As capital-intensive ventures, life sciences startups often turn to investors to fund their work. These investors may be venture capital firms, angel investors, corporate venture funds, etc. Regardless of the type of investor, fundraising as a startup life sciences company can be difficult, especially for a first-time entrepreneur. Determining how much money to raise, planning how it will be used, creating a strong pitch deck, and finding appropriate investors are time-consuming initial tasks. (For a guide on finding investors via online platforms, read Where to Find Life Science Investors.)
The next step can make or break a fundraising effort: engaging the investor. The proverbial “first impression” can be a nerve-wrecking obstacle to a startup’s goals. However, with some guidance, an entrepreneur can develop a beneficial strategy for engaging with investors. The best guidance comes directly from the source—an investor! Read on to hear from Dr. Llewellyn Cox, General Partner at MarsBioVC, as he describes his and others’ views on investor engagement, plus smart strategies that entrepreneurs can employ.
Intro to Fundraising Strategy
Entrepreneurs need to be strategic in their fundraising approach. Research the investors in your space: check out their websites, read what they say about how they invest, and most of all check out their portfolio. Most VCs are relatively targeted - they only invest in a small number of industries, or even more specifically within an industry.
Three key questions that should all be a definitive “YES” before you approach a VC are:
- Do they invest in the industry segment my company aims to enter? Pitching a small molecule drug to an investor who only invests in medical devices is a waste of both of your time.
- Do they invest at the right stage of development? There is a huge variety of investors at all stages of company growth, but many are focused on a particular stage (seed, series A, B, etc.).
- Do they invest in companies that look like mine? How big are (were) their current portfolio companies, where are they located, and are they addressing solutions for similar customers?
If there are companies that you admire, look up who invested in them (it’s probably on their website). Early-stage VCs in particular are often drawn to a particular type of company culture or founder type. It is a cliche that VCs invest in founders over technology, but it’s usually true. The biggest determinant of success or failure of a startup is the leadership of its founders, and therefore it is the team that occupies a significant amount of the investors’ focus as we assess your company.
Spending time researching investors and targeting your approach to those who look like a good mutual fit will save endless time and stress, and will lead to a significantly higher likelihood of success. Once you have identified a firm to target, find out which individual you think is best to reach out to. Many firms have a variety of partners, analysts, and others who each manage a slice of the investment focus. Helpfully, most firms list the individuals on their web page, so make sure to do your homework on the best individual to approach. If in doubt, shoot for the lower levels of the hierarchy rather than the partners/directors for your initial approach. NEVER spam the whole company!
Once you have a shortlist of VCs that you want to target, now what? How does an entrepreneur approach a VC and make an initial pitch? Every investor has their own process, and preferences, but there are some common principles you should consider as you set out to raise capital. Remember a key idiom of VCs regarding startup evaluation: “get to 'No' quickly.” The easiest way to fail at this stage is to irritate the VC or make unnecessary work for them to understand your idea. They will just ditch you and move on to the next email. Be humble, be clear, and be concise.
The Initial Approach: “The warmer the introduction, the higher the likelihood of success.”
“Warm” introductions, where you are introduced to an investor by a mutual acquaintance, are infinitely preferable to “cold” emails. Industry surveys suggest that the chance of receiving a reply from a warm intro are over 50%, whereas a cold email outreach has a success rate of less than 5%. Of course, if you don’t already have a lot of VC friends this might seem like pretty unhelpful advice, but there are a lot of things you can do to leverage a warm intro. This is where effective networking comes in--use the resources of your local biotech community to meet other entrepreneurs, investors, and professionals. Ask them about their fundraising journey and lessons learned. Warm introductions don’t have to come from other VCs! Often, the best introductions come from other founders who know the aspiring entrepreneur (i.e. You) from college/work/social hour. At the least, LinkedIn allows you to identify mutual connections - reach out to your connections that are also “friends” with the VC and ask for an introduction, and you don’t even need to leave your couch!
Most VCs are best approached by email. Some have web forms, but you will still be well-served by a warm intro to a decision-maker ahead of time. Many VCs will respond to cold emails, but without the context of a warm introduction the bar is much higher -- your deck REALLY needs to wow for a cold email approach to work.
From Andrew Fielding of Outcomes Fund:
“I'm totally open to a cold e-mail if it is concise and includes what I need — if it's a possible fit I will reply. My e-mail address is available for those who spend a few minutes looking for it by design, it shows you've spent more than 30 seconds to try to reach out.”
DO NOT COLD CALL ANYONE EVER!
The Pitch: “Just the facts, Ma’am.”
You’ve found your ideal VC partner and your friend/fellow entrepreneur has helpfully made an email introduction. Now what? What’s your ideal approach for this critical first impression?
It starts with your deck. Attach a well-polished deck that clearly outlines the opportunity, team, and strategy. Keep it under 20 slides and attach it to your email as a pdf. The initial determination of whether you are interesting to talk to is primarily based on the team and business model, so make it very clear who you are, what you plan to do, and how that will [eventually] make money.
Keep your email short and tidy--no one wants to read a long essay about how wonderful your company is! Be clear, concise, and stick to the relevant facts:
- Introduce yourself
- If this is a cold approach, explain why you are reaching out to them specifically (is it their investment focus, their interest in similar companies, etc.?) Alice Cheng of Upfront Ventures puts it this way, “I do look across industries but am mainly focused on healthcare, so if it's a cold email I prefer to know why a founder has contacted me specifically.”
- Briefly introduce the product goal. For example “We are creating a device that will cure Type I diabetes”. A long and detailed explanation of the science behind your innovation in the body text of an email is off-putting and demonstrates a lack of focus.
- Briefly outline your goals for this investment round; e.g. “we are raising $1M to perform necessary pre-clinical studies that will enable an IND application to begin clinical trials.” Investors want to know what you plan to do with their money, and the most important aspect of that is what milestones their investment will allow your company to achieve
Remember: if we want to learn more detailed information, we will ask for it. Your goal for this initial interaction is to get a phone call or a meeting where you can discuss your business idea in great detail.
Avoid Common Mistakes
Everybody makes mistakes, and investors are fairly tolerant of startups learning as you go, but there are a number of basic and shockingly common ways that entrepreneurs self-sabotage their outreach to investors. At the least, a poor approach will deny you an opportunity to move forward on an investment. At worst, it can harm your chances of investment from other firms as a bad reputation will precede you. It might seem obvious, but investors talk to other investors, and they share stories--good and bad. Terrible founder stories are, for investors, the hors-d'oeuvres to the main course of sharing interesting investment opportunities.
Always remember VCs are people too. Moreover, they are busy and have only a limited time to review and assess dozens, even hundreds of potential investments. Therefore, succinctness is essential. As Kwame Ulmer of Wavemaker Three-Sixty Health says, one of the biggest mistakes a startup can make is “not clearly and crisply stating the problem and solution.” Additionally, no one likes being given homework so don’t send reams of supplementary materials and papers for them to read without being asked. Investors will eventually get deep into your technology if they are interested in the idea--you can be sure of that--but only if you can pique their interest first.
Don’t underestimate the VC’s intelligence or overestimate their domain expertise. You have to be able explain your idea in easily understandable terms without being condescending. Remember, these people see hundreds of ideas for companies just like yours. They may not have the deep technical knowledge of the particular solution you are offering, but they likely know the market, competitors, partner opportunities, follow-on investors, and possible exit opportunities far better than you do. A good investor is a partner who can add value to your team, so approach them as such.
Don’t Be “That Guy”
There are non-ideal choices, and then there are choices that will send your pitch directly to the recycle bin. These examples come from real situations that I or other investors have experienced:
- Emails that are non-specific or addressed to multiple partners at the firm are spam. They go directly to the recycle bin.
- Sending your calendar link to set up a time to talk or pressuring the investor to set an appointment to meet in person are overkill and way too aggressive.
- Sending one follow-up email after a few days or weeks is ok, but no reply means no. Don’t harass the investors with continual emails or add them to your newsletter/update distribution list without asking first.
- Hard selling / badgering investors / pushing for unreasonably quick answers. Never works, don’t try it. From Ryan Witt of Tech Coast Angels: “Everything is sales. There's a fine-line between selling and over-selling. Try to walk it; be honest when you cross it. Honesty and trust is one of the largest factors to first get right when you're selling. If you start off over-pitching, my guard is up.”
- Sending an unsolicited pitch via LinkedIn message, especially in a space outside of their investment thesis-you’re just advertising that you didn’t do any research.
- If you meet a VC at an event/conference, that can be a great way to establish contact but it has to leave the investor with a positive opinion of you. That means you must respect the fact they are not there specifically to meet you. Introduce yourself briefly, let them know that you have a cool idea you would like to pitch, and ask to send them a follow-up email after the event. Do not try to monopolize their time, accost them for an impromptu pitch session, aggressively insert yourself into their conversations with others, take their photos without permission, or any other of a host of weird antisocial behaviors that are sadly common. Not only will you not get funded, but tales of antisocial behavior are the stuff of VC Twitter snark.
Make It an Easy Yes
Dr. Cox’s advice will help life sciences startups make a good first impression and get that all-important initial meeting with investors. To boil these points down to their most basic level, engaging with investors is about making it as easy as possible for them to say “yes.” Get an introduction from someone they trust, provide them the essential information in a succinct format, and be respectful of them and their time. Do these things, and investors will tend to have a positive opinion of you whether or not they choose to invest, and you’ll avoid becoming fodder for “VC Twitter snark.”