Return On Change blog – 4/1/2014 –
In general Life Sciences is an industry that’s tough to crack into (discussed more in details later) but so important in our daily lives. The biotech and medtech companies in Life Science are creating innovative products that are helping to improve the quality and standard of life. I recently had the opportunity to chat with Yaniv Sneor, one of the founders of MABA (Mid Atlantic Bio Angels), a life science angel investor group. With more than 20 years of experience starting, running and restructuring companies, Yaniv is also assisting companies through his consulting practice, Blue Cactus Consulting.
Yaniv himself started out as a scientist, fell in love with business, and decided to merge these two together and work with companies in determining how to monetize science. In an industry where large amounts of capital in multiple rounds are needed for testing and clinical trials, afterwards faced with the difficult FDA approval process, life science startups don’t have it easy like an Internet startup does.
MABA has been around for less 2 years and has so far invested in three companies a total of $1.5 Million overall. The angels in MABA are MDs, MD PHDs and many have, in the past, or currently run life science companies . Here are some of the most interesting parts of my interview with Yaniv:
Q: What’s the typical demographic of a life science entrepreneur?
Yaniv: There’s a different level of maturity in a life science entrepreneur. The process in life science is longer. Entrepreneurs in life science are people who understand life science and usually have a background in science, which takes several years to accumulate. So they’re not your typical 20 year old internet startup entrepreneur.
Q: What do you look for when investing in a company?
Yaniv: A lot of things we look for are things every investor looks for in a company in general. Strong management, people who are ahead of the game, flexible to respond to market conditions, someone who’s credible and coachable.
We look for strong disruptive technology with a strong market need. Something people really want and need. They need to be able to own some intellectual property “real estate” – patents with some meaningful coverage.
Q: What are the biggest challenges life science startups face?
Yaniv: This is a significant undertaking, with high risks – which makes life science different from other industries. Factors that need to be taken into consideration are: How much money it will take for trials, how long it takes for FDA approval, and potential reimbursements from healthcare insurance companies, just to name a few. Every technology that is introduced in life science first has to prove that it is both safe and effective. This can take a long time and a lot of money to prove. The companies MABA investors invest in are almost always pre-sales, and MABA investors hope that the company can change, or have have a significant influence on the standard of care in that company’s space.
Those who pay for the new technologies want to see improved outcomes (healthier patients) or improved costs – and preferably both. So insurance companies are another factor- they determine what kind of medical device, procedure, drugs, etc., they’ll pay for and how much they’re willing pay for it. That often determines whether you’ll ever see the device or treatment come into the market, and whether patients/consumers will ever get to use it.
This explains why companies in life science require more money, and take longer to exit.
Q: What are some changing trends you see in life science investing?
Yaniv: In order for someone to invest in a company, there needs to be an exit. Until recently, because of the crash in 2008, the IPO market for life science companies had dried up. In the last few years, if you saw a life science company talking about an exit, the only response was, “We’re going to sell to a big company or license the technology to a big company.” But in 2013 there were 13 biotech IPOs vs zero IPOs in 2012. So 2013 was the comeback year for life science IPOs.
So whereas in the past big pharma bought out startups depending on the data they had, and where they were in the FDA process, now some startups are considering going at it alone, by going public .
I recently heard an executive of a major pharma describe a late stage discussion to acquire a small company for a significant amount of money when the startup told them that they decided that they don’t need their money, and “we’re going to do this on our own”. According to the executive this will force big pharmas to look at earlier stage science/deals/companies whereas before they would only show interest in things that were more mature .
Of course I had to ask Yaniv what his predictions were for equity crowdfunding (aka crowdinvesting) for the life science industry. His response was that the life science industry will be affected a lot less because usually people invest in what they know, and life science is an industry that requires deep understanding where “it’s not the type of investment that you can get an appreciation for what the product is, in 2 seconds”. As someone who supports the life science industry but has never invested in a life science startup before, when Title III comes out I might not be able to properly assess a life science startup, but would definitely invest alongside MABA because I know they are the experts within this field. Perhaps there’s an opportunity for the crowd to co-invest alongside seasoned angel investors such as Yaniv.
TOP TIPS FROM YANIV, A LIFE SCIENCE INVESTOR
- Invest in people and the team always comes before the science. Reality is: If you take mediocre technology/science with a great team, you could end up with a great company than if you take a mediocre team with a great science, you’re going to end up with a mediocre company.
- The most important thing for entrepreneurs is to be honest. Be honest with themselves, honest with the investors.
- Reasons why startups are rejected from angels: Startups are going to need too much money than they can provide, don’t have a strong enough market position especially if entering a crowded field, don’t have a strong answer to a market need, or don’t understand the risks that lie ahead.