Fundraising Trends for Life Science Companies

Since March 2020, people have been looking to find answers of what “new normal” means, and how long it will take for daily life to feel, well, normal. When discussing the trends of the past almost two years, the one constant that people seem to rely on is science. The life sciences industry has been getting a lot of attention from the media and people are more interested than ever before. As a result, investors seem to be following this trend as seen through the surge in initial public offerings (IPOs) and venture capital (VC) funding.

Getting funding from venture capitalists used to have this stigma of ‘only happening to the lucky ones’ and that ‘VCs generally do not have many ventures as the process is incredibly selective.’ With that being said, per McKinsey & Company, “VC activity in biotech companies grew by 45 percent in a year, taking the 2020 global total invested capital to $36.6 billion.” Because of the current uncertainty in the world, the life sciences sector has come to be the area of certainty. “Some VC investors believe that biotech has matured as a business and that it carries lower risk than it did in the early days. Others think it has suffered from underinvestment in the past. Still others note that investment in the sector is partly driven by the need to diversify VC portfolios.”

When talking to VCs, the wish list for an ideal investment is not one-size-fits-all. Generally, VCs prefer to invest in Delaware C corporations as this entity structure offers greater flexibility of investors with favorable tax incentives, whether C corporations, S corporations or individuals. In addition, VCs want to invest in companies that are well advised – meaning founders have hired a professional team of people around them (i.e., IP and regulatory council, along with a CFO, controller, etc.). These investors are getting wined and dined across the board, so for your company to get attention you need to know your “wow” factor and how to present it. Know your audience and perfect your pitch for the group at hand. Lastly, be prepared for the follow-up call. If the VC is interested in your company, they are going to ask for financial statements, IP documents, regulatory filings, key employees, business structure, etc. Be sure that you have these documents ready to go, because once you get the fish to bite, you want to keep their interest.

Life science companies aren’t just waiting to be noticed by VCs in 2021. “IPO activity has grown faster than any other category of fundraising, with companies raising $34.3 billion in 2020, an increase of 186 percent on the previous year,” McKinsey cites. A previous Catalyst newsletter article titled "Life After Going Public" discussed things to consider if companies choose to go the IPO route.

When discussing funding for smaller companies, it’s always best to start with who you know. Tap into your network of friends and family. How will you be able to secure funding from a stranger if you can’t show them that your own people believe in your company’s potential? Angel investors are always looking for the latest and greatest research and innovative thinkers. Remember, though: A pitch to an angel investor group may look different than that of a VC pitch book. Know your audience.

When looking for funding, there are options depending on your long-term goals and the timing in which you need it. The life science industry is getting a lot of attention, so if you need cash, strike while the iron is hot!

Our Current Issue: Q1 2022

• Fundraising Trends for Technology Companies: Outlook for 2022
• Fundraising Trends for Life Science Companies