Raising Capital During a Pandemic: Strong Networks and Respected Advocates Remain Critical to Fundraising Efforts
Talk to any experienced venture capital investor and they’ll tell you that personal, face-to-face interactions that blossom into trust-based relationships are the lifeblood of the venture capital world.
Well, that world has fundamentally changed because of COVID-19.
Pressing the flesh, side meetings at big conferences, and breaking bread during intimate dinners has been put on hold for now, leaving startup founders and CEOs and their potential investment backers on virtual islands devoid of direct, team-to-team and person-to-person interaction. How venture capital (VCs) firms and investors perform their due diligence remotely has become an interesting challenge in the current COVID-19 new normal.
Startups, emerging companies, VC investors, and VC firms have adjusted on the fly to this new pandemic reality. For startups and emerging life science companies, pivoting to network building during the pandemic can pay huge dividends down the line.
Nothing in the venture capital universe has more intrinsic, simple value than the “warm introduction.” A “warm introduction” is when a respected, experienced, well-regarded advocate for a startup or emerging company’s technology and team reaches out to an investor or VC firm to express their support by introducing the two parties.
The tremendous value and power of the “warm introduction” has not diminished because the investment gauntlet has gone virtual. It has retained its power and therefore startup founders and emerging company CEOs need to focus on improving their network or enhancing an existing pool of key opinion leaders (KOLs) while the iron is hot.
“There are a lot of key opinion leaders at home right now that are on LinkedIn and they are a lot more open to taking calls,” commented Dr. Rania Nasis, Director at SoPE and New York Tristate Chapter Co-Leader and the CEO of Starlings, a startup advisory company.
“There is hope in the sense of who do you bring to bear as advisors and KOLs that give you recognition in a time like this,” stated Adair Newhall, Principal at Greenspring Associates. “This is a great opportunity for seed entrepreneurs to build their foundation better. Who can you use through your network to not only strengthen your technology applications but also give you a recommendation or lift with their brand name to help steer your company in the right direction?”
To secure funding, it is true that a startup or emerging company needs to have a life science technology, product or service platform that is differentiated, commercializable and alleviates a significant pain point in the market. Without this core component, sophisticated investors and backers will be hard to come by.
However, it is also critical to build a network of quality people around a core competency, technology, product or service. The subject matter experts, advisors, board members and other KOL advocates that you attract around the core product and technology will legitimize a company in the eyes of investors and give it, as Newhall put it, “lift.”
It is critical for young life science companies to recognize that great science or a novel technology is just the gateway to VC interest. The people that swaddle and nurture and drive this science and technology forward are what ultimately close the funding deal, in most cases.
Once VC firms believe in a technology or a product, they’ll look to the people behind it. Due diligence will include evaluating if the scientific founder has the skills to serve as a business-minded CEO. Investors will assess if the core team has a track record of success. VC firms will take stock of a young company’s advisory board, board members, and other advocates that have put their good word and reputation behind the company.
The makeup of a team and the network of supporters that envelop a product, service or technology — in other words, the quality and proper deployment of people — is of paramount importance to VC firms and investors looking to mitigate investment risk.
Matthew Miessau, Associate at Epidarex Capital, commented, “It all comes down to background and CEO skill set…We look for actively engaged entrepreneurs that are willing to add to their skillset and to transition to a different role once it has grown beyond where they are most needed.”
“It’s about coachability. Can you be coachable and trainable? Do you hang on to the reigns from professor to test tube to IPO? Are you that type of person? Can you accept that and let someone else take your baby, your idea, and make it bigger and more wonderful,” added Andrea Alms, Co-Fund Manager at BioHealth Capital.
“In our case, our companies are in the early scaling phase. Most physicians don’t have experience commercializing technology. Hopefully, there is the foresight to bring in co-founders with the requisite, complementary skill sets,” stated Adam Dakin, Managing Director at DreamIT HealthTech.
This is not a time for young companies seeking funding to sit back and wait for the investment world to return to normal. It is, however, a time to reach out, network and create a stronger advocacy foundation and network of quality people that will engender more “warm introductions” and fortify a technology or a product with key opinion leader endorsements.
While the funding world has gone virtual, the importance of surrounding a company with high-quality people and deep, trust-based relationships is still as real as it gets when it comes to securing financial backing, no matter the extenuating circumstances.
Now is the time to “Focus on your foundation and think about advisors and KOLs that can bring star power to what you want to bring to the market. Who you can rally around your company is a tell sign to investors that the idea is big,” stated Newhall.
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