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UMKC Innovation Center
March 23, 2017

A Dozen Ways to Fundraise for BioTech Companies

Bill Schmidt, Managing Partner of Cultivation Capital’s Life Science Fund, is optimistic about the future of Life Science investment in St. Louis. He said, “More capital is flowing in St. Louis, with us, BioGenerator, RiverVest Venture Partners, Lewis & Clark Ventures, Ascension Ventures, iSelect Fund, St. Louis Arch Angels, Missouri Technology Corporation and others. And, we are starting to get attention from upmarket VC firms on the coasts, which is great, as our companies are going to need it.”

Cultivation Capital’s Life Sciences fund invests in early-stage companies, primarily in the therapeutics, diagnostics, research tools and reagents, medical devices and healthcare information technology verticals. Schmidt’s basic advice for BioTech companies seeking the next level of funding is to have a great idea that meets an unmet need, which creates value. He suggests that companies need to be able to answer the question, “How did you use your prior funding and what milestones did you achieve with it?” In other words, past behavior dictates future behavior, and if a company has demonstrated the ability to build value in the past, its next capital raise will be much easier.

Here are more tips from Schmidt for life sciences companies going into fundraising:

1. Start with a great team and hire great people. 

As the adage goes, investors will take an “A” team with a “B” idea over a “B” team with an “A” idea every time!

2. Don’t plan to exit from the start.

Run it as though it will be a stand-alone, sustainable business. Don’t run it with the mentality of simply taking it to an exit. Do this and your exit will come.

3. Don’t give up.

Raising capital is hard. Markets are honest and truthful. Something needs to change with your strategy if you are unsuccessful. Go after non-dilutive grant funding whenever possible.

4. Take “smart” money.

Smart money from those that have useful advice, expertise and contacts is hands-on and involved. Take smart money even if it’s under inferior financial terms (within reason, of course).

5. Be capital efficient.

Be prepared to give key hires equity in lieu of market rates for annual compensation. Note that in the event of voluntary resignation, penalties should be harsh – up to and including total loss of equity ownership in the early years.

6. Socialize the idea early and often.

Keep people apprised of your progress, including when you are not raising capital.

7. Network like crazy.

Take in a few key pearls of information from every conversation and illicit feedback from others…it’s the breakfast of champions!

8. Hit milestones on time.

Very few young companies do this and it can set you apart. Hold everyone accountable for everything. 

9. Embrace change in the vision as necessary.

Adapt and pivot, including with staff. Transition from researchers or developers to operators to commercially focused teams as your company grows up. 

10. Understand the audience.

It may even be the FDA early on (and no one else).

11. Produce early data.

Promising animal studies are great, but will they be translational to humans?

12. Show your growth.

For Healthcare IT, you must have pilot tested your software and converted your pilots to revenue-generating clients. Demonstrating month-over-month growth is critical for engaging a VC. 

(Full article courtesy of EQ) (Photo courtesy of Pixaby)

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