As part of our upcoming Locust Walk Institute course on raising capital for companies, we put together a list of five mistakes an entrepreneur makes when raising capital. Each of these will be covered in depth during our course:
- The company story is too long
Having a tight and “to the point” story is key. Most biotech companies we meet have slide decks that are more than 30 or 40 slides and get into too much detail for an introductory meeting. Ultimately the point of the first meeting isn’t to close a deal but to get to the second meeting and start due diligence.
- Not understanding the financial implications of the deal
Many first time CEOs and management teams are thrilled to get funded and often gloss over the fine print. In a homerun exit, these terms don’t usually matter as they will likely become irrelevant. When the deal takes more capital and time than originally planned, return multiples start to get compressed and terms start to matter.
- Targeting the wrong investors
CEOs believe in their companies and often think that everyone else should as well. Most successful investors have a clear thesis around the types of deals they will invest in, including the stage of the asset and novelty of the opportunity. Focusing outreach to a targeted group of potential investors that are likely and able to commit will save a lot of precious time.
- Believing that non-VC investors can solve all problems
Every day we hear entrepreneurs that want to raise family office or hedge fund capital because they are less price sensitive, won’t interfere in the company and care more about the mission. The reality is that some funds operate like that but most don’t. Entrepreneurs often spin their wheels in this space without getting much traction.
- Not sizing the team to the opportunity
The stage of development of the company should dictate the type and number of management team members appropriate for the deal. Many early stage companies already have a CFO or CBO and really don’t need one. Many later stage companies haven’t swapped out the original CEO who may be in over his/her head. Most VCs strongly consider the team when investing and need to have both a personal connection to the team and have the right team in place. Knowing this upfront can avoid some difficult conversations down the road.
If you’re interested in learning more about how to raise capital for your life science company from angel rounds through an IPO, check out our newest Locust Walk Institute course and get the early bird discount.
Written by Geoff Meyerson