RALEIGH – What are the secrets to raising venture capital in the life sciences?

A panel of venture investment fund managers offered their insights Wednesday during the CED’s annual Life Sciences Conference at the Raleigh Convention Center.

Dispensing the advice were Hongbo Lu, Ph.D., partner in Lily Asia Ventures; Janis Naeve, Ph.D., managing director of Amgen Ventures; and Jayson Punwani, Ph.D., partner in Takeda Ventures.

Here are some highlights, edited for brevity:

What do you look for in an attractive venture investment?

Naeve: “In terms of what we look for, first of all, it’s got to be strong. Strong, bold science. We’re not looking for incremental; we’re looking for really transformational. Beyond that, what’s really important . . . is it’s the team, it’s the people, that we’re actually investing in. Often times what you invest in, there ends up being a pivot (in the technology or product), so the only real consistency that you really truly have is a strong, well-rounded (management) team.”

How do you define ‘strong and well rounded’ team?

Naeve: “I think it really kind of depends on the stage of the company. The earlier, you really want the good, strong scientific founders there that are involved. But as companies grow and evolve . . . the team will change. It’s really the right experienced, transparent, forthright people that are at the right stage of the company.”

Punwani: “As an investor you enter into a relationship with the company, and there’s a little bit of chemistry that’s involved. It’s not just one single person; you’re investing in this group.”

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Lu: “Scientific competency and business and scientific integrity are extremely important. Not all of the technical founders could lead the companies through all different stages. So the founding team’s openness in bringing in additional talent to build the companies to different levels – that’s critical.”

Punwani: “One question is the idea of investing in first-time CEOs or not. I certainly think it’s a riskier proposition, but we don’t have a philosophy that we only invest in serial entrepreneurs. We certainly will take chances on first-timers, but the bar is obviously higher if you’re a first time entrepreneur. It certainly helps if you’ve been through a cycle – successful or unsuccessful – at a biotech company in a senior-level role.”

Naeve: “It’s a no-brainer to invest in established management teams. You want to encourage the development of more management teams. If you look at the numbers, there’s a lot more money coming into the system right now from an investment standpoint  . . . but the management teams are still pretty captive. It’s a rate-limiting step for these teams. So it really behooves us to take the chance on first-time CEOs, first-time teams.”

Lu: “We don’t actually have the luxury to have many experienced entrepreneurs when we do cross-border (investments) and when we do investments in China. There’s not enough talent pool, so we deal with first-time CEOs all the time. It does take a lot longer for the learning process, but it can be rewarding as well.”

What are the hot areas you’re looking at right now?

Punwani: “It probably changes on a monthly basis. Biospecifics are super hot right now, gene therapy is super hot – we did an investment in a local company called Stride Bio in that space. RNA editing is super hot – there’s a local company, Ribometrics, that’s also in that space. I think what we’re trying to do is look at what’s going to be hot next year or five years from now. That’s where the secret sauce is.”

Naeve: “I like to look at areas where there are intersections, where part of it might be finding new drug targets but other things might be finding new ways to diagnose early. I think neuroinflammation is kind of the underlying etiology for some of these neurodegenerative diseases (Alzheimer’s, ALS, etc.) and is really quite interesting.”

Lu: “We definitely are looking at cell gene therapy. It’s hot, but it’s probably going to get hotter. That’s definitely a strength here (in the Triangle region), and it’s going to be an area that will continue to bear fruit in the next five to 10 years a least.”

How can North Carolina companies get your attention?

Naeve: “Cold calls don’t work that well. Really try and find someone to help advocate for you. There are great VCs here in the area, and there are successful companies. Go talk to their management teams and get some guidance, get some introductions. It’s a better way to get it to the top of our desk.”

Punwani. “Don’t be discouraged. You’ve got to throw a lot of darts at opportunities. I think the bar is higher if you’re not in Boston or San Francisco. You’ve got to differentiate yourself. It has to be a really novel platform, the timing is right, you’re in a hot space, or you have a management team that’s really captivating and charismatic. And it doesn’t happen overnight.”

What are the biggest challenges you face in helping companies?

Lu: “I think (finding) talent is the most challenging part.”

Punwani: “In certain ecosystems like Boston it’s really difficult now to hire people at the C-level. It’s very competitive. It’s a revolving door. People join, they vest and then they move on to the next company. Even in places where you think there’s an abundance of talent, it is challenging.”

Naeve: “The investor syndicate is really key. The ones that are the most problematic is if you’ve got different VCs at odds in terms of where they are in their funds or in their points of view. It’s usually not the technology or the program that ends up being the problem, because you can always pivot. But boy, if you have the wrong mix of people in that board room it can suck up a lot of time and end very badly. So it’s really important to get that right mix of people at that table because things will always go wrong.”

How should companies choose investors?

Punwani: “I think entrepreneurs should do due diligence on investors because we all have to get along. I see less and less of that but would encourage that. Be careful who you partner with, who you take money from. That really sets the direction of your company and can change the tenor and the tone of the future. It has a huge impact.”

Naeve: “As you’re looking for investors . . . you really do need to find that lead investor. If you can grab that lead, they will help you syndicate. You just need to find that first pickle out of that jar and, before you know it, then the financing will start to come together.”

Lu: “Looking at who is in the investor syndicate probably is as important as who is the management team and probably more important than the (company) valuation.”

How do you arrive at valuation?

Punwani: “It’s supply and demand. If you have one term sheet or one group that’s interested, you’re going to have a low valuation. If you have two competing term sheets, you’ll have a higher valuation.”

Naeve: “There’s no higher math to it. It’s really supply and demand. Trust in your investors because the smart ones are going to make sure that the company comes along at the right pace at the right valuation because the last thing you want to do is be overly steep on your valuation at any point in time. It ends badly for everyone. Find the right colleagues first, and then the valuation will work itself out.”

(C) N.C. Biotech Center

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