Early stage medical device and biotech start-ups almost always deliver a very similar message in their fundraising pitches. It is a variation of this:
“We invented something. If it proves safe and effective, it’s going to save a lot of lives, save a lot of money, or both. The company will be very profitable, will IPO or sell at a high multiple, and will provide a huge ROI for our investors.”
Since all companies will make the same basic pitch, the question is how to get investors interested in your company. In the fight for investment capital, your competitors are not the companies you are trying to beat in the market, but rather the companies who are making these similar pitches.
The way to break through is to remember that investors look at two things – risk and return. Even though your general pitch may be similar to others, your job is to show that an investment in your company has lower risk and/or higher return than that of other companies.
So let’s break the above message into its components, and look at each from a risk and return basis.
“We invented something.”
Your presentation should discuss why you have rights to the “something” you invented and why others can’t do the same thing. Of course patents are useful here, but so are trade secrets, being first, having exclusive license arrangements, locked-in customer contracts, etc. You want to show that you, and only you, can use the “something.” To the extent you are successful here, you are both reducing investor risk (“we really do have rights to this”) and increasing potential return (“and no one else does.”)
“If it proves safe and effective,”
Depending on the area of your invention, the road to “proof” can be simple or can be expensive, risky, and take years. Wherever the reality, you need to take the time to position the facts to reduce the perceived risk. The closer you are to proof, such as being in Phase 3 trials with nothing but positive results to date, the easier. And of course the longer the path and the earlier you are on the path, the harder. The key is to keep investors from making assumptions that increase the perceived risk. Be completely truthful, but include and focus on the information that presents the risk in the best light. You often can’t separate the risk and the return here – if the risk is high, if it’s going to be a long and expensive path to get to the proof, you will also need to focus on the exceptional ROI.
“it’s going to save a lot of lives, save a lot of money, or both. The company will be very profitable,”
The first sentence is the classic problem/solution tandem, and most companies are good at this, because this is the focus of the company and usually of the presentation. You must clearly state the problem and how your solution addresses the problem. Investors mostly will take it at face value that the problem is what you describe, and your solution is in fact a solution. So here is where you can focus on the great business potential- that the market is large, the margins are high (and why that’s the case), you can find and sell to customers, and that you can keep competitors at bay.
“will IPO or sell at a high multiple, and will provide a huge ROI for our investors.”
Like the above, all companies will present a variation of this message. The key here is reasonableness and credibility. From a reasonableness standpoint, show that your revenue and profit forecast make sense to get you from where you are to where you say you’ll be. Don’t just show a hockey stick, show how you are going to get there. Details are good – they not only address reasonableness, they address credibility as well. Examples of exits that have occurred in your industry that show the sales or profit to acquisition price ratio are good. And of course, showing a reasonable acquisition price that delivers your investors a large return is the goal.
Consider valuation as well. It shouldn’t be the most important thing to you or to investors, but it is important. Obviously, the lower your valuation, the higher the potential return. To an investor, a poor company is never a good deal at any valuation, but a great company with great prospects still could be a bad deal if the valuation reduces the potential return to the point where it is not worth the risk, compared to alternative investments.
From a credibility standpoint, it’s really your entire presentation and plan, taken as a whole, that add up to your credibility. Each part of your deck is important, from the team to the problem/solution, marketing, sales, financial forecast, traction, the way the CEO comes across during the presentation, yes everything.
There is no magic here. You will be making the same basic arguments as other companies seeking investment. If you can successfully demonstrate that your company represents to investors a lower risk, higher reward, or both, you will be well on your way to closing a round.
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