Need capital? Think big
Kiwi bioscience startups need ambitious, proven ideas if they want to attract more investment.
Take it from Ron Laufer and Matt McNamara. They kill ideas for a living.
As leaders at their respective bio-science investment firms, they might back one proposal out of hundreds of ideas they come across every year.
“All startups have gaps and we never expect a company to tick off all the boxes,” said Laufner, senior managing director of US-based Medimmune Ventures, at the NZBio conference in Auckland on Wednesday.
“We are in the business of eliminating opportunities. It’s about very quickly killing ideas so we are left doing the heavy lifting and due dilligence on just a handful.”
To Laufer and his fellow panelists, most startups will not cross the “valley of death” — that period in a company’s life cycle between early investment rounds and becoing a mature company.
They say a solid business plan and exit strategy, and a strong management team, are imperative. Panelists said New Zealand startups were slowly seeking larger-scale venture capital.
“We are only now seeing some New Zealand companies - Lanzatech is a great example of that - that have gone through mutliple rounds of capital and can talk to people around it,” said Mark Clare, partner of Woodward Partners in New Zealand.
Clare said what holds startups back is contentment about playing in the domestic market, combined with fear of dilution, which is sometimes reflected in the management structure. That's because instead of operating a company, managers are too busy looking for investment locally.
“In New Zealand we do need to be thinking bigger,” Clare said. “The answer to the question is sometimes we don’t know what to do with $5 million or $10 million. So boards should look more broadly at what they could do with that because it will help drive their company forward.”
Clare cited Sam Morgan’s idea that boards should imagine what their company would look like as a $100 milllion company and work backwards from that level to develop a strategy for growth.
“Traditionally we’ve been successful with making do, the number eight wire mentality, and part of what we’re saying is we need to break away from that,” said Clare.
This is trickier in biosciences, especially for pharmaceutical companies, because the timeline from the “eureka moment” to selling a product in a pharmacy can take almost 20 years of research, development and regulation.
Panelists suggested research, including talking to entrepreneurs that have attracted investement before, as well as researching the potential investor, would help startups understand whether they had a good sense if they were going in the right direction.
The panelists said presentations to potential investors needed to be as sharp as the ideas presented. Entrepreneurs shouldn't be afraid to admit when they didn’t know the answer to a specific question about a market or business plan, they said.
“People will kill their own idea very quickly,” said McNamara. “The thing that we investors across the board look for is honesty, and no surprises down the track. There’s nothing worse than contradicting yourself.”