Angel Funding: Evaluating Your Life Science Venture (Part 2 of 7)

It’s never too early to start planning to sell the company. In fact, before even starting a company you need to visualize how this venture will end. After all, this is the outcome your angels and venture capitalists are waiting for. And they will have strong opinions about when you should sell.

When that time comes, you may be delighted that your company will be sold. However, you should consider the ramifications to your career. You may have invested most of your career in obtaining expertise in a single life science area. After you sell, what rights will you have to participate in this field? Will you continue to be able to expand your knowledge? Will you be able to utilize your expertise? These are essential components of any sales agreement, and it is important that you are comfortable with the outcome.

Regarding the actual sale of the company, typically there are multiple options for obtaining value from the company post-funding cycles. However, for life science companies there are typically very few options. Almost certainly you will seek a strategic sale to a pharmaceutical company. The capitalization requirements and complexity of marketing a novel pharmaceutical or device most rule out an IPO. And without that expertise, obtaining revenue to entice a walking harvest (ongoing payment based on sales) or partial sale are unlikely. Nor is a financial sale to non-life science company likely.

Further, few purchasers can obtain the full value of your vision. On the other hand, large life science corporations are counting on companies such as yours to identify new opportunities, so if the trials go well, you have a valuable product to sell. Of course, there is a chance that trials go poorly and the value of company plummets. Be prepared for the reality that the end result of your venture is Chapter 7, full dissolution of all assets. Not a pretty outcome, but highly likely in a life science venture.

To prepare for eventually selling your company, your goal is to find angels. More importantly, venture capitalists with expertise in this domain are a good end goal since the skills required to sell a company are likely far outside your skill set. Look to investors to obtain expertise and negotiate a favorable sale of the company. Regarding the value obtained, keep in mind that timing a sale is not an exact science. You are going to feel like you either waited too long to sell or have sold too early. You are not seeking the perfect solution, but a solution which meets your financial and developmental needs and goals. Good luck with your planning and good luck with your future venture.

Not every life scientist wants to start a device or pharmaceutical manufacturing company and sell to a major device or drug manufacturer. Perhaps you are interested in a computer/mobile phone application for health purposes. If so, there may be the opportunity to pursue your entrepreneurial interest in parallel with your research. That is, perhaps you don’t have to give up your research career while you are investing the viability of your entrepreneurship interests.

In fact, even for a life scientist interested in marketing a device or pharmaceutical, it may be advantageous to conceive of a technical application to test the waters and develop business and entrepreneurship skills without the complexity of equity arrangements and complex financials. Imagine it as a simple Y-Combinator type training to hone your entrepreneurship credentials.

For any potential enterprise, you need to first:

1. Get your thoughts organized regarding product, customer, customer need, and value added
2. Gather feedback to refine the idea
3. Assess the financial viability regarding costs and competition
4. Develop a plan to market the idea
5. Test the market to see if it is viable

A reward crowdfunding site matches up with these steps:

1. For a life scientist with entrepreneurship interest, a crowdfunding campaign focused on providing a reward versus giving equity is an excellent way to take on Step 1.
2. Once complete, you can easily proceed to Step 2 and present the enterprise concept to others. Your thoughts can be easily inspected and commented on by others to make further improvements and gather support.
3. The process will force you to investigate how much money you need and what you would charge. That’s not a complete financial analysis, but it is a useful part of Step 3.
4. Crowdfunding emphasizes Internet marketing, and for today’s products, social media focused marketing is your most effective strategy to accomplish Step 4.
5. Finally, the site can perform Step 5 where you obtain qualitative and quantitative input as to the value of the potential enterprise.

Photo Credits: Wikipedia user Bizking2u and Wikipedia image Crowdfundingescense.jpg ‎under the Creative Commons Attribution-Share Alike 4.0 International license. 

As a life scientist-entrepreneur, you are well aware of the value of mentors. In the process of education and early training, a life scientist engages with the number of mentors who provide support from the emotional to coaching to specific skills development.

In the life of the company, there are multiple areas that require ongoing support. For example:

• determining a valuation of the enterprise
• developing a marketing strategy
• determining when to seek out guidance and from experts such as accountants and lawyers

At crucial points in career development, scientists receive key input. One framework when evaluating the need for entrepreneurial support is to consider the concept of a value event. In scientific training, one can imagine such an event would be an adviser who recommended classes to take as an undergraduate or a Ph.D. program or MD program which would meet professional and personal needs. In career development of the life scientist, a large number of individuals have guided the life scientist regarding scientific research at various key points. In fact, the decision to pursue an entrepreneurial path is such an event.

The concept of a value event applies equally well to the life scientist embarking on a business career. In business, there are similar milestones including:

• determination of a need for additional funding and the amount of funding to request
• the timing of various funding rounds and the type of investor to seek
• reassessment of team members and the need to alter or enhance the team to meet business goals

Life scientists additionally have value events related to the production of a pharmaceutical or device. These are clearly marked through various stages of clinical trials. The success or failure at these stages will dramatically affect the potential value of the startup venture. It is essential that the investor also understands the implications of such value events. A medical product with negative impact or no demonstrated value cannot ethically be sold. Investors must realize that one cannot market such products even if it is in high demand.

In the life sciences, because of the need for vast capital and marketing expertise, a startup venture will rarely succeed as an independent body. Identify individuals who can assist with the most important event to investors, the sale of the company when the proper time comes. No doubt, the investors will be very interested in participating at this point. However, the entrepreneur must look out for both personal and business interest since the sale of the company may require ongoing effort as an employee or removal from the enterprise altogether. These are dramatic changes that will impact the scientific career of the life scientist-entrepreneur. Picking up a new biomedical path is not the same of as creating a new piece of software.