Under the spotlight; medical innovation – an investor’s perspective

SPARK Ventures tell us what you need to know to ensure you get funding from venture capitalists

For medical innovators the challenge to secure funding can be both daunting and exhaustive. You have 100% belief in your pioneering business model, but how do you persuade the venture capitalists (VCs) it is a sound investment? What are VCs looking for in an investment and what can medical innovators do to increase their chances of funding success?

Specialist investor SPARK Ventures has been providing equity investment to high growth companies in healthcare and life sciences sectors across the UK and Europe for the past 12 years, and has a wealth of expertise in backing and developing companies from start-up through to eventual trade sale or IPO (initial public offering).

Most recently SPARK Impact, part of SPARK Ventures, has been awarded management of the new Northwest Fund for Biomedical, a £25m fund which is part of a £185m Evergreen fund from the ERDF and EIB, providing equity and convertible loans from £50,000 to £1.5m to small and medium businesses in the biomedical sector in the North West of England.

Dr. Penny Attridge, SPARK’s Biomedical Investment Director, has experience on both sides of the funding process. She spent many years as an academic with the Public Health Laboratory Service specialising in the field of applied medical microbiology, before moving into the investment arena. Attridge is also the founder and director of Id-Tech Ltd, a company set up to successfully exploit her devices aimed at prevention of sharps injuries.

Here, Attridge shares a valuable insight into what investors want to see in the technologies and people they meet.

It may seem obvious, but some innovators fail to state certain key facts in the initial application process. VCs are not looking for 30 page business plans in the first instance. They simply want to see a concise executive summary – a business model backed up by clear financials and an exit plan.

“We are looking for simple solutions to big problems,” says Attridge. “If the plan is too complicated, it won’t work. We are looking for passionate people who are committed to building a successful business, who recognise their strengths and weaknesses, and who are prepared to listen to advice. Ultimately we want to see exciting innovative companies addressing clear market needs with relevant solutions”.

It is important to bear in mind that investors want to know about the commercial potential, and the exit strategy, not just information about the technology. A simple checklist would include the market problem outlined, a concise explanation of the solution, how much total funding is required to get the product to market, a realistic time frame and an exit strategy.

“People are by far the most important element when building any successful company,” said Attridge. “What we look for are people who have a clear idea of what they want to do, who are prepared to be helped, and who have the flexibility to adapt as the technology and market develops.”

VCs are not ‘the enemy’, Attridge points out. “They are actually very approachable and can help companies even in their early stages perhaps without full business plans, or even university projects considering forming spin out businesses. At that stage VCs can actually help to shape the business model and plan, and welcome the opportunity to visit potential investee companies in their own environment.”

The role of the VC is far broader than simply facilitation of funding. Investors work closely with the company and the individuals involved to support and advise them throughout the commercialisation process in order to bring the company to a point of exit.

SPARK’s portfolio companies have the same common components: strong management teams, identifiable and addressable markets with strong growth potential, market-ready technology, a demonstrable route to profitability, and a clear exit strategy.

Current companies within the investment firm’s portfolio include Oxford Immunotec, an international T-cell measurement company which develops and sells clinical diagnostic products based on patented T SPOT technology, and Monica Healthcare, a leading developer of foetal monitoring systems.

Attridge said: “We are seeing a range of interesting companies, varying from one person with a bright idea that they have worked up into a prospective new company, to more established companies with several rounds of funding which are at a crucial stage and need to raise the funding round which will take them through a value inflection point. We have over 40 existing companies in our prospective list, we are open for business, and we would be delighted to speak to anybody who thinks they have a suitable opportunity for our Northwest Biomedical Fund.”

Biopharmaceutical company, Haemostatix Ltd, a spin out from the University of Leicester, was established in 2003 to commercialise a new technology platform based upon a specific peptide sequence that binds to fibrinogen – a protein essential to the formation of clots.

To date the Nottingham-based company has received approximately £3.8 m in funding. The most recent – a £409,000 Translation Award from the Wellcome Trust – came in November 2010 and coincided with an additional £459,000 investment from SPARK Ventures, Catapult Venture Managers, NESTA, the Lachesis Fund and Leicester University as well as new investor, Nottingham’s Mobius Technology Ventures.

Haemostatix is focusing on unmet clinical needs in haemostasis with its patented PeproStat technology, which has been designed to control bleeding in surgery and trauma patients. Peprostat has a rapid mode of action, is suitable for ready-to-use formulations, and has an improved safety profile.

CEO of Haemostatix, Dr Ben Nichols, has recent experience in the funding application process and working alongside VCs.

“One of the most important aspects when applying for funding is to clearly define the market, the competitive advantages of the product and its market share,” said Nichols. “In my experience it’s also important to show a clear path to the development of the product, together with a clear understanding of the costs of developing the product. And this all needs to be in a succinct business plan.”

“The common mistake often made when looking for VC investors is to talk to any investor who will listen,” Nichols said. “But it is important to identify in the first conversation the size of the investment they are typically looking to invest, and the stage of company they typically invest in, so that you don’t waste time seeing investors who simply won’t invest in your type of company.”

Haemostatix’s main investors are SPARK Ventures, Catapult Venture Managers and NESTA.
Nichols said “Our investors are very supportive and provide a lot of advice and input into our business strategy and I think it is important to select VCs that have experience in your area so that they can provide support and advice and not just the money.”

With the product now at a very interesting stage of development, Haemostatix is planning to enter into a major commercial partnership in 2011.