Editor’s note: Jim Roberts does business development for Durham based PreClinical Pathfinders in addition to his roles at Bunker Labs RDU , the Network for Entrepreneurs in Wilmington (NEWilm) and the Wilmington Angels for Local Entrepreneurs (WALE). Jim has been a connector and a resource for startups in North Carolina for the last 17 years. He also is a frequent contributor to WRAL TechWire.

RESEARCH TRIANGLE PARK – I have always heard how hard it is for Life Sciences startups to raise early stage seed capital, so to hear insights from six investors made for a great event at the N.C. Biotech Center this week.

The leaders at NC COIN, Arris Partners and other have restarted the Life Sciences Forum and the startups came out in force to hear hints of how to be given serious consideration for the competitive nature of Life Sciences related early stage capital.

With a balanced mix of high profile venture capitalists and lesser known strategic corporate investors, attendees heard what the investors are looking for and how they find new deal flow.

Moderator Anil Goyal of OpenDoors Group had a running series of jokes about high profile Life Sciences companies and the audience had to guess if they were actual unicorns or just donkeys with party hats for horns. According to Goyal, Genentech was the original unicorn and Theranos, well you know what the news has reported what happened there. Goyal also said that the 2017 outlook is improving as international funds are coming from China and UAE. 2017 has also seen early exit activity with the IPO of G1 Therapeutics and the acquisition of Patheon.

Two of the highest profile Life Sciences Venture Capital funds participated with Scott Weiner of Pappas Ventures and Michael Dial of Hatteras Venture Partners. These are impressive people who both have to understand the financial and business aspects balanced with how to understand very complex scientific solutions to the largest medical challenges in the world.

Pappas Ventures is looking for therapeutic technologies across the US and Canada as they do 75% of their deal flow in drugs and 25% in medical devices. They usually invest $6-8 million dollars over the lifespan of the companies in their portfolio. In recent years, they have also formed a fund with money from an Italian partner for solutions for orphan diseases.

Michael Dial, a partner in Hatteras Venture Partners, said their fund is looking for Seed and Early stage companies in the southeast and mid Atlantic regions. 50% of their investments are in biopharma and the rest in diagnostics, devices and health IT. They are currently on their 5th venture fund of $150 million and also work with UNC Chapel Hill on a $10 million sidecar fund. Hatteras Venture Partners will initially invest $500,000 with a potential $5-6 million in the lifespan of the company.

Three strategic corporate investors also participated with Anita Watkins of Rex Strategic Innovations, Jonathan Meltzer of LabCorp Ventures and Alex Gray of Echo Health Ventures.

Among the most interesting insights include:

  • The investors consider both SBIR grants from NIH and other federal programs and grants from the NC Biotech Center as good validation that the startups have something of interest to the industry. This is non dilutive capital that will pay for the expensive research before the product goes to market.
  • Many times the investors will work with the company’s board and management to attract additional capital.
  • Many entrepreneurs do not know that the venture capitalists also have to raise money for their own funds. Of course these funds do not have valuations like the startups do but are based on reputation and long term relationships. They will work with institutional funds, pension funds, endowments and family offices.
  • Corporate Strategic Investors really stepped up the activity of their funds during the most recent recession.
  • If a strategic investor is the first money in, it gets a bit more complicated if a different company wants to be the eventual acquirer.
  • Word of mouth seemed to be the most popular way that these investors found their deal flow. LabCorp seemed the most aggressive by saying they will directly reach out to the startups they are most interested in talking to about potential investment.
  • Anita Watkins of Rex Strategic Innovations said there was a lot of opportunities with the hospital but the technology must improve quality of care and reduce cost. A marginal improvement and an increase of multiples in cost is not acceptable.
  • Watkins also commented on the Health IT trend by saying that many hospitals are not ready to accept all of that data. (Sounds like an opportunity to me.)
  • Some of the investors including Michael Dial of Hatteras Ventures said that they have done deals on convertible notes but that is not the preferred method of investing. They want to be able to work on the valuation of the startups at the early stage.
  • While there are fewer venture funds, some existing funds are now much bigger funds and have more capital to put to work such as the new Bain fund.

If you were not at the event, I would suggest you get on the mailing list for the next event as this event should have been sold out months in advance and standing room only for the quality of information and the quality of contacts on the stage and in the audience.