The Funding Evolution: The Role of Alternative Financing Models in the Valley of Death
Premium events in the life sciences calendar, such as LSX Investival held recently during London Life Sciences Week, are refreshing ‘watering-hole’ opportunities to learn something new, in between galloping around between partnering meetings. It is always worth checking out the agenda carefully in advance and blocking out partnering slots to be sure to catch some real content gems. Whilst partnering can take ages to show success, if you hear just one powerful insight that makes you pause for thought, and perhaps change your entire approach to growing your business, then the day has been a success already.
This year, we enjoyed a wealth of such insights from the headliner panel moderated by Jody K. Thelander, of J.Thelander Consulting, which briskly covered the role of alternative financing models. In an uncertain time when the going is hard, the headwinds are strong, and cash runways are becoming worryingly short, it pays to pay some attention to potential different paths through the infamous funding ‘Valley of Death’ and on to success.
On Jody’s panel were Jonathan Brayman, Managing Director at Blackstone, Sam Gray, Managing Partner at Apposite Capital, Bihe Chen, Operating Director at Limerston Capital, and Ari-Pekka Laitsaari from the European Investment Bank. They all shared valuable advice on how to survive the financing journey that lifesciences companies face. Just as travelling across an arid desert requires vital life-saving preparations such as having enough water, securing financing also has some simple, but essential, preparations.
Firstly, ensure that the CEO leads investor pitches and can take questions about ‘momentum’, which includes reasonable, and perhaps obvious, questions about what happens next. If this is delegated to someone else, it can be a red flag. Without enough water you won’t make it through the valley of death, and without the CEO up front, leading the charge, you sure might not make it either.
Where are you going? This is likely the first ‘momentum’ question. To answer this convincingly, you need to really understand the detail of how to commercialize your product and enact the value creation plan. Be mindful about what the journey entails in these challenging times and how capital-intensive scaling up your product or technology will be – the oasis may not be over the next sand dune, and there may be many miles to go before it shimmers into vision.
But why? This is almost certain to follow. So be ready with why what it is that you do matters, and not just matters, but really matters. It would be foolhardy to attempt an epic journey without a purposes, so what is yours? Are you on a mission to cure the uncurable, build the unbuildable, or in some other meaningful way change the world for the better? You may have words such as ‘disruptive’, ‘game-changing’, and ‘transformative’ ready to roll off the tongue, but you need to say why first.
But why you? This is the tricky one: where dream can meet reality with a bump. Communicate clearly what your points of differentiation are, and the associated competitive advantages. What makes what you do, special? And how is it that you can do what no one else can? It’s not about belief, it’s about proof points, and milestones. And perhaps a little bit of magic too.
Just as a map is not the territory, remember that the pitch deck is not the end of the story. It may help you tell the story (if it is concise and well thought out, with clear upfront asks of the audience e.g. to invest, and has been well rehearsed with your comms team), but it won’t necessarily sell the story. That’s where human-to-human interaction comes in, and where better to have that than on a journey with others?
Wise people don’t attempt to cross a valley of death on their own. Look for fellow travellers on your business development journey. Specifically, in financing, it is not just about the capital: look to your investors for the expertise they can bring to the table, and the connections that they may possess to ensure things can get done efficiently, such as having preferred rates with CDMOs.
But a balance is needed: too many people travelling together with too many opinions risks becoming a rabble, with much disagreement about the precise direction of travel. So, keep your syndicates simple, small, manageable, and aligned on where you are going and how you are going to get there. Complexity here will make it difficult to monetise or even to survive. Imagine a few swift camels, cantering across the desert in graceful strides, backlit by moonlight. This is how the journey should feel. Not staggering around in ever-decreasing circles as the sand storm comes to obliterate all traces of your heroic endeavours.
Don’t give up half way! It can feel like a vast valley of death these days in life sciences, and you’ll need more than just your wits about you to cross it. Have you considered synthetic royalties, that is, selling a future royalty stream, to capture value but without fully giving up control? Did you really think just having water would be enough? Check out more potent financial ways to slake your thirst.
Join the correct camel train. That is, understand what private equity is looking for. Different investors are suitable for different things. There’s a good reason why people generally ride camels, not horses, across the desert. A big nuance here is that PE is mainly looking for mature investments into revenue generating companies and want profitability and an exit: they are not looking to support a Series A or B. So, get your pitch right: this is not the VC pitch! That would be like trying to saddle your camel with a surfboard.
Finally, remember that many people do make it to the other side of the valley of death, relatively unscathed, which reinforces the view that good science, with good people, and a good strategy, gets good funding! Talk to the people who have made the journey, listen to them on panels at LSX events, and learn from their hard-earned experience how to de-risk your journey. And just for the price of two partnering slots.