Here's an excerpt of an interview I did with Venture Hype a few weeks ago about backing companies in the life sciences. The complete interview can be found here.
VH: What are the unique characteristics of life sciences companies? For example, how are they different from technology ventures? What advice would you give to investors interested in backing life sciences companies?
TL: Life sciences encompasses many different types of products and services in the bio/health sectors – such as biopharmaceuticals, medical devices, bioinformatics, health IT – and bioenergy and other bioproducts in the environment, agriculture, marine and other resource sectors.
These companies operate in heavily regulated environments; and hence, investors in life science companies face longer timelines to exit than investors in not so regulated sectors such as social media and Internet companies.
The metrics for success are also different for life sciences. There’s a strong emphasis on proof-of-concept, which highlights the significance of the science behind the products and services.
The success of the life science company is tied to the achievement of the next regulatory hurdle, which is akin to receiving customer orders in businesses that don’t face the same types of regulatory controls.
Exit opportunities for investors in life science companies often occur when these companies reach a tolerable investment risk and valuation commensurate with their regulatory achievements – and often before revenues are generated.
My advice to investors interested in backing life science companies is to be
- confident in the management team’s ability to execute,
- very comfortable with the science underlying the business, and
- very, very patient for the exit opportunity to occur.