Angels Evaluating Your Life Science Venture

From the last blog, you figured out how to get the attention of Angels (or a group of Angels) for your life science venture. The next goal is to receive a favorable evaluation.

An Angel group noted that 86% don't get the chance to make a pitch [Clark Paul, Banks Charlie, Dunbar Matt, Lackey Mac. Perfecting Your Pitch: VentureSouth’s 101 Tips for Pitching to Angel Investors. April 23, 2017]. VC funding is worse probably. Per How does deal flow apply to VC firms?, only 30 of 650 scanned executive summaries will make it to the stage where the VC samples the financials and management; that's 4.6%. You have your work cut out if you want your life science venture to get funded. Keep in mind that there are many funding sources, so the numbers aren't as bleak as that figure would imply.

So how do you increase your chances of funding from a specific Angel?

At the early stage, Angels are looking for evidence of 

1. a value proposition for a life science problem,
2. validity regarding potential clinical impact, and 
3. use of appropriate technology in the implementation 

(see Soenksen Luis R, Yazdi Youseph. Stage-gate process for life sciences and medical innovation investment. Technovation. doi:10.1016/j.technovation.2017.03.003.). Those criteria are probably not a surprise to you.

Is this a hot topic?: Since the focus is the life sciences, consider how hot your topic is. Medicine is not neutral in its attention to a disease. And what is "hot" is not based on scientific fact (e.g., years of life lost, incidence, lifelong prevalence, cost to treat, etc.). If "impact" determined funding then almost all funding would go to prevention and basic science breakthroughs. In comparison, NCI receives more than any other institute at the NIH, over $2B. Cancer wins the prize probably because it is scary. If you want to get funded the topic must be one that an Angel sees as critical. Thankfully Bill Gates has shown light on health issues of 3rd world countries; hopefully, such neglected topics will soon be seen as worthy of investment.

So what is hot right now? Orphan diseases? Biologics? Related to the opioid or obesity epidemic? Zika virus? May sure, your topic is hot. And that you highlight how your topic is hot. And of course, hot topics come and go. Yesterday's "bioterrorism" issue is cold until it becomes hot again when evidence of the use of a biological weapon is demonstrated.

Next consideration is the team, but since we are talking life science, the team has to be more than a competent bunch of folks who can launch a business. You need to have a team that also has mastery over the topic and the competition that is also addressing that problem. If FDA approval is required, in addition to lawyers you need folks skilled in that labyrinthine process. But don't go too crazy with details, it is possible that your venture will be purchased early in the process (per Evaluating Life Science Companies for Investment, 9/6/2016). It is unlikely that an Angel has no life science expertise; don't fudge.

It's about health - and honesty: Outline the upside in both the financial return on investment AND the impact on health; the Angel wants you to achieve positive health outcomes. Finally, the problems of Theranos are fresh on everyone's mind. Be scrupulous in your development and presentation of the product. Any hint of deception and your venture will be in the 86% that go nowhere.

Where will more money come from?: Finally, an Angel understands how complicated a life science venture can be and you will most likely need additional funding. The Angel needs to know that you intend to eventually access additional funding [Styhre Alexander. Valuing and Investing in Life Science Companies. In: Financing Life Science Innovation. Vol Palgrave Macmillan UK; 2015:107-136. doi:10.1057/9781137392480_5.]

Hopefully, with the above, your new venture is on its way to a successful evaluation.

The Startup Process: Sourcing - Evaluating - Valuing - Structuring - Negotiating - Supporting - Harvesting

Reference: Stevenson David Amis-Howard (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.

Angel Funding - Going to the Source

For the next set of blogs, I am going to take on a very different topic.

What if your passion is not to practice medicine but start up a company that can impact health outcomes?

What if what you want to do is to do research and then turn that research into life science business that sells pharmaceuticals and medical devices?

What if you want to launch a health startup with health focus? The possible ways of improving health by altering other components of our health care system are endless. With the rise of precision medicine, there are a plethora of opportunities to provide value through new technology and implementations of technological solutions. [Precision medicine ideas for VCs and angel investors. VentureBeat. October 11, 2015.]

• Perhaps data analysis of EHR data to guide the efficient delivery of care?
• Or a consumer wearable?
• Some useful articles
  • Digital Health – The Solution to Scalable Healthcare Quality
  • How Does a Digital Health Company Stand Out?
  • Population Health Primer
  • Digital Health: Opportunities for Advancing Healthcare

If so, this set of 7 blogs is for you. The blogs specifically focus on early stage angel funding for the life scientist or health-oriented entrepreneur and include the following topics:

1. Sourcing: Put your investment opportunity in a place where angels can find it.
2. Evaluating: Providing an opportunity that appeals to angel investors
3. Valuing: Describing the value you will provide to the angel.
4. Structuring: Organizing an offer that appeals to the investor
5. Negotiating: Working together to finalize an agreement that meets everyone's needs
6. Supporting: Gaining value from the angel beyond funding
7. Harvesting: Providing ROI to the angel.

Sourcing Groups

The first priority is to make sure an angel can find you. Investors seek opportunity so you need to put your opportunity out there. Options include:

A Local Angel Group. The main reason is the comfort level of angels for a nearby venture. For a venture that is location-dependent or dependent on some unique aspect of the local community, this is a perfect match. For a life scientist, this is unlikely to be the case. So the main value is convenient access to the angel as an adviser post-funding and the likelihood that they are more comfortable (and thus more likely to fund) someone close to them geographically.

AngelList Syndicates and Internet Focused Angel Groups. Such angel groups take advantage of the Internet to establish and foster longer-distance relationships and are more logical for an Internet-based business. The point of contact will want to be involved but they probably won't be local. If your product startup is Internet-focused, they are likely to have more comfort with and expertise in products targeting Internet-based solutions and that use the Internet for digital marketing.

Typical means to find single source angel funding. Examples include a convenient family, friend, business associate, accountant, or lawyer. These are still an option so classic face to face networking and promoting you in smaller groups and via Internet presence (e.g., LinkedIn, Facebook) may yield results. But as with most other aspects of society, the value of the Internet and the search engine are quickly eroding this means to find funding for your health-oriented venture.

Health and Medical Focused Angels

The Internet can also direct you more quickly to an individual angel or angel group with a specific focus on the life sciences aware of your venture. Not only are they more interested in what you propose but they most certainly have the connections to grow your company and advice most relevant to your business opportunity. Examples include:

• Individual Medical Devices Angel Investors via AngelList - Links to individual investors although AngelList has other investment opportunities for more passive investors. How to Pitch Your Venture
• AngelMD - Building relationships that spur investment in the companies, innovations, and people charting the future of healthcare. There is no cost to be listed on the AngelMD network. [FAQ]
• Angel Investment Network - Our investors look at all stages of business and across all sectors from genuine start-ups to more established businesses. We currently have 140,130 private investors, family funds, and venture capital funds. [Note: The search engine for investors can easily identify health or medical opportunities. Cost to Expose Venture]
• Life Sciences Angel Network - To help our portfolio companies succeed we need to provide them with funding but also with operational support and an access to a broad network of healthcare investors, key opinion leaders, corporate players and other entrepreneurs
• Life Science Angels - Life Science Angels is sponsored by several premier service organizations. Many offer our membership special services tailored to the life science industries and emerging and startup companies. [Application process requires in-person presentation]
• Mass Medical Angels (MA2) - A seed stage investor group exclusively focused on life science and healthcare investments. [Though I must admit that the website does not inspire confidence that this is a very Internet savvy group.]

If you are excited about a health or medical venture, proceed with the next blogs (coming soon) and get ready to upload your plan and hit the (Internet) road with your ideas.

The Startup Process: Sourcing - Evaluating - Valuing - Structuring - Negotiating - Supporting - Harvesting

Reference: Stevenson David Amis-Howard (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.