Mistake #1: Hit ‘em Where They Ain’t
Although generals from George Washington to Douglas MacArthur achieved great military success by focusing their forces on underdefended positions, the same does not hold true for venture capitalists. VCs are creatures of habit — actually, profitable habit. They typically go where they have made money before.

So, even if you have outstanding clinical data for a novel ontological agent, don’t bring it to a firm that specializes in cardiovascular therapeutics. Since they haven’t done one before, they’ll have to go find someone they trust to evaluate it, which will take a long time, and since they’ll be nervous about their first plunge into new and uncharted (for them) waters, they’ll haircut valuation. A little homework on venture preferences will save you from the frustration of a long “no.”

Mistake #2: “We only need 2% of the Market…”
When an entrepreneur says “This market is SO big, if we get just 2% market share, we’ll all make a fortune,” he has just reduced his chances for funding by about 98%. Aside from confessing a less than adequate job of market segmentation, he has identified himself as a small thinker. VCs think big. They have to. Eighty percent of their returns come from 20% of their deals. They don’t like to admit it, but they strike out more than 15% of the time. So every at bat needs to have home run potential. VCs are not looking for “me-too” products, but rather, for practice-changing devices and therapeutics. Rather than get 2% of somebody else’s “big idea,” VCs want to invest in 100% of a “new idea” that could turn into something really big. Better to focus on a bona fide gap than a general longing. If you are looking for 2% of the market, you may end up with 2% of the funding you were looking for!

Mistake #3: “Let Me Get Back To You On That.”
“Let me get back to you on that” is not an effective response for political candidates on national nightly news, and it’s not a credibility-building technique for entrepreneurs on the fund-raising trail. If the CEO defers to the clinical VP to describe the development plan, the fear is that maybe the CEO doesn’t really understand it. And if the CEO doesn’t really understand it, how can the investor get comfortable that it’s been carefully reviewed, or that the CEO will be in a position to oversee it? Or that he’ll be able to see trouble on the horizon and take pre-emptive action? Or that he’ll be able sell it to a potential partner?

Similarly, when it comes to numbers — date of first patient in, number of patients, number of sites, cost per patient, cost per trial, size of market, date of first sale, estimated first year sales, etc. — do not allow the precisely correct answer to prevent the perfectly good one. Providing a number that is 90% correct with alacrity and authority is infinitely preferable than scrounging through your notes to get the exact figure. You’ll look like an absent-minded professor instead of a captain of industry. Oscar Wilde was correct when he said, “We live in an age of surfaces.” Appearances count. VCs want to back teams with all the answers. Disappoint them at your peril.

Mistake # 4: using the “B” team
Venture capitalists are very focused on capital efficiency. However, when it comes to intellectual property and clinical trials, they do have an affinity for brand names. Not just because of their comfort with familiar personalities, but because sought- after firms are perceived to screen out some of the riffraff. And then there is the pain that has been inflicted through trials that failed, not because of the therapeutic, but the CRO whose system crashed or whose statistical analysis was flawed. Litigation is time-consuming, expensive, and distracting to the management team, and in short, not the best way to build value. Just as our fathers didn’t get fired for buying IBM, when it comes to IP counsel and CROs, the current vintage of entrepreneurs should not take their enterprise where no successful entrepreneur has gone before.

Mistake #5: Long Distance Relationships
The hub-and-spoke strategy didn’t work for the airline industry, and it doesn’t work for management teams in small, growing companies. There is a lot to be said for the water cooler as a communication hub. Physical proximity means everybody hears the same message at the same time. Everybody knows how hard everyone else is working. Company culture is reinforced. And when things go wrong — and they always will — the team will find out sooner, there will be less finger pointing and more rapid resolution. Also having everyone based at the home office speaks to their level of commitment to the company — if someone isn’t willing be at the home office, there is a concern they may be hedging their bets — perhaps on the prowl for something better.

Mistake #6: Multiple Shots on Goal
From an early age we all have been taught it’s important to have a plan B. In life sciences, for a while, it was called “platform technology.” It was touted by some as a sort of perpetual motion machine of new targets. In fact, some companies were made up entirely of Plan B. Unfortunately their returns were more like Cs or Ds.

The new plan B is sometimes a pipeline that includes a number of “backup” targets that can brought forward if the primary target fails. But the fact is that if you have a major failure, it will take time and resources to replace it. And if you tout your “backup” too loudly, people may wonder how good your lead really is.

Mark Twain, the noted 19th century microbiologist, succinctly observed, “If you put all your eggs in one basket, be sure to watch that basket!” Which is to say, be sure to staff your Team with “A” players for whom failure is not an option , but rather an opportunity to in-license something else (more) promising.

Mistake #7: Auctioneering
Some CEOs think valuation setting is an auction. They plan to start in the stratosphere because they figure they can’t negotiate up later. It doesn’t usually work out that way. In the first place, the market is pretty efficient. And VCs talk with each other more than teenage girls in a restroom. The difference in premoney valuations is usually not more than 15%.

Many venture guys will simply walk at a high price. Not because they don’t like to negotiate, but because they don’t want to deal with a CEO with unrealistic expectations. The average holding period for a successful venture-backed company is seven years. Venture investments are not transactions — they are relationships. It’s not a date; it’s a marriage. And if the CEO shows indications of irrational self-aggrandizement at the outset, it will only get worse over time. And in a venture capital divorce, there may be lots of yelling and screaming, but in the end, even the lawyers don’t make much money.

Mistake #8: “Fill ‘er up”
There was a time when a management team could solicit funding for 2-3 years during which it was assumed they would do a bunch of great science and at the end of which they would be in position to go ask for more. Those times are gone. Venture funding is down by 50% versus 2008. Venture firms are tending to their own flocks. To get funding in the current environment, an early stage firm must demonstrate that it will spend capital wisely and methodically build value every step along the way. Timelines and value creation milestones are essential elements in a successful (i.e. fundable) plan. Without these critical components, entrepreneurs are likely to experience a process Thomas Hobbes long ago aptly described as “solitary, poor, nasty, brutish, and short.” To a venture capitalist, money isn’t everything; it’s the only thing.

Mistake #9: Valet Parking
VCs are willing to invest in a proven management team, good IP counsel, and effective regulatory and CMC (certified management consultant) consulting. However, driving to an address in a high rent district may make them feel a little anxious. Seeing a fountain in front of the building will bring on chills. And, if there’s valet parking, they’ll drive back to the office. Venture is about building value. Capital efficiency has never been so important. Low rents, two people to an office, used furniture, obviously recycled artwork, second-hand lab equipment, co-op students, and a grouchy controller are all positive elements to a site visit. How you don’t spend your money can be as important as how you do.

Mistake #10: Going for Extra Credit
Yes, you have to do your technical homework. The preclinical data has to be sound. The mechanism of action needs to be understandable and rational. The animal models need validation. The end points must lead to a clear go-no-go decision. Clinical trials must have achievable enrollment and timeline goals and be appropriately powered. It’s important to be working on therapeutics that are nontoxic. It’s nice to have key opinion leaders who are supportive, etc.

But, it is also important to cover the technical details as briefly and concisely as possible. By about the fourth dose response curve, the VCs will be thinking about ski season. By the sixth, they’ll have composed the memo to the file explaining why they decided to pass. Wherever possible subtract technical slides, don’t add them. Remember, at the end of the day, when you are pitching VCs, it’s not about the science, it’s about the money.

About The Author
Rob Jevon is a partner at Boston Millennia Partners and has been investing in Healthcare and Life Sciences for more than a decade.