Obtaining investment is a crucial landmark for growing life sciences companies, empowering them to advance their research and development, invest in their operations and commercialise their products and services.
However, obtaining investment can often be a time intensive, stressful and uncertain period for the management team involved. To minimise headwinds, management teams can seek to attract suitable investors and create a smoother runway to completion by devoting time to preparatory steps before the investment process begins.
Here are some fundamental steps that we recommend life sciences companies take before seeking an investment:
1. Develop a robust and considered business plan
A business plan will likely be one of the first documents that a prospective investor will review. It should clearly outline the company’s vision and its strategic goals. It should also include detailed information and analysis about not only the market opportunity, but the competitive landscape of the company and the unique nature of its products and/or services. An investor will critically review the business plan to test the company’s route to growth and success; something incredibly important for earlier stage life sciences companies, particularly those that aren’t yet revenue generating. Whilst it is right for the business plan to be ambitious, it also needs to be realistic - you will need to be prepared to regularly report to investors in the future on the company’s milestones in order to demonstrate that it is making tangible progress towards achieving its goals.
2. Implement a strong management team
Investors will be reassured during initial pitches that the company has a capable and experienced management team that is well placed to execute its business plan and navigate any challenges that may arise. A team which has a proven track record in the industry, including expertise in research and development, regulatory matters and commercialisation will be a big "tick" to prospective investors. When making investments, investors will often place as much weight on the management team’s capability as it does on the underlying product or service.
3. Invest in learning about the funding market
Being familiar with the current funding market and types of investors that are active in the sector is important. Investors can include strategic corporates, private equity houses, venture capital funds as well as high-net-worth individuals. Understanding their respective investment criteria and short- and long-term goals can help you to tailor your pitches to secure the best potential partners for the company. This knowledge can be learnt, not just from market research, but by attending industry networking events and conferences where you will be able to connect with key players in the investment community. Building relationships early will help you to gain valuable insights and anticipate any potential areas of concern.
4. Strengthen your portfolio of scientific and clinical data
It goes without saying that investors within the life sciences sector will be particularly interested in the strength of the company’s scientific and clinical data. Research will need to be well-documented with any significant milestones highlighted. Clear and strong data will enhance credibility to potential investors and supports the claims and progress articulated in your business plan.
5. Strengthen your portfolio of intellectual property
Protection of the company’s intellectual property is critical given the nature of life sciences businesses. The company’s intellectual property portfolio should be robust with the necessary trademarks and patents put in place. You should be prepared to discuss and rationalise the significance of the company’s intellectual property with potential investors.
6. Due diligence preparation
Perhaps one of the biggest strains on management time during an investment process is due diligence, not just in respect of legal, financial and tax matters, but also in the areas of commercial, regulation and ESG. Ensuring your documentation is up to date, complete and accurate will help to streamline the due diligence process and build trust with those conducting the diligence. Collating key information and documentation in advance in a well-structured data room will also save you a lot of time down the road.
When compiling the due diligence materials, consider critically if there are any gaps (particularly in the areas of contracts, regulation and intellectual property) and speak early to your advisers in terms of how you can best address these before a process starts in earnest. Early-stage companies will inevitably have some gaps given leaner management teams and more limited legal budgets, however, being on the front foot when addressing any gaps will help to reduce transactional risk later down the line.
Remember to enter into written confidentiality agreements before you share sensitive commercial information and data with potential investors and their advisers!
7. Consider alternative funding options
Investment through equity, whilst a common source of funding for life sciences companies, is not the only option. Exploring alternative funding sources such as through grants, debt finance and even strategic partnerships (for example through joint ventures) could be more suited to your company.
By considering these recommendations, life sciences companies can enhance their readiness for investment and increase their chances of securing the funding needed to advance their products and services. Our multi-disciplinary life sciences team has extensive experience advising businesses in the sector on all stages of their investment journey and would be pleased to answer any questions you may have when preparing your company for an investment.
Andrew Carter