Top Tips for Life Sciences Fundraising

Both the UK and the Scottish life sciences sectors are currently riding the crest of a wave, buoyed by the success of the UK’s vaccination programme and a series of recent high-profile exits and funding rounds which suggest that investor appetite for the sector is stronger than ever.

Start-up and spin-out life sciences businesses are notoriously capital-intensive and it can be difficult and daunting for founders to begin a funding round, which can be time and labour intensive and a distraction from the already-frenetic day job of building the business.

At Burness Paull, our market-leading Corporate Finance practice has extensive experience in advising both investors and life sciences businesses on fundraising (from the seed stage upwards) and indeed across the entire life-cycle through to exit and beyond.

Below we have set out some suggested tips for earlier-stage life sciences businesses who are gearing up for their first fundraising:

• Explore all funding options available – the funding requirements of building a life sciences business makes equity funding (i.e. selling new shares in the company in return for cash investment) a requirement at some stage for the vast majority of life sciences start-ups. But you should also explore what grant funding might be available –– the more you can bring in grants, the less equity you’ll require (and the less your own shareholding will be diluted).
• Find the right investment partner – equity investors can range from friends and family, to crowdfunding platforms, angel syndicates, venture capital funds, private equity houses and investment banks, or indeed a combination of the above. Developing your network of contacts certainly helps the fundraising process. But look to ensure that any investor you go into partnership with will be a good fit for the business. What can they offer you besides a cheque? Can they open doors for you? It’s as important that your investors are a good fit for you as the reverse.
• Clarity – be crystal clear on what your business proposition is, where the opportunity lies, how much funding you’ll need and where it will take you. Distil all this into a brief slide deck (no more than a few pages) which can be shared with potential investors. Professional investors will see dozens of slide decks a week and so you need to be clear and concise as to where the opportunity lies for them.
• The 3 Ps – investors will ultimately invest on the strength of the Product (what the business does), the People (who runs the business), and the Plan (where does the business want to go and how is it going to get there). Each is as important as the other, and should all be articulated in a business plan which investors will look for the management team to stand behind. Note that investors in the life sciences sector in particular will often look to de-risk their investment by splitting it into tranches, with an initial upfront investment and then subsequent amounts being committed in the event that the company hits certain agreed scientific, technical and/or commercial milestones. Have a clear roadmap as to what the key milestones are in the growth of the business.
• Be diligence ready – investors will carry out due diligence on the key facets of the business; in an early-stage life sciences business this is most likely to centre around your intellectual property. It is crucial to ensure that any IP which is core to the business is either owned by the company (as opposed to individual founders or their university) or is licensed on a watertight basis. Ensure that all information and documentation which is key to the business is stored in a secure and organised manner, so that it can be provided during the due diligence process quickly. Note that you should never share any confidential business information with an actual or potential investor or other third party without a signed confidentiality agreement (NDA) being in place from them.
• Be aware – that the fundraising process can be difficult and disappointing as much as it can be exciting and rewarding. It requires patience and perseverance. Also be aware that in return for writing a cheque, investors will look to have a say and oversight in how the business is run and their money is spent. That will often be a seat on your board, a list of business decisions which need their prior approval, periodic reporting requirements, and personal warranties from you on the state of the business at the point of investment. It can be quite the adjustment going from setting up and running your own business to being answerable to an external investor.
• Seek advice – surrounding yourself with experienced and informed professional advisers (be that lawyers, patent attorneys, accountants and/or account managers) can help in a variety of ways. Whether that be introductions to their own network of investor or advisory contacts, securing the core IP of the business, negotiating investor term sheets, and managing the investment process. A good advisory team will take much of the strain off you and allow you to focus as much as possible on the business, whilst keeping you right as to what is and isn’t standard in a fundraising process.

Fundraising does not simply have to be a necessity for a start-up life sciences, with the right investment partners it can and should be a transformational and exciting experience which allows you to accelerate the development of your business, bringing with it all sorts of positives. But it can also be daunting and uncertain, and so we hope the above tips prove useful to any life sciences businesses who are looking to embark on their first fundraising journey. If you are looking for additional guidance, we’d be delighted to discuss further with you so please get in touch. You can also sign up here to receive our updates on the Life Sciences sector.