Come and meet Robert and hear more at ON Helix, One Nucleus’ Translational Research Conference on 14 July 2015.
Before joining CIC in January 2014, Robert spent 11 years in VC backed companies. Robert will be speaking at the ‘De-risking funding- Funding through early stages of development’ session at this year’s ON Helix meeting in July.
‘The problem with you venture capitalists is that you are risk averse.’
Having spent many years in VC backed companies, I am no stranger to the faults and deficiencies of venture capital in the UK but there seemed a certain irony in this particular criticism of my newly adopted profession. Investing in early stage innovative life science is inherently risky. As if the risks of our incomplete understanding of biology are not enough, you have the commercial, regulatory, competitive and implementation uncertainty that can de-rail even the most astounding science. There seemed to be a certain irony in accusing the only people who commercially invest in one of the most risky investment areas of being risk averse.
While advances in the life sciences bring huge potential both scientifically and financially, investing in the area remains a hugely risky business. The only way I can justify it is to mitigate as much of that risk as possible. Therefore, I would like to think that I am not risk averse but rather that I seek to manage the risk in early stage companies.
In my upcoming presentation at ON Helix, this July, I will be covering some of the key aspects involved in considering funding companies in the early stages of their development and how I go about dealing with the risks involved. I will be taking as an example the exciting new company, Congenica, that exemplifies many of these key factors.
Getting the Project as far as possible on non-dilutive Funding. Each unanswered question around the science or commercial landscape of a new opportunity magnifies the risk. The more that these can be addressed before seeking commercial funding the better. If the project can be developed with non-dilutive funding, either through work in the founders’ academic institute or through non-dilutive or charitable / government awards that would generally be a good thing. However, in fast moving and competitive areas, the need for speed needs to be remembered which may require commercial investments at an earlier stage.
The Science has to be truly world class to be fundable. Being excellent is not good enough; if any area starts to look commercially attractive, it will draw the best minds into direct competition. Consequently, the science and the scientists behind it must be robust enough to meet this threat.
The Commercial Opportunity. World-class science is not commercially investable if no one is willing to pay for the outcome. If you beat the odds and actually bring your product to market, someone has to be willing to buy it. A strong understanding of the unmet medical need, the market and the importance of reimbursement is essential to reduce the investment risk.
The Team. Having a management team with a strong track record in place at the time of early fund-raising greatly de-risks the investment. However, there is a shortage of high quality people with experience of fund-raising who are willing to accept the uncertainty of an early stage company and therefore some creative structures may be needed, e.g., bring people in part-time or identify high quality non-executives / mentors.
Third Party Endorsement. The fact that other people see the potential in a new company not only provides the reassurance we all seek, but also de-risks by demonstrating that the story makes sense from different perspectives. While it is feasible that I might be the only person to see the true value in a proposition, it is more likely that there is good reason why my view is the exception. Third party endorsement from groups such as Innovate UK, Wellcome Trust or a blue chip investor, de-risks by demonstrating that the story stacks up from an external point of view.
Patient Capital. It is highly likely in early stage companies that development will take longer than anticipated and that funding requirements will be higher. Early stage investors need to have the patience to allow the company to make mistakes. Having early stage investors who are able to take a longer term view greatly reduces the risks in early stage companies.
Access to Capital. With some notable exceptions, the UK has been very poor at taking high quality small to medium sized companies and creating significant global companies. The lack of access to follow on capital to allow the companies to grow has meant that many have fizzled out or been bought for a fraction of their ultimate worth. When considering early stage funding, it is important to keep one eye on future funding requirements and the source of that capital.
About Cambridge Innovation Capital
Cambridge Innovation Capital (“CIC”) was launched with initial funding from long-term institutional and strategic investors including Invesco Perpetual, Lansdowne Partners and the University of Cambridge Endowment Fund. We invest in high-growth life science and technology companies arising from the University of Cambridge and the wider Cambridge Cluster. With our close ties to the University, active angel groups and the entrepreneurial community, our mission is to be one of the leading venture capital investors in the vibrant Cambridge area. Where needed, our investment strategy backed by our permanent capital structure, allows us to provide long-term financial support to our portfolio companies.
Robert Tansley, Investment Director for Life Sciences at Cambridge Innovation Capital, will be taking part in the De-risking Funding – Investing in Early Stages of Development session at ON Helix, One Nucleus’ Translational Research Conference taking place on 14 July 2015 at the Wellcome Trust Conference Centre, Hinxton.