A new investor group wants to bridge the funding gap to help life science companies navigate the valley of death between early stage and late-stage investment to meet significant milestones.
Mid Atlantic Bio Angels was co-founded by Philadelphia-based angel investor Bernie Rudnick, who also co-founded Mid-Atlantic Diamond Ventures. The coaching program and investment consortium for technology and life science startups is supported by Temple University’s Fox School of Business. The new group represents a consortium of private investors and angel investment outfits, and some venture investors between Philadelphia and Boston that can make syndicated investments together in new and emerging life science companies, but those investments are made individually.
“Venture capital firms have invested in life science companies, but collectively the returns have been poor, and the risk profile has gone up because of the sluggish performance by the FDA,” Rudnick told MedCity News. “What has happened is angels by and large have filled the gap but less so in life sciences.”
Angel investment in life science companies tends to take place during the early stage financing rounds while venture capital investment for the most part is happening at the later stages. The management of most startups would prefer to retain more control than accepting venture capital investment would allow. And although angels frequently invest alongside venture capital firms, the disparity in the size of the investments means venture firms can set terms unfavorable to angels that can lead to their shares in companies being watered down.
The brainstorm for the consortium happened four months ago over a lunch between Rudnick, Steve Goodman, a lawyer who advises life science companies, and Yaniv Sneor, an entrepreneur and adviser to technology companies. Along with fellow angel investors, they expressed concern regarding the state of angel investing in the life science space and acted. Despite the fact that there’s a huge concentration of pharmaceutical and drug development companies in the suburban Philadelphia and New Jersey region, there are relatively few angel investors in these areas. “Often life sciences companies make poor choices in achieving proof of concept and positioning for exit. We said, ‘there’s got to be a better way.’”
Among the groups represented by members of this new investment group are Keiretsu Forum, Boston Harbor Angels, Minority Angel Investment Network, Delaware Crossing Angels and Investors’ Circle. There are about 25 investors altogether; most are M.Ds. or Ph.Ds. and several are MBAs. Rudnick wants that number to grow to 50 and some see scope for 100. As many are entrepreneurs themselves, they understand what it takes to navigate the U.S. Food and Drug Administration’s complex approval process.
A report published by Halo Group earlier this year noted that angel co-investments averaged $1.4 million compared with $700,000 for individual angel groups in the first quarter. The report also revealed that co-invested deals are on the rise and reflect nearly three-quarters of the deals in the first quarter.
Among the group’s criteria for companies are:
Location: Primarily (but not exclusively) in New York, New Jersey and Pennsylvania.
Target: Opportunities with clear unmet market need or clearly defined competitive advantage over existing products already in that market and a potential or demonstrated addressable market of at least $100 million.
Valuation: Under $5 million in the early stage.
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