10 Steps To Successfully Raise Life Sciences Venture Capital

By Geoff Meyerson in partnership with Merrill DataSite

For a first-time entrepreneur or even a veteran of multiple start-ups, raising money is one of the hardest tasks to get right. It is very time-consuming, and it can be a major distraction from executing your business objectives. However, raising money is often a necessary step for a company to accelerate development, improve sales, and realize a successful exit.

A well-executed fundraising process can lead to competitive term sheets or offers from venture capital (VC) firms.

Here are 10 steps that life sciences companies should follow to successfully raise venture capital:

1. Kickoff meeting and division of responsibilities
Any good process needs a formal beginning and an end. The organizational meeting gets all the people involved with the transaction on the same page.

You should use this meeting to:
1. sort out all roles and responsibilities,
2. formalize the timeline for the transaction,
3. identify who should be doing what by when.

2. Business plan/Private Placement Memorandum (PPM)
This is where you lay out your road map. This is often referred to as the private placement memorandum – which is a fancy way of saying “business plan.”

In it, you need to describe:
1. how the company will make money
2. what it will use the money being raised for
3. how investors will be rewarded

You’ll also need to prepare:
• your management presentation, which is tailored to inform potential investors. This will come into play Step 5.

3. Due diligence and process preparation
This step is often neglected. It shouldn’t be. The more you prepare for the offering before starting outreach, the quicker and more seamlessly it can go.

Using a virtual data room (VDR) can streamline the process of pulling together all relevant documents and make it easy for investors to conduct their due diligence.

A VDR can also secure your company’s important data by ensuring that potential investors cannot print, save or download the documents.

4. Outreach
This is where the rubber meets the road. Once all of the materials have been prepared and the VDR is ready, you can begin to reach out to VCs.

Unless your company is using a placement agent, the outreach could be done by:
• your banker
• the CEO
• the CFO
• other member of the senior management team

5. Management presentation
So you’ve landed a meeting with a VC. Now you’ll want to roll out that management presentation you prepared in the prelaunch phase (Step 3).

Be sure to:
• Clearly explain what your business does.
• Have your team at the pitch. VCs prioritize the team above everything else.

6. Investor follow-up and due diligence
The three most important words in fundraising are follow-up, follow-up, and follow-up.

Venture capitalists tend to be very busy people. You need to keep their attention focused on your deal. Be consistent and regular with your follow-up.

7. Receipt of term sheets
This is where it all starts to come together. All of the hard work you’ve put in starts to pay off with the first nonbinding term sheet.

Term sheets can expire anywhere from 24 hours to 45 days after they’re offered. VCs do this to minimize your ability to “shop around” for a better deal from other investors.

8. Negotiation of term sheets and building a syndicate
Now’s your opportunity to get the best deal possible for your company.

The negotiating process is mainly dependent on:
• how badly the company needs the money
• how many term sheets have been received
• what other options are available

If you’ve received multiple term sheets, you have greater bargaining power with VCs.

9. Draft and negotiate legal documents
The legal team should take the lead on this process for both the counsel and company.

While the VC and the management team need to stay involved to negotiate remaining business items, much of the detail gets resolved between attorneys.

10. Deal close
This is the fun part. After all documents have been finalized and signed, stay in close contact with your bank to ensure that the funds have arrived.

Pat yourself on the back for a job well done. Now you have to deliver on the plan and create value for investors.

Geoff Meyerson is CEO and founder of Evolved Capital, a company with tools to streamline the venture capital fundraising and investing process via returns analysis and deal flow management modules. He can be reached at geoff@evolvedcapital.com.

Merrill DataSite offers electronic document integration, audits and enhanced reporting, Q&A features, 24/7/365 customer service and rapid implementation within 72 hours. To learn more about how Merrill DataSite can transform your next due diligence process, go to datasite.com/lifesciences

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