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Tips for UK life sciences companies seeking US investment

Posted: 14/02/2020

One of the key topics that many UK life sciences companies focus on is how to tap into the US investor market. On Tuesday, 14 January 2020, during SF healthcare week, Penningtons Manches Cooper LLP and Edison Group hosted a US investor panel to hear first-hand from the experts on the opportunities that Bay Area and East Coast investors see in the UK life sciences ecosystem.

Attendees heard from panellists Cory Freedland from Samsara Biocapital, Shahram Seyedin-Noor from Civilization Ventures, Janis Naeve of Amgen Ventures, and David Parker from Ampersand Capital. Each of these investors have experience of investing directly into the UK and represented views from the venture capital, corporate venture capital and private equity landscape.

All agreed that the UK was well-known for its rich pool of innovation that attracts international interest, including from the US. The reasons for this included the strength of innovation within the UK’s research and academic institutes -  with one investor commenting on the “extraordinary” science within the UK and EU -  as well as the strong culture of entrepreneurship within the UK.

The panellists also noted that the UK presented some opportunities to find some “hidden jewel” assets. Although the US has a prevalence of early stage life sciences companies, they are equally surrounded by a much deeper pool of funders looking for investments. This is not the case to the same degree outside the US, giving US investors opportunities to find high quality assets at good valuations.

That said, the inherent challenges of making transatlantic investments were also noted. The geographical distances and time zone differences, in particular, will always remain a key factor. For this reason, it is common for US investors to be more comfortable joining syndicates rather than leading a round. Exchange rate variances are also a factor that overseas investors are conscious of and will factor in.

If you are a UK-based life sciences company, here are some key tips from the panellists for your first pitch to a US investor.

Importance of targeting

  • Make sure you match your company with an investor’s macro thesis or funding criteria - perhaps a specific sub sector or indication or just their general approach.
  • When you are looking at potential investors, look at the vintage of the fund. Most funds have a 10-year life cycle so, if they are in year five, for example, they may have little money left to actually deploy and may just be waiting for their current investments to mature or exit. Make sure to maximise the use of your time.
  • Your network counts. Spend time investing in a network, including from your initial investors who can get you links to others within the investment community. A warm intro compared to a cold call will obviously help distinguish you from the crowd.

Refine your pitch

  • All investors look for the strength of a company’s management team, as well as its scientific advisory board. Ensure you have the right people around you.
  • Unless you are in healthcare IT or another area with lots of sub markets, do not focus too much on the size of the market. For example, investors know how exactly how big the lung cancer market is. However, do show an understanding of the competitive landscape and how you differentiate.
  • Be realistic on time frames and have a good grip on your forecast milestones. Many companies may say they are 18 months from the clinic but few actually are. Also be encouraged that successful animal studies will still get the attention of investors.
  • Make sure your IP strategy is in order and ensure that all the ideas and science behind the ideas have the best coverage possible. Be ready to respond to fairly forensic IP due diligence requests.
  • First impressions count. Make sure your deck is in order. If you can’t give a coherent PowerPoint presentation, investors will be nervous about your ability to run the rest of the company.

Think about the long term

  • Think about subsequent financings. What are the longer-term capital requirements of the company? Focus not only on the immediate financing round but also plan ahead and consider the life cycle of investments needed.
  • While having a round with a big valuation can feel great at the time, it can put enormous pressure on the management team and could lead to a later down round if the near time milestones are not met. Think ahead.

Creating syndicates

  • It is important to get that first investor into the round to create the momentum that will get others to commit. Focus on converting at least one investor at the outset.
  • Having a local syndicate partner or lead adds credence for a US investor. How well connected is your local VC?
  • Creating like-minded syndicates with history of co-investing creates comfort. Your lead investor should be able to help with this but be diligent as to who you want on your cap table and, potentially, around your board table.

Finally, be positive

  • Investors will doubtless ask a lot of questions and the diligence process will usually take six to nine months, if not more.
  • However, there have been record amounts raised in US venture capital in the last decade. Just in 2019 alone, US healthcare venture fundraising set a record of $10.7 billion, a 10% increase on the previous year. According to research from London & Partners, 2019 also saw record levels of investment from the US into the UK, standing at $4.4 billion.
  • There is unquestionably an appetite for US investors to look at UK opportunities given its strength in innovation and world-leading scientific and research institutes. All the stats and anecdotal evidence suggest that there will always be funds available for world-leading science and technology.

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Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.

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