Why your search for an investor has to be about more than just money
Success in the world of biotechnology and life sciences requires a level of patience that is foreign to most types of businesses and industries.
On average it takes 10 to 12 years and over $1 billion in capital to get a new drug from the laboratory to the market to be sold to consumers, says Rob Lake, senior vice president and head of Life Sciences at Bridge Bank.
With such great effort needed to get your product out the door, you want partners you’ll be comfortable working with for extended periods of time. When you face challenges, as most growing businesses do at some point, the relationship you have with your financial partner can go a long way toward determining your future.
“Some lenders tend to over steer,” Lake says. “So on top of whatever is already going on at your company, a relationship with an inexperienced lender can make it that much more difficult to manage your business.
“That can be very stressful for a management team and an investor group trying to position your company to work through the issues and get back on track.”
Smart Business spoke with Lake about the real value of selecting a lender or bank that truly understands the challenges your business faces.
What should you consider when looking to raise capital in the life science industry?
You need a lender who understands your business. A standard bank that does commercial and industrial lending is likely to underappreciate the peaks and valleys of a life sciences company, such as navigating through regulatory agencies or the uncertainties of clinical trials.
There is such a thing as ‘greener capital.’ A knowledgeable lender knows how to react to bad news, and how to chart the best course of action to keep things on track. It’s like piloting a small plane. If there is turbulence, you’re not going to want to over steer in one direction or the other to try to stabilize the aircraft.
You want to keep it as steady as you can and it will stabilize once you get through the bad weather. The same applies to working with a lender that clearly understands the issues life sciences companies face and will work through occasional challenges along the way to help the company achieve its goals.
What are some key things to know before you meet with a lender?
You need to think about what you would do if things with your business don’t go according to plan and compare it with the underwriting rationale of the lender. Lenders will typically underwrite to a downside case to explore that scenario.
What if you do not get approval on an expected date and it takes another year to get that approval? How would such a delay affect your company financially? How much more money would you need to raise? What will it take to get there? Do you have the resources to get there?
The base case is a little more optimistic scenario and the downside case is if the wheels completely fall off. The more likely case is a third option in which the wheels don’t totally fall off, but maybe you have a flat tire. How do you fix it and get through that scenario?
It’s helpful to hear the lender’s mentality as they go through the downside process. There are lenders in the space that offer more favorable terms (i.e., more capital or lower cost); however, it could cost more money in the long run (fees and legal expenses) if they haven’t thought through what the downside looks like.
What are lenders looking for in a borrower profile?
Lenders like business models that are diverse and have novel intellectual property supported by an underlying ‘platform technology.’ Multiple shots on goal help the lender mitigate risk.
They also want to understand the value proposition and see that it makes sense from a commercial viability standpoint. Ultimately, does the product and or service you’re developing address an unmet need? Improve patients’ lives or clinical outcomes? Save the health care system money?
Validation is another important attribute lenders like to see. This could come from many sources including the quality and reputation of your investors, strategic partners, a positive reimbursement decision or revenue traction.
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Join us and PitchBook, along with our special guests to discover key top-level trends that have defined #VC deal-making in #Chicago. RSVP now and receive a free download of our report Markets to Watch: Chicago with data provided by PitchBook. info.bridgebank.com/markets-to-wat… - yesterday pic.twitter.com/l0HaqoXNoGThe VC ecosystem in #Chicago generated record funding and exit activity during the pandemic. Join our panel of experts on Tuesday, June 22 when they discuss and analyze the #venturecapital trends responsible for this activity. info.bridgebank.com/markets-to-wat… - 3 days pic.twitter.com/x4kQdT1O5dJoin us for Markets to Watch: #Chicago and discover how funding for the regions SaaS #startups rode venture investor enthusiasm posting $674 million in aggregate deal value. 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