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On 1/25/2010 Anne is a speaker on a Life Science Angel Investors Panel: Trends for 2010
by Anne DeGheest
23 January 2010

Anne DeGheest will be a speaker at FountainBlue: Life Science Entrepreneurs Forum on January 25, 2010.

Topics will include how early stage companies can position themselves for successful partnerships and fundings, strategically plan your business based on evolving market needs, tightly manage cash flow, and build strategic alliances with larger organizations, angels, research organizations, and other key stakeholders


Below is a summary of some of the panel comments and advices to entrepreneurs looking for angel capital:

Our panelists started by remarking on both the fact that there were 40% fewer dollars AND 30% fewer deals than in 2009, the lowest level of activity since 1997, however, they remarked that angel investing is still very active with smaller amounts for more deals. But as 10% of the deals have paid 75% of the total returns, many investors, particularly early stage investors who are more likely to get diluted in future rounds, and who might have incurred huge losses, are much more cautious. VCs are actually even more cautious, waiting for angels to vet and fund early stage companies. As one investor put it, ‘there is no money on the sidelines' - investors are already "all-in". There is also unlikely to be additional money as we are all "exit challenged", with the disappearance of the IPOs.

Angels today are much more discerning about WHICH deals and HOW MANY deals to invest in (they may be exposed to as many as 400-500 a year, and only invest in 10 or less.
They make smaller investments, and they focus on deals with an early exit strategy.
Angels and all investors and partners are even more hesitant and discerning as there are too many policy and reimbursement unknowns.
It is difficult to plan for customer and market needs while there are FDA, reimbursement, and other major policy decisions being made.

With that said, if YOUR company is one of the companies selected by an angel investor, you will receive much more attention, support, advice and introductions.
IF YOUR company had ALREADY secured funding recently, angels might be more apt to contribute another round of funding, depending on how you are doing meeting milestones. In fact, each panelist remarked that some of the best investment opportunities happen during a downturn!

So what's an entrepreneur to do? VCs are shying away from early stage investments, and angels are more cautious than ever, although funded companies are more likely to secure more funding.

 Below is some advice from our angel investors:
• Secure an undiluted government grant: it provides both validity for the scientific concept, but also for the persistence, hard work and know-how and connections for its founders - a very good thing.
• Partner with big pharma companies and academia and hospitals and even the military to build traction for your technology and move your company forward with little resources.
• Do the market research and find customers who are willing to pay for your solution. Partner with them to define your product and solution. In other words, serve the customer and market, don't be a technology looking for a market.
• Recruit great employees willing to work for sweat equity or low salary.
• The market might be permanently re-set to focus on the markets rather than on the science. Your long-term company strategy, and your career decisions should reflect that fact.
• Be the type of entrepreneur who can respond quickly to changing market needs, and more stability with policy, reimbursement, etc.
• Understand clearly how investment dollars can help move your company forward and be able to articulate it to strategic outside investors, including angels.
• Create a connected, experienced advisory board who can help you focus on meeting milestones and moving your business forward.
• Manage limited resources well, and prove that you can do a lot with a little. Virtual companies will become more popular.
• The expectation for 2010 is that investments will be flat to slightly higher, with modest increases until more money appears in the system through exits.

Below are specific challenges and opportunities for life science sub-industries:
Biopharma does not make sense at the angel level because of the amount of the time and investment dollars to an exit, the technical and commercial risk, and the money required to achieve an exit event. In fact, as there are so many more un-knowns than knowns in biopharma, even with its astronomical advancements over the past decade, pharma companies can require 7-8 rounds of financing, increasing the risk of diluting early investors to a "wipe-out". This is not good for angel investors, friends and families, as they are more likely to lose a lot of many, or reserve very diluted returns.
Our panelists recommend that biopharma entrepreneurs partner with academia and Big Pharma to find support (money, services). Suggestions for biopharma entrepreneurs include finding novel mechanisms of action, finding a new more efficient business model to reduce cost and risk, providing cross-disciplinary integration, and encourage more risk adversity even in academia.
Entrepreneurs, intrapreneurs and investors alike recognize that when there is a ‘win', the return is substantial. The challenge is to see past the science, focus on the product and the market need. Consider cross-disciplinary solutions - e.g. systems biology and develop a better understanding of disease states and complexity. There are still significant unmet medical needs, and huge interest and markets in 3rd world diseases/cures and other global market opportunities, as well as genomics and patient selection. In addition, specialty companies need new products, and there are opportunities in biosimilars and generics. The convergence of biology and biopharma and computers will also prove interesting.

Personalized Medicine solutions provides opportunities to customize solutions so that they are more effective for individuals, while better understanding genomics. In partnering of therapeutics and diagnostics and academia, we may be able to better educate consumers and doctors and insurers and policymakers and others, and encourage early partnering of these stakeholders.
Systemic change is needed to make the economics for personalized medicine work out, for, by definition, each solution should only serve a small segment of a market, and customized solutions must be efficiently produced and distributed. There are additional challenges around reimbursement models and ROI for investors who are looking for large markets to serve. In addition, in the current health care system, doctors get paid when they prescribe general prescriptions when you are sick, not to prevent sickness or to create a custom prescription to better cure you if you get sick.

Medical Devices from products for the aging, to monitoring and drug delivery and other devices sold directly to patients, to wellness products leveraging technology advancements have become more available, more technology-integrated, and more patient-driven. Challenges for the medical device sub-industry include a proposed Medical device tax, reimbursement ambiguity and trends, technology standards, data-over-abundance, and sometimes too much competition in the marketplace. Despite these challenges, many devices are going mainstream, helping more people, and with our global and aging markets, the opportunities are huge.

Software Solutions are favored by angels who are interested see the interface of IT and devices as the lowest risk, fastest exit segment of the life science industry. Factors such as the human genome project and our ability to understand, study, predict and treat genome-related conductions, the huge market with many needs at the intersection of biology and technology, from healthcare and prescription management to medical device diagnostics to personalized medicine and medical imaging solutions, etc. make this sub-industry an interesting one for entrepreneurs and investors.
One of the challenges of delivering products and services in this sub-industry is the challenge of silos: organizations and groups who are working individually to solve a problem rather than working with peers and cohorts across companies and roles and industries. Indeed, if the large technology companies could work collaboratively with large academic institutions and hospitals and government and patients, we could work together to create a ‘' solution managing huge volumes of data, with cloud computing aspects including interconnectivity, large computing power, and work together to find ways to monetize solutions which benefit people.

The bottom line is that we should all partner to create an ecosystem ripe for innovation in all life science sub-industries, with the funding, technology advancement, and risk-tolerant culture needed to address the huge market opportunities ahead.

tagsTopics: Conferences, Angel funding, Entrepreneur

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