companies and co-founder to three start-ups.

Be weary of the artificial timeline

Both Brontes and Novophage are classic university ventures. They started in labs, later received university and government funding (Deshpande Center, BU’s office of Tech Development).Both companies went on to win or place in the finals of highly regarded business plan competitions at Harvard, MIT, Duke, etc. It seemed opportune time to raise capital, but the businesses were still not ready. While business plan competitions are excellent catalysts for founding teams, and useful for gathering feedback, they do not ensure that a business is ready to launch (even so for winners/finalists).

Any process that sets an artificial timeline – expiration of government or university funding, graduating from school, a business plan competition or the conclusion of an incubator program does not inherently mean it is time to raise money. All businesses need to incubate at their own pace. Early market pivots, prototype development and building the founding team should generally happen on the founder’s nickel.

Fundraising = acceleration not inertia

All too often entrepreneurs approach fundraising as the start of the venture. This attitude often leads to disappointment. A business should be operating as a regular business – with the makings of a culture, meeting routine and infrastructure (Novophage had 6 gigs of in its Dropbox before fundraising)!

Capital is invested to accelerate a business that has initial momentum but has reached a point where only money can get the company to the next accretive, and risk-reducing, milestone. VCs use the terms “traction” flippantly but in essence what investors want to see is momentum before the fundraising. At Brontes, we needed a clear market focus (dentistry) and industry advocates before we were really ready for a Series A raise.

But strike while the iron is hot …

Having said all this, timing truly is everything. The investment community is momentum driven, just like the stock market. You’ve got to have a nose for when the timing’s right. A strong signal from a VC often suggests its time to talk to many and leverage the interest to terms sheets. If your segment is “hot,” find those pre-disposed investing actively in the segment you’re in.

In the end, the sequencing of fundraising often has a significant bearing on the outcome of the process.

Micah Rosenbloom is the Chairman and CEO of Novophage. If you want to hear more from Micah he will be a panelist during the Life Science Venture Fast Track on November 8, 2011. Early bird ends October 26 so so get your tickets now.

By Marielle Segarra of CFO.com, reprinted with permission from this May 13th post.

A young company looking for outside funding won’t get very far without a well-crafted pitch. And pitching to investors doesn’t just mean showing them a raft of numbers; it also requires skillful storytelling. “The biggest challenge is distilling [the pitch] down to something that’s irresistibly compelling,” said Greg Erman, a serial entrepreneur who has founded six medical-technology companies, at a recent conference held by Boston-based The Capital Network, focusing on fundraising for life science startups.

A compelling pitch is especially important for seed-stage companies these days, given current trends in the venture capital market. Although first-time financings by venture firms in 2010 were up about 30% from 2009 — with more than $4 billion going to about 1,000 companies — the flow of funds going to seed-stage firms declined by 2%, according to the Moneytree Report by PricewaterhouseCoopers and the National Venture Capital Association.

Similarly, angel investors poured $20.1 billion into growing companies in 2010, an increase of 14% over 2009, but reduced seed-stage investments by 4%, according to the Center on Venture Research at the University of New Hampshire’s Whittemore School of Business.

Erman was one of several experts who talked about creating and delivering a successful pitch at The Capital Network’s Life Science Venture Fast Track. Here, distilled from their discussion, are five tips for talking to investors:

1. Don’t cold-call potential investors. Use your network instead to connect with angels or venture capitalists. “The first priority in approaching any investor is to have a credible referral,” Erman said. This person should know “enough about the entrepreneur and the business to be able to offer recommendations that are authentic.” If an investor allows electronic submissions, entrepreneurs should submit a plan and try to reach out through a referral.

Read the rest of this entry →

Leslie Williams is a member of The Capital Network’s Board of Directors.

From this original post by Mass High Tech.

Born from research in Australia, new Cambridge startup ImmusanT Inc. has launched to commercialize a therapy that aims to treat celiac disease like a simple allergy with regular injections of a therapy.

According to Leslie J. Williams, founder, president and CEO of ImmusanT, what attracted her to the core concepts behind the company was “the science – the simplicity and the elegance of the science.” That science came from Nexpep Pty. Ltd., based in Melbourne, Australia, which had been founded by Bob Anderson, a gastroenterologist and an expert in immunology and clinical management of celiac disease at The Walter and Eliza Hall Institute of Medical Research.

Williams was contacted by Anderson when he was in Melbourne’s sister city of Boston doing a lecture tour, as someone who had been recommended to him for her expertise on bringing Nexpep into the U.S. market. What was planned to be a one hour lunch turned into three, Williams said, and she and Anderson began plans to make Nexpep an American company.

That led to the founding of ImmusanT in December, which then acquired the assets of Nexpep after landing an unspecified amount of seed funding from “high net worth individuals,” Williams said. She did say that the seed funding could possibly go to as high as $1 million, before the company would need to land a planned Series A venture capital round.

Read the rest of this entry →

By Bonnie Fendrock, President and CEO of Hepregen Corporation, a Massachusetts-based company that is developing bioengineered solutions for drug development, including a platform for advanced toxicity screening and drug discovery. Read more about Hepregen.

In 2008, when our team was in the early stages of starting Hepregen Corporation, TCN’s programs offered a myriad of relevant topics faced by start-up companies. We had assembled a founding team with core technology to be licensed from MIT. As CEO, I attended programs and met individuals who furthered my understanding of the implications of different financing strategies. Since we had several different business models that could be pursued, it was important that we understand the upside as well as the downside of the financing options to support each model. At every event, I gained additional insight and perspective to issues relevant to early company formation. As we headed into the Series A fund raising process, I found that we had addressed and resolved many of the questions that arise during financing as a result of my participation in TCN’s programs.

Since closing the $5M round of Series A financing from Battelle Ventures in July 2008, we have grown to 12 full time employees based in Medford, MA. We are partnering with more than a dozen pharmaceutical companies to validate Hepregen’s technology platform, HepatoPac^TM , a highly predictive liver model to assess drug safety. We are working towards commercial agreements with several major pharmaceutical companies with the goal of reaching profitability by the end of 2012.

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TCN is proud to have contributed to Hepregen’s success in raising capital. Consider purchasing a TCN Season Pass to take advantage of TCN’s programs at a discounted rate.

By Lauren Celano, Founder and CEO of Propel Careers (a TCN sponsor)

On October 26^th 2010, I attended a TCN Life Sciences Breakfast: Opportunities, Challenges and Traps for the Unwary. I wanted to learn about how early stage life sciences companies can negotiate and leverage interests in their Intellectual Property (IP).

I was impressed with the panel of experts:

• James McArthur, Chief Scientific Officer, Synovex Corporation (Entrepreneur)
• Steve Gullans, PhD, Managing Director, Excel Venture Management (Venture Capitalists)
• Paul Sweeney, Partner, Foley Hoag LLP (Lawyer)
• Bob Creeden, Managing Partner, Partners Innovation Fund (Moderator)

Throughout the panel discussion a number of interesting themes emerged:

1. IP is Essential to Raising Capital: Companies should properly document their IP to protect their research, since the state of a company’s IP protection can have a big impact on how their technology or assets are perceived. Investors will do thorough due diligence on the IP and a lack of faith in a company’s IP is one of the easiest ways to stop a deal. Companies with a strong IP strategy can enhance the probability of success. IP is critical to the valuation and eventual monetization of technology-intensive companies and can often directly translate to an exit. One exception to the IP rule is IT- and service-based companies which are likely to be valued more on their revenue base than on their IP.

2. Challenges of In-licensing: Challenges of in-licensing technology often arise from differences in expectations for upfront costs, annual payments, or royalties between the licensee (i.e. tech transfer office) and the in-licensor. This can be due to differences in the perceived value of a patent, expectations to protect and, if needed, prosecute claims, or lack of trust between the parties. In order to increase the probability of a successful negotiation, both parties should do their due diligence and start with reasonable expectations, lay out objectives and limitations, and focus on the end goal. For those companies looking to license or sell their IP to a large pharma/med device company, realize that these latter companies have tremendous resources to confirm your IP value. Having a clear understanding of the organizations and people at the other end of the table should assist in negotiations.

3. Ensure You Know Who Owns the IP: Since IP is the lifeblood of most technology based companies, failure to ensure ownership of the IP could compromise the viability and success of the company. In seeking to protect their IP, companies should make certain that all research and data generated through collaborations with CRO’s or academic institutions are owned by the company. If you are a researcher working at an institution that receives federal funding, familiarize yourself with the Bayh-Dole Act which often gives ownership of IP to the university rather than the researcher. Companies should implement written agreements to protect ownership rights. Always use a CDA/NDA before disclosing anything to employees, consultants, and third parties. Once exception here is that many sophisticated investors won’t sign NDA’s – but don’t worry, this is standard industry practice. As a licensee, be aware of the potential conflict between publication and protection: in Europe companies need to be protected before disclosing anything while in the US companies have one year to file after disclosing information.

4. Read the Patent Literature to Understand the Space You Are Working In: This may seem simple, but some companies and individuals don’t do a thorough job ensuring that they understand the entire IP landscape around their technology. Read the patent literature to ensure that there is not something already protected in the space you’re working in. As I mentioned earlier, an investor’s lack of faith in your company’s IP is one of the fastest ways to stop a deal.

5. Patents Do Not Mean Automatic Cash Flow: Just because you have a patent, doesn’t mean you’re going to become wealthy. Very few patents actually translate into a substantial technology breakthrough which translates into a large revenue/royalty steam. Most patents see value at years 15-18 and this knowledge is an important consideration for someone looking to gain financial value from their patent. Make sure you find strategic partners who also see the potential value in developing the assets under patent from year one to years 15-18.

6. Understand License Agreements: Ensure you know what terms you are committing to in licensing agreements since these agreements will have an impact on your company as it develops. For example, some agreements include a first of right refusal or a sub-license approval which could complicate future financing negotiations. A sub-license approval requires you to get the approval of the institution before licensing the technology. Also be aware of payment provisions which may include upfront payments, minimum annual payments, sales based royalties, milestone royalties, and royalty stacking. In particular royalty stacking can make situations complicated and can undermine the value of the patent’s backend royalty stream.

In general, the key to smart IP Licensing is doing your homework! Make sure you understand who all the players are and where their interests lie. It is also imperative that you work with a lawyer who is familiar with these topics, such as TCN sponsors Foley Hoag and Bingham McCutchen. The cost of being informed will ensure that you are protecting your IP and building a strategic company!

If you have any comments, please leave them below! For more information about TCN, visit www.thecapitalnetwork.org.