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Nov14,2017 AyseZamboglu

BestPrac*cesfor

AngelInvestorsinLifeSciences

WhoareAngelInvestorsAngelinvestors:•  investwiththeirindividualfunds•  areentrepreneursthemselves/execuEvesofcorporaEons•  moEvatedtocontributetotheecosystem•  naturalmentors•  wanttobeapartoftheinnovaEonsintheirindustry•  providevaluablemanagementadviceandstrategic

connecEons

AngelCapitalAssociaEon•  13,000+angelinvestors/240+angelgroups,accredited

plaIorms,familyofficeshKps://www.angelcapitalassociaEon.org/

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EmpiricalObservaEons

InBOTHAngelandVC•  You’remostlikelytoloseyourmoneyinanyoneinvestment

•  Lossesarecappedbutwinsarenotcapped

•  10%ofinvestmentsgenerate90%ofallcashreturns

•  LossesarerealizedtwiceasfastasWins

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Mul*ple <1X 10%ofexitsto$

2016

70% 85%

2007

52% 90%2009

56% 80%

2.5X

2.6

2.2

Hold

4.5yrs

3.5

3.6

EarlystageVC’05-’112.1GrossTVPI&includescarriedvalue

AngelReturnStudyData

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TrackingAngelReturns•  TheoverallcashoncashmulEplehasremainedsteadyat2.5XCapital.

•  Theholdingperiodhasincreasedby25%to4.5yearsonaverage.

•  10%ofallexitsgenerated85%ofallcash.•  Thefailurerate(exitsatlessthan1X)climbedto70%.•  Mostoftheincreaseinfailedinvestmentscamefromadecreaseinthe1X-5Xcategory,withlargerexitsrepresen*ngabout10%ofoutcomes.

•  AswiththepriorstudiesandalsoformalVC,thedistribuEonishighlyskewed:themedianinvestmentisaloss,whilethemeanisa2.5XmulEple.

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2X better multiple for

20+ due diligence

OutcomesSplitbyDueDiligence

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-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

<1X 1X to 5X 5X to 10X 10X to 30X >30X Multiple Category

Per

cent

of

Exi

ts

Less Than 20 Hours 20+ Hours

60% better multiple for deals related to industry expertise

OutcomesSplitbyIndustryExperEse

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-

10.0

20.0

30.0

40.0

50.0

60.0

70.0

<1X 1X to 5X 5X to 10X 10X to 30X >30X Multiple Category

Per

cent

of

Exi

ts

No Industry Expertise Some Industry Expertise

•  100+individualmembers–  SECReg.DaccreditedindividualsandorganizaEons–  ExecuEves,entrepreneurs,physicians,scienEsts,engineersandventurecapitalfirmsfromthelifesciencesindustry

•  62companiesfundedtodate–  ~$50Minvested–  ~$1BinfollowoninvestmentfromVCsandstrategics.

•  23exits-$15Minvested,$24Mreturned 8

LSADealStructure•  Membersmaketheirowninvestmentdecisions•  Strongpreferenceforequityvs.debt•  InvestmentsstructuredasanLLCtoallow:

–  Singleinvestor,singlechecktocompany–  IncreasesleverageintermsnegoEaEon–  FollowupinformaEonmorereadilyavailabletoinvestors

–  ImproveslikelihoodofparEcipaEoninfollowonrounds

– GreaterpublicrecogniEonofLSAparEcipaEon–  PosiEonsLSAtosyndicateinvestmenttoothergroupswhenneeded

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LSA–DealFlow•  Ac*vesolicita*onfromlifesciencesindustry

–  Sourcedfrommembers,sponsors,VCs,universiEes,etc.•  2investmentcommiPees

1.  Biotechnology,GenomicsandMolecularDiagnosEcs2.  MedicalDevices,DiagnosEcsandDigitalHealth

•  Internalchampion(s):requiredfornewdeals•  Investmentrange:$150kto$1M•  Syndica*on:ProventrackrecordwithotherangelgroupsandVCfirms

•  Follow-onfundingrounds:LSAnormallyparEcipatesinoneormoreforporIoliocompanies

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WhatisthePurposeofDueDiligence?

•  Finddealsthatdonothaveanyrisk?No.•  Finddealsthathaveminimalrisk?No.•  IDENTIFYALLMATERIALRISKSANDALLFACTORSTHATDETERMINETHEEXTENTTOWHICHTHEYCANBEMANAGED,MITIGATED,ORAREREALRISKS.

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CommonDueDiligenceProcess

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MulEtudeofDDPracEces

•  IniEallightscreening-gaugeforinterest•  Duediligencechecklist•  LeanLaunchPadapproachKey:FocusresourcesandEmeondealsyourgroupismorelikelytodo!LifeScienceSpecific:•  Lifesciencecompaniesrequiremorecashtohitmilestones

thatcanraisevaluaEon:Greaterunderstandingrequired!

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OneApproach:DueDiligenceChecklist

q  CompellingMarketNeedq  Specific,SufficientTAM&SAMq  SoluEonStrongEnoughtoCauseDecisionMakerstoAlter

Behaviorq  IPprotecEon&FTO(Industryspecific–whereapplicable)q  Clearproductroadmapq  “A”LevelTeamq  SufficientMarginstoBaseaCashPosiEveBusinessq  ModerateFinancingRisk/CashRequirementstoCriEcal

InflecEonPointsandExitq  IdenEfiableExitPathway

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Preferred:TheLeanLaunchPadApproachtoDueDiligence

•  LLPbreaksanybusinessdownintomodulescontainedinaBusinessModelCanvas

•  Thefoundingteamneedstogeneratespecific,quanEfiablehypothesesforeachmodule

•  Majorbenefitisthequalityofcustomerdiscovery.Thefoundingteam(notconsultants)needstoGetOutoftheBuildingandtesteachhypothesis•  Customerisdefinedverybroadlytoincludeeverystakeholder

•  Sointhebroadestsense,investorsandacquirersareCustomers!

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MedTechBusinessModelCanvas

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COMPELLINGCLINICALNEED

IP/BARRIERSTOENTRY

EXITPATHWAY

VALUEPROPOSITIONvsAVAILABLESOLUTIONS

FOREVERYSTAKEHOLDERDATAREQUIREMENTSCLINICALTRIALS

REGULATORY

REIMBURSEMENT

TEAM/RESOURCES

RED=FIRSTBLUE=SECONDGREEN=THIRDTHENREPEAT

CASHNEEDSFINANCINGRISK

BUSINESSMODEL

P&LMARGINSCASHFLOW