In the current investment climate, angels and venture capitalists haven't changed their basic criteria, they're just setting the bar higher. Leading local investors from our recent webinar, Access to Capital: How to get a Term Sheet in Today’s Investment Climate, shared what they’re looking for in life science startups now and how you can stand out from pitch to diligence to final term sheet. Keep reading to learn more about the main takeaways from the webinar.
Securing a term sheet is crucial for seeking startup funding, especially when pitching to angel investors. Angel investors have diverse preferences and expectations. While some groups allocate five minutes for an initial pitch, others might allow up to fifteen minutes. Tailoring your pitch to align with the specific group's format is essential. Investors are particularly interested in your team's ability to execute, the value proposition, and the potential market opportunity.
For startups in complex industries like life sciences, how you present your pitch matters just as much as what you say. Investors need to quickly understand your science, market potential, and why your team is the right one to deliver. Clear, focused content can make all the difference.
A strong, grounding team requires the following:
Investors prioritize teams with relevant industry experience and complementary skills. A balanced team with both scientific and business expertise is crucial. Demonstrating prior accomplishments and a strong commitment to the startup significantly boosts investor confidence.
🔬Read more about top pitch competitions here
A compelling value proposition requires the following:
Clearly articulate the problem your startup is solving and how your solution stands out in the market. Differentiation from existing solutions is key. Providing evidence of customer interviews and market traction can strengthen your cases.
🔬Read more about attracting investors here
A scalable life science startup business model is marked by:
Outline a viable business model with potential for growth and profitability. Investors want to see a well-thought-out customer acquisition strategy and a clear path to revenue generation. Financial projections should be realistic, achievable, and based on solid ground. Be prepared to explain how you arrived at these numbers and how you plan to reach your targets.
Market size and growth potential depend on the following:
Present a realistic addressable market size. Investors will scrutinize these figures, so transparency is crucial. Distinguish between large markets and niche or emerging trends, and explain how your startup plans to capture this opportunity.
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A competitive landscape is contingent on:
Identify key competitors, including emerging startups. Investors are savvy and aware of market trends, so acknowledging both current and potential competitors is important. Highlight your competitive advantage and defensible position, whether through intellectual property, team expertise, or unique market insights.
Financial projections and capital efficiency are dependent on:
Detail how you have used capital so far and your plans for future funds. Investors look for frugality and strategic deployment of resources to achieve critical milestones. They want to understand how you have utilized your capital thus far.
🔬Learn more about what makes an Angel Investor
It is important to keep the following in mind:
Clearly outline both short-term and long-term milestones and explain how these will increase the value of your company. Investors want to see progress towards key milestones that will allow the value of your company to go up. Ensure that what you have achieved so far with the capital you have and upcoming milestones are clearly demonstrated.
Provide a realistic exit strategy. Avoid comparing your life science startup's potential exit with significantly larger companies unless there is a justified basis. Most life science and biotech angel investors seek an exit within a five to seven-year time frame, although this can extend to ten years in some cases.
It is important to keep the following legal structure and compliance guidelines in mind:
Ensure your legal structure, intellectual property, and regulatory compliance are in order. Investors expect transparency and thoroughness in these areas.
Ensure that you utilize the following valuation and deal terms:
Ensure that you have investor-friendly deal terms that are keywords to investors. Ensure that you have a slide dedicated to deal terms that outlines how you will deploy the funds that you raise.
Also keep in mind company culture values, diversity in team and advisor experience, and connections to potential partners, markets, customers, and other investors.
Healthcare startups should have a validated product, clear market opportunity, and a capable team to be competitive for funding. Investors look for evidence of early traction, a scalable business model, and founders with strong industry expertise. Demonstrating progress through non-dilutive funding and realistic revenue goals (like reaching $5 million in five years) can strengthen your position.
For healthcare startups, having at least a prototype or some pilot study validation is often a minimum requirement. For therapeutics, completed animal studies are typically expected. Non-therapeutic startups should aim for commercialization within a two-year horizon.
You should solve a real problem and demonstrate customer validation and adoption studies. A clear business model for revenue generation is essential. Highlight how your solution addresses a real problem and your ability to scale the business to significant revenue levels within a few years. Businesses should have the potential to scale to $20 million in gross revenue in 5 years.
Healthcare investors prefer teams with multiple members due to the complexity of execution. In short, you need more than just one or two full time employees. The CEO and founders should have domain expertise and a deep understanding of the product, customers, and industry. Highlighting non-dilutive funding can validate technology and provide a strong cap table, allowing the team to achieve critical milestones.
🔬Learn about various non-dilutive funding opportunities
Angel investors are typically entrepreneurs, founders, CEOs, and executives, often with a history of successful exits. They possess a deep understanding of the startup landscape and strong networks. Many are part of angel networks or syndicates, enabling them to pool resources and expertise.
Angel investors are savvy investors with a strong network and ties to angel syndication networks (ASN), which is valuable due to the possibility of introducing a startup to other ASNs. Angel investors have an early stake in the startup, and therefore usually want to connect the startup and founder to others to further the success of the venture. They often fund initial and follow up investments, too.
Startups typically apply online, followed by a pre-screening process. If initial interest is shown, a detailed pitch is made to a larger group. Successful pitches lead to due diligence, involving a comprehensive review of the team, technology, IP, operations, and financials.
🔬Read more about places to find Angel Investors!
Prepare a deal room with key documents ready for due diligence. This includes team information, technology details, IP, operational plans, and financial projections. Being well-prepared speeds up the process and demonstrates professionalism.
Some of the following are facets in the process:
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Angel investments range. The average fund investment ranges from $100,000 to $300,000, with individual checks varying based on the startup's requirements (usually $10-$20,000). Valuations for healthcare startups typically range from $5 million to $10 million, with an expected exit multiple of 8x to 20x within five to seven years, which is segment dependent.
Research the angel group's investment philosophy and fund status. Understand their due diligence process and expectations, and where they are in the fund cycle. How much have they deployed? Are they willing to lead? Speaking to portfolio companies can provide valuable insights into the group's support and investment approach. Also, what can they offer outside of Capital?
As a CEO, you are the visionary and strategist of your company. You develop the mission and vision, define competitive advantages, and identify how your company can deliver value to customers while differentiating itself in the market. Establishing a compelling value proposition is crucial to rallying investors and convincing them to invest in your company.
🔬Read more about protecting your IP on a budget!
When evaluating life science startups, many funders focus on three main areas: team, technology, and market. The technology must offer significant advancements rather than incremental improvements, aiming for transformative impact. Market potential is also crucial, with a preference for technologies that can create or dominate large markets.
The diligence process involves two stages: soft diligence and deep diligence. First, the problem and solution statements are assessed, followed by a detailed examination of the team, technology, and market. They also evaluate IP thoroughly, often involving external law firms for deep dives. The goal is to ensure the technology has commercial viability and can be developed into a standalone company rather than just a licensing opportunity.
In the current economic climate, raising capital has become more challenging. VC firms are more cautious, often needing to support existing portfolio companies, leaving less capital for new investments. Startups now need to demonstrate not just a great idea but also execution and traction. This includes hitting key milestones, securing prior funding, winning grants, and showing proof of concept and early customer data.
🔬Read more about funding your nonprofit here
To stand out, startups must clearly articulate their key differentiators and value propositions. They should demonstrate strong execution capabilities, have proof points from prior funding, and showcase customer data and partnerships. In a difficult funding climate, showing capital efficiency and a clear path to revenue is crucial. Additionally, securing multiple term sheets or being in diligence with several VCs can create a sense of urgency and interest among investors.
Navigating the path to securing a term sheet requires a strategic approach, a compelling value proposition, and strong execution. By leveraging the support and expertise of organizations and investor relations, life science startups can enhance their chances of success in the competitive and challenging investment landscape.
Do you have a great company in the bioscience or medtech industry? Do you need wet-lab and/or fabrication space to develop and test your product?
