Friday, June 23, 2017

That's All Folks. Selling a Life Science Venture

It's never too early to start to plan for selling the company. In fact, before you start you need to visualize how this venture will end. After all, this is the outcome your angels and Venture capitalists are waiting for. And they will have strong opinions about when you should sell.

When that time comes, you may be delighted that your company will be sold. However, you should consider the ramifications to your career. You may have invested most of your career in obtaining expertise in a single life science area. After you sell what rights will you have to participate in this field? Will you continue to be able to expand your knowledge? Will you be able to utilize your expertise? These are essential components of any sales agreement, and it is important that you are comfortable with the outcome.

Regarding the actual sale of the company typically there are multiple options for obtaining value from the company post funding cycles; however, for life science company there are typically very few options. Almost certainly you will seek a strategic sale to a pharmaceutical company. The capitalization requirements and complexity of marketing a novel pharmaceutical or device most rule out an IPO. And without that expertise obtaining revenue to entice a walking harvest (ongoing payment based on sales) or partial sale are unlikely. Nor is a financial sale to non-life science company likely.

Further, few purchasers can obtain the full value of your vision, and the potential buyers will be short. On the other hand, large life science corporations are counting on companies such as yours to identify new opportunities, so if the trials go well, you have a valuable product to sell. Of course, there is a chance that trials go poorly and the value of company plummets. Be prepared for the reality that the end result of your venture is Chapter 7, full dissolution of all assets. Not a pretty outcome but highlight likely in a life science venture.

To prepare for eventually selling your company, your goal is to find angels and more importantly venture capitalists with expertise in this domain since no doubt skills required to sell a company are far outside your skill set. Look to investors to obtain expertise and negotiate a favorable sale of the company. Regarding the value obtained keep in mind that timing, a sale is not an exact science. You are going to feel like you either waited too long to sell or have sold too early. You are not seeking the perfect solution but of solution which meets your financial and developmental needs and goals. Good luck with your planning and good luck with your future venture.

The Startup Process: Sourcing - Evaluating - Valuing - Structuring - Negotiating - Supporting - Harvesting

Reference: David Amis-Howard Stevenson (2001). Winning angels: the seven fundamentals of early-stage investing. Pearson Education.

6 comments:

  1. Brad,

    This was a very good post, and I like the spin that you put on it. You have some great points. I also think that parting with a company could be very difficult for a person who has grown it to essentially be their personal identity. If it is the thing they have worked on for many years and invested their life, leaving will be difficult. This is especially true, as you mentioned, if there are no other routes where your expertise can be used again.

    Austin

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    1. I think it applies to anyone but especially to someone who has a PhD and has focused on a very specific part of biomedicine. Perhaps one reason why serial entrepreneurs are more successful is because they lack a close attachment to their startup's topic

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  2. Very good observation. It's very possible that becoming too attached to a venture or topic could limit future opportunities.

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    1. With proper preparation I think a sale can be a springboard to a new field that otherwise one would not have pursued. The key is folks have to think of that option beforehand and be prepared for it.

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  3. Brad,

    It is crazy how long the harvesting process can take. But it does give peace of mind to have something from the beginning already in place for when the time comes. You never know starting out if the business is going to be a huge success or fail but either way timing the exit plan is important to get the most out of the company for the entrepreneur and the investors. Great post!

    Thanks,
    Mackensie

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    1. I think that process is also a great reality check as well. If someone can't come up with an exit plan then perhaps this road will go nowhere so it's not even worth starting the journey

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