Final Word: How to Attract Venture Capital – Successfully

Develop an aggressive financial plan that takes your entity to an exit point and calculate a return for your VC investor.
Aug 01, 2005
Volume 18, Issue 8

Successful acquisition of funding from venture capital (VC) partnerships requires a carefully planned, well-executed marketing campaign. You are, after all, selling ownership interests in your company when you seek VC investors. This sale requires an attractive product, nicely packaged, and presented in a way that allows the potential customer to understand and appreciate its value. The attractiveness of your company is the sum of many factors including revenue potential, intellectual property estate, time-to-milestones, existing competition, ease of entry, quality of management, and the perceived interest in your work by "the big guys" in your sector. Every potential venture investor will not perceive your company the same way.

While the overall market might encompass the annual spending of billions of dollars, you are not going to instantly capture that. Even though you are confident that you will change the future of healthcare forever, keep that aspiration secret. No venture investor can afford to fund such a lofty goal. If near-term success leads to far broader-scale adoption of your underlying technology, this is icing on the cake. The near-term cake, however, is what they are buying.

Details count a lot. Do as much work as possible for the VCs by providing a crisp, complete story that includes a description of the near-term target market based upon real data, and provide a competitive comparison showing exactly why your company and technology will succeed. Develop an aggressive, but not exaggerated, financial plan that takes your entity through to an exit point (IPO or sale of the company) and calculate a return for your VC investor. Test the realism of your plan by comparing your cash needs and time-to-exit point with the track record of companies that have completed the cycle.

Go to as many meetings as you can. An introduction from another VC is a big plus — their business is one of networking. Most referrals are positive and superior to a cold call. Every meeting is a chance to hone your pitch and, even if not a good fit, may lead to a valuable referral. At the end of the meeting, ask how you can improve your presentation. Respond immediately to additional requests for data, even ones you believe irrelevant. The timeliness of your responses will be read as a proxy for the quality of management and your potential for success. It is critical that the process maintain momentum.

Raise all the money you can get, for no company ever failed because it had too much capital. That "extra" capital will attract superior additions to management and technical staff, reduce the perceived risk of doing business with your company, and give you the time to organize a subsequent round of funding on terms attractive both to you and to your funding sources. You will be counseled by some "experts" to raise only enough capital to get you to that next, value-producing hurdle, after which more funding will be easy and cheap. This is bad advice. Do not follow it.

Last, segregate the concepts of value and valuation. Value is what you create by discovering and developing ideas that create a market or fill an existing unmet need. Valuation is what your company is worth to willing investors, today. Value is a blend of innovation, execution, and demand. Valuation is driven by the capital markets, historic returns from those who went before you, the supply of other companies with similarly attractive prospects, and the returns implied by your plan. A realistic valuation will allow all the company's stakeholders to do well and the company to do good for the healthcare community.

Phil Schein, M.D., former CEO of U.S. Bioscience and a famous entrepreneur and oncologist, points out that the biopharmaceutical industry is a place where one can do well by doing good. Early in the life of an enterprise, you must pay attention to do well.

Jeff Randall Chief Financial Officer EXIMIAS Pharmaceutical Corporation 1055 Westlakes Drive, Suite 200 Berwyn, PA 19312 (610)560-0615

lorem ipsum