periodic musings about topics of importance to the biopharmaceutical industry
September 17, 2025 – To the Point, Installment Twelve
To the Point is a multi-part series that provides the insightful wisdom of BJC Capital Managing Director, Michael Nowak, an industry veteran with extensive venture capital and hedge fund experience.
Today’s Topic: Can I raise financing for my startup when I’m not in Boston or the Bay Area?
Yes you can, but in such a case traveling to where the money and partners live for face-to-face interactions is that much more critical. Remember, relationships are key to success in all industries and biopharma is no exception.
Especially with early-stage startups proximity is highly valued, and quite meaningful when critical decisions are made on a weekly, if not daily, time scale. Communication among and between the principals involved in the company, and their main supporters in both the corporate and financial world, is critical so that all parties can be aligned and there is no substitute for in-person meetings. Yes, we live in a highly connected world with zoom, email, slack, etc. at our fingertips, all of which enable the convenience of remote dialogues. However, when you combine highly passionate, motivated, driven people with the various pressure points all startups have to endure, the likelihood of misunderstandings, unresolved stresses and conflicts growing into factions, tensions, and sub-optimal teamwork is quite high. Not that this doesn’t happen in person as well. It does. Reliance on remote workers, executives, partners and investors only makes the emergence of these issues more likely.
For biopharma partners and investors, there is a great incentive to establish relationships with and make investments in top quality companies with compelling science regardless of location. We live in a hyper-competitive global economy and more so than ever the best-in-class and first-in-class will win. Biopharma needs differentiated therapies which get to market first to succeed in gaining market share and recognize they must travel and provide technical guidance and support remotely, even if it is more difficult. Likewise, investors know that their most lucrative exits will involve superior therapies that are fastest to market, and so need to remain flexible as well.
So why do so many partnerships and investments originate in Boston, the Bay Area and other biotech hubs? Largely because of their established ecosystems. These regions’ universities and research institutes, together with the private sector companies that arise from the scientific and technological discoveries academia fosters, naturally attract top talent and significant public and private research dollars. So it’s no surprise that large percentage of deals come from those areas. Nevertheless, we have, at least until now, been blessed with a government that has funded quality science and people throughout our country. there is no reason for despair if you are not coastal. If anything, you just need to add “my investor will need to be suitably excited to get on a plane to see me a few times a year” to your list of reasons why you must demand the best from your science and your team. Leave no box unchecked as you prepare to talk to partners and investors. Your bar is just a little higher due to geography.
September 10, 2025 – To the Point, Installment Eleven
Today’s Topic: When should I hire an investment bank to help me raise capital?
As an entrepreneur and CEO of a biotech startup you have multiple roles and jobs you need to perform – one of the most important ones is to raise capital. How and with whom are the key questions I address below.
CEOs of startups have at least 3 full-time sales jobs – the Chief Sales Officer (1) for your product to customers, (2) internally as the company leader to employees, and (3) as the external face of the company to investors. You will typically hire product development experts, CMC, HR, COOs, etc. to conduct the first two jobs under your guidance – doesn’t it make sense to hire a fundraising specialist as well? Not only do investment banks raise capital as a profession, but especially in today’s environment they can explore strategic partnership alternatives available to you which often times now are a requirement to close funding rounds.
Most investments today are a complex mix of structure, terms and conditions, clauses and triggers (milestones and tranches), not to mention various strategic relationships, deals and transactions which can involve partial M&A (sales of assets or rights) as well as forward-looking obligations and rewards. While a good business lawyer is essential, adequate legal representation alone is often not sufficient. More often than not the devil in the details revolves around market, strategy or some other aspect of competitive positioning originating outside the legal framework. The implications of these business decisions are going to be the key determinants of your future maneuverability and exit potential.
The most important aspect of having a third party driving your partnership or fundraising activity is that, beyond bringing additional relationships to you and broadening your reach, you signal to the marketplace that a sense of urgency by partners and investors is warranted and that this opportunity will not be there forever. A banker implements a process and systematic approach intended to engage all relevant parties significantly diminishing potential suitors’ “wait and see” advantage. We’re all human and competition is what drive attractive exits – not to mention investments and partnerships!
Do not be surprised if your lead investor or closest partner is someone you’ve known for a long time – the trust and relationship you’ve built with those individuals is critical to most deals and the banker has done their job well if they drive it to a meaningful conclusion.
Finally, not all investment banks are the same. Many larger banks, including larger boutiques, have a few gray hairs to get your business and farm off the real work to a staff of juniors. This is suboptimal for you as a best case and can be very damaging if the juniors spam the investment universe with your deck and cheapen your currency. The economic model of better-quality banks involves a monthly retainer and a success fee which appropriately balances deal commitment and incentive. Beware of banks that offer to “do the work” without the monthly retainer. Such proposals should be a clear signal for you not to proceed. You will invariably get what you pay for in terms of banker engagement and will end up with a financial obligation extending a year or more regardless of outcome.
September 3, 2025 – To the Point, Installment Ten
Today’s Topic: How should I construct my Board? Why are industry professionals not enough?
What sort of people should you surround yourself with as you embark on your entrepreneurial adventure? Who should be your closest advisors and confidants? And what’s wrong with a Board of fellow scientists and industry professionals?
The short answer – nothing, if you are running a science project – but if you are trying to build a business, and get it financed, you need to have expertise from all the relevant critical disciplines – yes, industry, but also venture finance! Too often we see Boards with scientific leaders, medical doctors both from the patient side and the corporate world – but no one with serious startup, business development and finance experience – this is a big mistake. Having that sort of experience not just close to you, but also there for all the critical decision points along the path of building your company is an invaluable resource. Not only can you sleep better when the inevitable challenges arise because of your access to folks who have been there before and survived, but that gray hair will allow you to get the preparations right for the long dance that happens before a strategic partnership is inked (not to mention its ongoing management). You will want someone who has “been there and done that” next to you.
In addition, when it comes to interfacing with financial investors, wouldn’t you want someone who’s been on the other side of the table and understands both the short term nuances in any financing as well as the long game, on your side? Believe me, you do. Your Board is not supposed to be a collection of like-minded individuals who already share your world view, your perspective on the market and how you’re going to build and finance your business – it is supposed to bring all the relevant experience you and your executive team need to be decisive in making those critical decisions about your company.
Last point, especially for my European friends, internationalize your Board! Too often the Boards I have seen are parochial (with everyone from one region, for example) and exhibit a rather narrow mindset. We live in a hyper-competitive global market and industry. Shouldn’t you have those global perspectives and insights on your Board as you plan to build your business and compete in that market?
Once you complete an institutional financing and VCs start populating your Board you will have additional finance, industry and entrepreneurial talent to draw from, and they will in large part determine who sits on your Board from then on. But while you have full control, get the best, smartest and most diverse folks onboard so you can make the best decisions possible, quickly and in confidence.
August 27, 2025 – To the Point, Installment Nine
Today’s Topic: Why is too much angel, FO or HNW money a problem for institutional investors?
It is an unsaid truism that most institutional investors do not like investing in startups that have already taken “too much” angel, family office (FO) or HNW (high net worth) money, but why is that? And how much is “too much” given the necessity of raising some non-government funds to get your company started?
To be honest, this lack of enthusiasm regarding co-investors holds true on both sides of the equation. Many angels, FOs and HNWs have had bad experiences with larger institutional investors cramming them down in subsequent investment rounds, removing certain protective rights, and taking other actions that create an (understandable) lack of trust. VCs, likewise, don’t trust angel investors and the like, fearful that, often based on prior experience, considerations important to these groups related to future financings, valuations and exits will conflict with their own, hindering the institutional investors’ ability to act as they believe appropriate. So no love is lost on either side (albeit strong prior relationships among the various parties can dramatically improve the equation). What is an entrepreneur to do?
Besides the obvious “take the money” when and where you can get it, an entrepreneur should, as much as possible, limit the amount of angel money raised to less than $10 million while also attempting to keep the cap table as clean as possible. Ideally, all non-institutional investors should be included under one special purpose vehicle. Moreover, if the discounts off of future financings required by the angels, FOs and HNWs – such as that built into SAFE notes – are excessive, the valuation too high, or if these groups have control provisions that can prevent future financings (in case they find the terms unacceptable) – angel dollars are likely to be the last capital you ever see. Furthermore, limiting yourself to angel money becomes problematic and more complicated if additional investment is required as these investors generally lack the capital required for significant follow on commitments. This is where a good, professional law firm with solid VC experience, and a Board member or advisor with solid venture financing experience, is critical to your survival.
Ultimately, your financing future invariably lies with institutional investors. They manage funds professionally and write the large checks. The biggest issue VCs have with non-institutional investors such as angels is uncertainty. Angels may or may not act in a rational or predictable manner compared to other institutional investors, and that’s a massive risk. Your angel investors must recognize this and not require terms or conditions that are not market or that give them control over your future – for your benefit and for theirs.
August 13, 2025 – To the Point, Installment Eight
Today’s Topic: What’s the difference between pitching a VC and a hedge fund?
VCs and HFs (hedge funds) both fall under the LP investment umbrella known as Alternative Investments (together with PE – Private Equity). Although you hear a lot about venture capital, in reality it is a very small sliver (single digit %) of this asset class which is dominated by hedge funds (a pretty way of saying unregulated capital) and private equity (cash flowing companies – in other words positive revenue and EBITDA!). And the whole class of Alternative Investments is a small fraction (< 10%) of the whole investment universe, which is predominantly stocks, bonds, commodities, etc.
VCs and HFs have different mandates and you need to know the particulars for each fund as well as asset type to be successful in your pitch. The structure of venture capital funds tends to be more rigid: often venture investments embrace longer time horizons – the capital invested in a VC fund is tied up for an extended period of time, typically 10 years – enabling a higher scientific risk, earlier-stage appetite. VCs are typically minority investors, although have a preference to invest as part of a syndicate that does have control (i.e. maintain the majority of ownership). That said, many larger funds are now pursuing an “incubator” business model where they own the majority of the company from the start, usually licensing IP directly from the source of the invention and putting in their own management team. Regardless, each fund tends to have its own nuances (along a wide spectrum) and it is best to know their optimal investment structure and approach before you pitch.
Hedge funds tend to have a greater diversity of investment mandates and styles. As mentioned above, HFs are unregulated capital and can choose how they deploy their dollars. Most stay focused on public companies which offer significant liquidity advantages and hence won’t be relevant investors for a small, private, early-stage biotech company. Once funds reach a certain size – approximately $1 B in assets under management), however, some choose to invest in private companies in a search for alpha (higher returns). The preference is, as you would expect, in later-stage companies where participation in a cross-over round for companies looking to go public in the foreseeable future is possible. However, there are some funds, those with a depth of scientific and technical talent as well as an abundance of capital, that set up venture arms or invest a sliver of their AUM in early-stage startups.
HFs tend to have more flexibility in the structures they use and are less stringent regarding investment syndicates, co-investors, timing, etc., but don’t get the wrong message. The mentality of HFs is as aggressive if not more so than VCs and is strongly influenced by their proximity to the public markets. They like to see things move quickly! Moreover, the earlier-stage an investment opportunity the more attractive a strong syndicate with deep pockets and talent is going to be because it allows for the sharing and spreading of risk. For this reason, if HFs chose to participate early, they may very well chose to invest alongside their VC brethren.
In both cases, the same rules apply – a strongly differentiated candidate investment profile and unique capabilities to address a market opportunity where your competitive advantage will make the product dominant – along with the team, its business plan, etc. will remain the common thread that all top-notch investors and strategic partners are going to want to see.
July 30, 2025 – To the Point, Installment Seven
Today’s Topic: What does “I need more pre-clinical / human data” really mean?
It means you are too early for investment, at least from the perspective of that fund or that partner. It may also mean, and indeed likely means, I’m not interested in this investment opportunity, either just now or maybe forever. Unfortunately, there is a tendency among investors to NOT provide meaningful feedback when being pitched an investment opportunity, at least not more than a high level “I need more data” comment. [FYI, always have at least one colleague with you at any investor pitch to take notes and to watch the body language which is often more communicative than the actual words spoken.]
I have heard various reasons for this, from not wanting to upset the entrepreneur so “they’ll come back to me for the next round (if successful)” to just “no time.”
We are in an incredibly risk-averse investment environment in biopharma these days – which translates into a later-stage, in-the-clinic investment appetite among many so-called early-stage VCs. As we’ve discussed before, that translates into many Series As occurring only after significant pharma partnerships and mega-deals that take you not just into human clinical trials but all the way to post-Phase 2 (or even Phase 3) human POC data. If the science is truly exciting and innovative, if the medical innovation is clearly differentiated and compelling – a fund may consider getting in early with some seed funding – but you have to have all the other boxes checked, from top-tier CMO and KOL support, to the right indication, to as much pre-clinical or clinical data as possible through academic, government, foundation or other funding sources.
One last point to keep in mind. Investment is a human endeavor and relationships matter. In other words, it is best to know your future investors for a few years before you need cash from them. They need to see that you have progressed, that you have achieved the milestones you promised, to accept that you are both trustworthy and a formidable scientist and/or business leader. You may actually get actionable feedback and learn what pre-clinical or clinical data an investor really needs if you are just “introducing the company” to an investor or “updating” them on your progress rather than formally pitching them. Establishing initial meetings to build a dialogue that are not investment pitches is highly recommended when the opportunity presents itself at either a conference or when invited for an office visit.
July 29, 2025 – Life science M&A activity at lowest level in over a decade
Across the life science business sectors, M&A activity for the second quarter dropped significantly, down nearly 50% from the prior year and astonishingly down more than 50% from the first quarter this year. What is more remarkable is that M&A activity for the second quarter of 2025, as measured by announced transactions, was the slowest it has been in the past decade, and by our measure, likely the slowest in more than 20 years. This precipitous drop is reflected in the chart provided below.
The myriad of uncertainties created by Donald Trump’s return to the White House, including the administration’s overhaul of the FDA, funding cuts to the CDC, NIH and academic research institutions, RFK’s appointment to HHS, and reductions to Medicaid, the threat of tariffs, China, you name it, have contributed to the sharp decrease in deal activity more recently. Yet the decline seems to be a continuation of the downward trajectory witnessed over the past ten years (with the notable exception of resurgent deal activity during the pandemic). Perhaps it marks a trend toward greater receptivity for strategic partnerships and licensing agreements (often trans-continental arrangements) in contrast to outright acquisitions, but the net result, when coupled with a sharp pullback in IPO and venture capital activity, could be indicative of an industry on the brink of meaningful realignment. Or have we reached a new steady state?
July 18, 2025 – To the Point, Installment Six
Today’s Topic: Why is the feedback I get from venture capitalists inconsistent?
Different sources of capital will often give you different feedback. That’s understood. Why then is the feedback from ostensibly the same class of investors often so different? The quick answer is there is no homogeneity among VCs and the differences in funds, partners and focus often are huge.
Depending on the age of the particular fund, the General Partner may be influenced by significant short-term pressures to invest a certain percentage of the fund’s investable capital (which may or may not fit your raise) on the one hand or monetize current investments and return capital to the fund’s limited partners (“LPs”), the investors in venture and other funds. Moreover, most General Partners have a series of funds under management (different generations denoted by sequential Roman numerals) and their previous successes or failures often color their current investment appetite and approach.
Furthermore, regardless of the fund generation, each investment partner must deal with their own kettle of fish, which is going to influence that partner’s interests and risk tolerance. As such, the attractiveness of your company may have little to do with company specifics instead tied to the status of that partner’s current portfolio. In addition, the current portfolio crisis gauge level (and something is always going on with companies in the portfolio) will have a huge impact on a partner’s receptiveness, mood and ability to provide feedback. Don’t expect the partners in any fund to be best friends with each other (more often are fierce competitors with each other), which is why targeting your outreach to the right person in a fund is as important as targeting the right fund.
For these reasons, investment funds, General Partners and individual investment partners can all be very different, each under very different time, exit, and investment pressures, often driven by the LPs. The investment mandates of the LPs also change over time. Because their support is the life blood of any private equity or venture fund, one eye of the general partner is always focused on the investors in their fund.
Finally, it is, after all, all about them, the funds. It is not you or your company or how much you think you need. From the fund and partner’s perspective, they need to put a certain amount of money to work to provide a certain targeted return. If what you’re asking for doesn’t fit that calculus, it is not going to be of interest. There are situations where a fund will “work” with an entrepreneur to “right size” the deal. You thought you need $10 million but it is decided that you really need $30 million, all done so that the venture group can fit you into their mandate. The simple math is, regardless of whether a $50 million fund or $1 billion fund is involved, the fund will want to make between ten and twelve investments. That sets the target for investment dollars per portfolio company.
Whether that math makes sense for you and your company is another matter. The reality is that as funds have grown in size, the dollars venture funds need to put to work in each investment has grown concomitantly, yet another reason for the prevalence of megadeals today.
July 2, 2025 – To the Point, Installment Five
Today’s Topic: Prior to clinical trials, do I need a CMO? What about KOLs?
The quick answer is YES! Let me tell you why. The #1 reason my colleagues and I see as a reason to pass on an investment opportunity is “choice of indication.” There is nothing that can be a substitute for having an experienced, savvy Chief Medical Officer (“CMO”) lend his/her input into your target indication and clinical strategy – and it is very apparent when that is missing, especially when one delves into pre-clinical and clinical strategies and plans or is assessing that market attractiveness of your program to potential pharma partners and acquirors.
Guess who the first person we call as an investor if we think the scientific or medical innovation is interesting and we want a more in-depth analysis of the opportunity? It is either CMOs or KOLs in our network, or both if we’re really interested, who are specialists in that indication, modality, biology, etc. So you better have that caliber of talent and support on your side when approaching potential investors and strategic partners.
Many companies balk at the cost of bringing a CMO on board especially prior to clinical trials when there may not be a full-time need. This reflex is certainly understandable, more so in the current belt-tightening state of the industry. Yet, accessing senior-level talent is still achievable, with many CMOs available on a fractional basis or as an advisor. We maintain our CMO network for just this very reason. In truth, it is often the case that early on in a program’s development, you do not need more than an advisor for a few hours a month to help you think through and validate your ultimate development target, including:
- the appropriate target product profile
- the specific patient population targeted
- the choice of disease focus intended to minimize certain of the risks associated with a clinical trial, including size, cost and time
- advantageous regulatory pathways available such as orphan drug designation and other rare disease incentives.
Key Opinion Leaders (“KOLs”) are critical as well Look at any blue-chip, megadeal biotech startup and their long list of KOLs for confirmation. You may question the logic. What is the reason a company needs these names when they have well regarded, top-tier funds behind them? Because success in bringing a therapy to market goes well beyond dollars. A company needs the support of not only patients and doctors but also industry and academic leaders as well as pharmaceutical industry partners successfully navigate across the finish line and secure an FDA approval. Like it or not, these leaders play a critical role starting with the investment decision. Importantly, do not conflate the experiences and insights provided by a CMO with those provided by KOLs. You need them both. These roles are distinct and substitution will get you in trouble.
You need to build upon the capabilities of a seasoned CMO, with the additional support of a large and extended network of KOLs. Compromising with less can prove disastrous.
June 25, 2025 – To the Point, Installment Four
Today’s Topic: How do I prioritize my search for strategic partners?
Strategic partners, which in the life sciences are mainly confined to bio/pharmaceutical companies in therapeutics and tool or device providers in the medtech space, are critical these days to any early-stage company’s growth. With early-stage funding under tremendous stress (even before the string of recent body blows dealt by Washington), the role of strategics goes well beyond providing the traditional benefits of a corporate relationship, and the associated dollars. The external validation of your innovation, from your thesis on how it will work (its mechanism of action), to how it will be administered, and how it will address a valuable and lucrative market opportunity with the ability to compete in that marketplace, is ostensibly more valuable these days than investment dollars. As opposed to investor strategies 20 years ago, a strategic relationship with big pharma or big medtech these days is practically a requirement for Series A funding. So how do I prioritize my outreach to those strategic partners?
First point, you need to be as tight, as well-prepared and professional, if not more, in front of potential partners as with potential investors. They have no time to waste and won’t waste more time with you if you’ve made a bad impression the first time. They’re professional, are in high demand and have a mandate. You need to do your research. Know who you are talking to, what the company is interested in and why your innovation is relevant to them. Be succinct and clear in your communication and listen to their feedback. In reality, the targeting challenge for finding partners and investors is essentially the same as in biology – it’s all about getting to the right people in the right organization that not only will be interested in your value proposition but also can do something about it.
We’ll talk more about why CMO and KOL input into your pitch is critical to you in the next segment but suffice it to say that picking your first indication is one of the most important decisions you will ever make and to a large extent determine your potential strategic partner universe. If there is no alignment, then you are not relevant. Going beyond that, are they interested in early-stage ventures? If there is, is there a research organization that will care about your innovation, and most important for you, provide you with an internal champion? Lacking that champion, it is unlikely you are going to complete a strategic relationship with that company. Likewise on modality, on method of delivery, on geographic determinants like demographics and reimbursement, etc. It’s all about alignment. If you address their needs, prove you are relevant to their future and can find a champion, there is undoubtedly a conversation to be had!
June 18, 2025 – To the Point, Installment Three
Today’s Topic: When should I talk to a venture firm?
(or how the venture industry has devolved over the last 30 years)
This is a question which we are repeatedly asked. The short answer is that VCs should be the last people you talk to. We say this not because they are evil, but because as financial investors their job is, solely, to provide a return to their LPs. For all the talk, they are not signing up to your dream, to your idea of changing the world for the better. The goals of a VC (and similarly for all financial investors) will never align with yours in the long run. To understand this, just do the math. By (admittedly exaggerated) example, if they can sell your company for 2x the original investment in a year their rate of return is 100%. Do that a few times and that venture group is able to raise the next fund. Not only is the firm handily beating the stock market but 95% of their VC colleagues. Most entrepreneurs I know dream of changing the world, having already invested many years if not many decades developing their innovation. As such they would happily spend another 10 yrs building a great company. VCs, in contrast, will exit in a heartbeat, provided the returns are there. Remember, their priority is not to help you build your company, if they can avoid it. They are there to generate a return for their investors, period.
The bottom line is that you should focus on securing funding first from market participants who are more aligned with your vision and that share your desire to ensure your innovation works optimally and will prove a commercial success. As such, prioritize dialogues with potential bio/pharma strategic partners, patients and patient advocacy groups, foundations, societies and sometimes the government (until recently a more reliable source of R&D funding). In addition, certain family offices who may share your therapeutic interests are worth approaching. While certainly these groups have their own interests, those interests are going to align more closely with your long-term goals of realizing the potential of your innovation. Of course, these entities are not charities. Their goal is not to lose money either, and many financing rounds combine strategic and financial investors working together. That is absolutely fine and is a topic to be discussed more, later.
For now, let me briefly outline the devolution of the venture industry which has occurred over the last 30 years ago. Back then there was a fully functioning industry where early, mid, and late-stage VCs all co-existed and operated such that the earlier investor was actually rewarded for business building with increases in valuation and additional capital. While the relationship had elements characterized as carnivorous, it nonetheless worked for the most part. But as more money piled into the venture space, greed also grew, and the phrase “the last money in is the only money that counts” became dominant with early-stage investors and the founding entrepreneurs often getting crammed down rather than rewarded for their hard work and risk reduction. To that end, everyone wanted to become a late-stage investor.
How does one compensate for this shift as an early-stage VC? Two paths have emerged. The first is to build the whole syndicate right from the start, hence why the majority of VC dollars today are being invested in megadeals, which accounted for some 70% to 75% of committed VC capital in 2024. Alternatively (or in combination), the whole company is put in place from the start. With a fund of sufficient size, the company can mature to the point where it can then raise an even larger round at a favorable valuation. Both are common these days. However, the unfortunate consequence my colleagues and I at BJC Capital are witnessing is that many companies funded by smaller VCs, who do not have enough dry powder to execute on either strategy, are failing terribly despite encouraging human clinical data and ongoing trials.
This is biopharmaceutical venture investing today. The old structure of the venture capital industry is gone. VCs do have a place in the world, and some companies are fortunate enough to possess the qualities needed to raise these large mega rounds. Short of that, focus first on companies, foundations and other organizations that will celebrate your success in treating patients first and view financial gain as a secondary benefit of that success. The mandate of VCs is the opposite.
June 10, 2025 – To the Point, Installment Two
Today’s Topic: What are the two most important slides in your VC pitch?
Are you struggling to tell your story to potential investors? Too much to tell in too few slides, or you’re trying to power away with 30 slides in 15 minutes… only to be thrown off track after 5 minutes by VCs pulling you one way or another? Let me clue you in on the two most important slides in your deck (oh, and by the way, they are really just one!). The two slides are:
- A slide detailing what differentiates you; and
- A slide which provides the competitive landscape.
Yes, these two slides are related. They are, in fact, two sides of the same coin.
First, your differentiation slide is the one that highlights your technical innovation, why it is unique and different from everything else out there and why that is an advantage, be it higher efficacy, efficient delivery or lower dosage and toxicity. To be sure, the bar is very high these days. So called “me too” drugs and platforms are very difficult to finance for a good reason. The majority of the market share for a new product or therapy goes to the first one or two market entrants unless there is a significant increase in quality of the product or lowering of its cost, and, clearly, it is better to have both.
This technical differentiation must be supported by your intellectual property, or IP, either granted or filed, with sufficient breadth and scope to provide solid coverage of the immediate competitive space in immediate proximity. And it must be truly a significant innovation. Incremental advances are not interesting to investors because they do not appreciably move the needle for patients, which is going to be required for widespread adoption and reimbursement. So don’t expect financing, even with a stellar team, if the science or technology underlying your innovation is not truly exciting and offer the very real potential to change the patient journey.
The second slide details your competitive landscape, which assumes your innovation actually works, defined by its success in the clinic. How does your technical innovation translate into a long term sustainable competitive advantage in the marketplace? In the tech world investors look for a 10x advantage in quality, cost and time to market. In the life sciences, investors are looking for evidence of significant human efficacy in the clinical data, hopefully accompanied by a reduction in toxicity or adverse side effects (which translates into enhanced QoL, or Quality of Life). How that stacks up against the current standard of care, other modalities of treatment, other ways to administer therapies, etc. all must be considered by an investor to know how sustainable your competitive advantage may be.
Now, of course, in early-stage ventures it is the promise of that advantage, and it being well received by a market large enough to drive a compelling exit valuation, that will drive an investment decision. Data, as much as one can have, not only about your innovation and potential efficacy but also your competition, and any other proof your claims “might” be true, are critical to that decision. That is where the quality of your team, health economic benefits and reimbursement analyses, choosing the right indication and market focus, your financial model including use of proceeds and investment needed to achieve a successful exit, etc., CMC and PD/AD, and clinical strategies all matter.
But none of that will matter if your differentiation or competitive positioning aren’t strong enough! So be sure to focus on those.
June 1, 2025 – To the Point, Installment One
Today’s Topic: How much should I raise, and why?
Despite a difficult and uncertain market, many biotech entrepreneurs are continuing to pursue opportunities to translate exciting scientific breakthroughs into meaningful therapies. How much should they target for an initial raise? Is seed or even pre-seed financing enough? Is raising a de minimis amount the right strategy in a tough market?
Emphatically the answer is No. Beyond some initial capital to form the company and pay for the startup staff, the technology (platform or therapy) should be developed enough either in the academic or industrial setting to give you sufficient POC (proof of concept) to be able to raise a “real” investment round, which in this era means sufficient funds to demonstrate human efficacy and exit. Part of the reason for this, beyond the current market, is the restructuring of the VC and innovation industry, what has become a devolution from the industry that previously existed (more on this in future notes).
The greatest risk for an investor today is not you, not the market, but financing risk – and for this risk to be removed the whole syndicate necessary to bring your therapy, platform, and/or company to an exit must be there at the start. For this reason, we are witnessing the advent of the mega-deal, punctuated by Series A rounds of $100 M to multi-$100 M. These are not your parent’s Series A rounds of 30 years ago! Of course, the financings will be structured into tranches and there will be plenty of exit ramps for investors if the translation begins to fail (so your financing risk continues to exist – welcome to the startup world!) but your investors can sleep at night.
Moreover, this risk averse or “risk-off” mentality and attitude is shared by Big Pharma and others in the ecosystem, which is why the trend of having pharma strategic partnerships before your financing has emerged. While Pharma may also not be interested in financing risk, they need to embrace scientific and clinical risk to fill their pipelines, something financial investors do not. The upshot is your investment round will likely need to have both pharma partners and financial investors involved to have a credible chance of closing.
Last point, it is easier to raise larger dollar amounts, and from higher quality investors with relevant industry experience, than smaller seed capital – as long as your therapy or platform is truly differentiated and innovative. The math for every investor is dollars out over money in, and larger funds need to put more money to work for an investment to be worth their time. They need to understand the total cost required to get to exit, as well as the time, and ultimately that will set their appetite for the investment opportunity. As such, your targeted raise must be the amount needed to get to a meaningful valuation inflection point, which today often means an exit. Getting half-way there (as was done in the venture capital world of days gone by) is not viable in this new world order.
March 31, 2025
Our capital markets update for the first quarter of 2025, which contains our analysis and perspectives on the ongoing trends impacting the sector, is now available. Should you have interest in receiving a copy of the materials, please reach out to us with your information through our Contact page.