Panel Discussion: Fundraising for BioTech, HealthTech, LongevityTech Startups by Unicorn Lab
The Article based on the Panel Discussion at Unicorn Lab Invest Meetup, the networking event that promotes beneficial cooperation between Entrepreneurs and Investors from the BioTech, LongevityTech, HealthTech industries.
What are benchmarks of best-in-class metrics a HealthTech and/or BioTech startup should be achieving to go out and raise A round? Some highlights for entrepreneurs who are raising early-stage capital. These questions were discussed with top tier VCs:
- Tim Howe, Co-founder and Managing Partner, CHL Medical Partners.
- Emi Gonzalez, Senior Principal for Social Starts and Joyance Partners.
- Themasap Khan, Vice President, Civilization Ventures.
- Bill Liao, General Partner, SOSV.
- Tim Safin, Associate, Longevity Vision Fund.
The moderator was Julia Smila, Co-Founder of Unicorn Lab & BiohackingCongress.
The main criteria for selecting startups.
Admitting that early-stage funding has overgrown in recent years and what is considered “Series A-ready” is a thing that everyone is trying to attack. It’s still important to know how your startup is hunting relative to expectations.
First of all investors want to see that your startup has reached a product-market fit. VCs are looking for evidence that demand for your product is beginning to pull you into the market, that you have a proven and repeatable go-to-market strategy, and you can demonstrate strong retention and engagement with your current product.
Tim Howe, Co-founder and Managing Partner, CHL Medical Partners, explained: “I've got a shortlist of things that are important at various stages but at a very early stage exactly - some clear evidence that the item you're developing is likely to work. I'm also looking for some clear evidence that there is a need and a desire for the product out in the market. Therefore, a few customers have to raise their hand or know from the industry that there's a clear need for it. Also, a clear picture of the addressable market. Even if the thing works and it's not a very large addressable market, you might not find much interest in the investor community.”
Bill Liao, General Partner, SOSV, explained what their accelerator takes into consideration when selecting startups: "We're not looking for a product-market fit because they'll develop that in the accelerator. We're looking for gear — an excellent problem to be solving and some good technology where the science risk is already out. We're looking at engineering and business risk. In that founding team, you need to have extremely capable doers - engineers, scientists - people who can do this stuff and need to have progressed beyond "oh, this is a concept." Everyone can say: “I've got a solution for this problem, and I've got such things done”, and then scientifically, a miracle happens. No. You need to know that you've got engineering risk and not science risk."
Investors want to know the narrative behind your startup, your team, and your traction. It needs to be de-risked. A compelling pitch names a thesis and shows results that prove the thesis. At this stage, a representative group of customers must be ready to trade a significant amount of time and/or money for your product. You need to convey and personally know who these customers are and why they are paying for your product. Steady-state is also an excellent time to build relationships with possible advisors. Advisory boards are not always required, but if there is someone genuinely exceptional and well-connected in your extensive network, keep them in along with your top-tier VCs. n outstanding strategic advisor can be a valuable asset to your team, and for a successful round, you need to show that your team is your super strength. The advisory board, investors, and board of directors are a significant part of that.
Themasap Khan, Vice President, Civilization Ventures, explained: "I think the most important thing is the team. Understanding the team's ability to bring an idea forward doesn't mean you have to have three scientists on the team. A lot of the way these preclinical companies work is they have someone who is a scientist, an expert in this and that. We are looking for some other cracked in many times, maybe a formal partnership and a co-development opportunity.”
Tim Howe, Co-founder and Managing Partner, CHL Medical Partners, added to the topic of the team and the people involved in the startup: “The venture leaders should be well respected and can be relied upon, and have a reputation for coming through on their promises. That's something that we look into very heavily and deeply to make sure that the type of people who we can rely upon when we get involved, and they tell us what they're about to do with the money, what they're about to do in the marketplace that they come through with it”.
“I think the team also needs to have a good understanding of the capital needs going forward so that you can have a productive conversation about how to invest. And finally, I think you want to back people who can raise money. What that means is they can tell the story, can communicate clearly: the opportunity, the markets, their product fits. Because from the moment you invest, you want them to be the best at raising money because you're probably going to have to raise a lot of it down the road. You, as the initial investor, can't be the one solely responsible for attracting,” Tim Howe explained.
Fundraising timeline and process.
Once you have your seed money, you start back building your mode. Your steady-state starts here and continues until six months before your money out date. When you are in a “steady-state,” it is essential to build relationships and keep your investors updated on your traction.
Tim Safin, Associate, Longevity Vision Fund explained: “When you are steady-stage financing, you have to be active overall. Talk to investors even when you are not raising money right now. It will bring sufficient interest when you start the process. Also, it’s a great opportunity to get preliminary investors' feedback and see where you could be wrong or where you could be better”.
Also, Tim mentioned that you should really pay attention to what kind of investors you are approaching because some investors might not be a good fit for your venture as they are not focusing on the niche you are working with.
Note, the founder should keep in mind the right amount of money the startup needed and what for. If you are a Tech startup and testing your initial idea, it might not require much capital. You might end up in the situation where you’re better off going out to friends and family to get 10k, 20k to test your initial hypothesis, and that in the future will allow you to get better funding at a lower cost.
Emi Gonzalez, Senior Principal for Social Starts and Joyance Partners also gave some advice on how much to fundraise: “Entrepreneurs need to know the exact amount of money they need to get to their next significant milestone. If they need a million and a half, they need to get to that reason a million and a half. If they need 500k, they get 500k. Founders identify those milestones to get to acute inflection points and move to the next fundraise”. Emi also advised to raise a few months before you actually need funds to have an ample time. VCs look at run rate and how much the startup burns every month. If the startup has only a month left of runway, the company is not in great status. Emi’s tip is to raise a little bit early.
It is important to get new connections with top investors. The warm introductions are the best way to reach the investors as they get thousands of emails daily. It is easy to lose in that flow, but once the investor sees the email of a person they know - the chances for being noticed are almost 100%. Keep your startup on their radar before you need further investments.
However, you entrepreneurs should be cautious here. Tim Safin, Associate, Longevity Vision Fund explained: “We get a lot of emails from some startups that are not relevant for our fund. Startups just need to understand that investors are often bound by some form of the investment strategy they have. Sometimes that strategy is really strict. If the fund has to invest in later stage startups, for example BioTech, HealthTech startups, they cannot invest in customer apps.”
Tim advised that when you are steady-stage financing, you have to be active overall. Talk to investors even when you are not raising money right now. It will bring sufficient interest when you start raising. Also, it’s a great opportunity to get preliminary investors' feedback and see where you could be wrong or where you could be better.
Fundraising is a complex process. It takes time, focus, and a lot of effort. The more you can do before you begin it, the calmer your life will be. The thing you can and need to do beforehand is to make a Data Room. It should be secure storage that has full and well-organized data. It will save your time during the due diligence process. Be cautious with the folder hierarchy; the documents should be simple to find.
Bill Liao, General Partner, SOSV explained: “For us, the date room requirements are our application process to the accelerator. The one document that we always look at - Founder Vesting Agreement because one of the greatest risks for investors is the early stage team splits. If somebody leaves the team early, their equity comes back into the company so that you can use that equity to hire the replacement. Fund investing is absolutely crucial.”
Additionally, Bill gave excellent advice to the entrepreneurs how to make investors interested in investing and checking your data room: “Your job to raise capital is to transmit one kind of fear into another. Investors are afraid of you: they're afraid you're going to rip them off, they're afraid that you're lying. They have a list of risks that they are fearing so you're going to take that fear and transmute it into a different kind of fear - fomo, the fear of missing out. If you do that successfully in the pitch, you get to the data room. You don’t want to reintroduce the other fears. You need to make sure your data room is professionally done and make sure that you understand everything in it backwards.”
Watch the Panel Discussion and Startups Pitches commented by VCs on Unicorn Lab Youtube channel.
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