Before Medtronic acquired Ardian in 2010, it led a $47 million series C round for the company. Boston Scientific led an $11 million round for Intelect Medical two years before buying it for $78 million. According to some investors, these kinds of strategic investments are the way of the future in biotech and medical devices.
“In life sciences, having a strategic investor on board is almost a matter of survival, not a nice thing to have or a luxury,” said Gerry Brunk, managing director of Lumira Capital, which is currently deploying its newest $150 million life sciences fund. While the number of new healthcare-focused venture funds has dwindled over the past decade, there’s still a tremendous amount of money coming from established medical device and pharmaceutical companies. And those companies can provide additional value to a startup, as a result also helping co-investors, he said.
Brunk and several other Midwest-based investors shared insight and advice on two strategic investing panels Wednesday at the Great Lakes Venture Fair in Cleveland and answered questions about the best way for companies to go about approaching a strategic investor, and who within a company a strategic investor prefers to hear from.
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“Who can tell me the pitch in a nonconfidential way?” said Jeff Weedman, vice president of global business development for P&G FutureWorks.
Robin Davis, vice president of strategic planning and development at the E.W. Scripps Co., agreed. “I want to be pitched by the person who can tell me the story best,” she said. “It should be someone who can also explain why they are coming to a strategic investor and particularly to us.”
That could be an entrepreneur or a board member, said John Gardner, managing partner at Nokia Growth Partners, but a venture capitalist he’s worked with would have more pull than an entrepreneur he’s never met. Gardner noted that an advantage of the vibrant incubator, seed and angel community that’s so active today is that a lot of the deals he’s seeing come pre-vetted and the entrepreneurs previously coached.
But the person making the pitch shouldn’t be someone focused entirely on an exit, said Sujatha Ramanujan, a vice president with Intrinsiq Materials. “As a strategic, I would not invest in a company with a manager who talked to me endlessly about the exit,” she said. “You need to show how you will stay active and sustain the company. The goal is to make the product as big and successful as possible, so you cannot lose sight of that.”
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“With a corporate investor, you have to remember that their end goal isn’t the same as yours,” added Michael Stubler, managing director and co-founder of Draper Triangle Ventures. “Their number one priority is still their company.”
Most of the panelists seemed to agree that the appropriate time to seek a strategic investor is after friends and family and angel rounds are complete, a scalable product is created and at least one customer is on board. “We can be pretty demanding as a strategic,” Weedman said. “If it doesn’t make this key milestone, we’re not going to stay with it.”
And how should entrepreneurs get in touch with potential strategic investors?
“Email,” asserted Dan Phillips, a vice president at Sandbox Industries, the parent company of Healthbox that manages several funds including two for BlueCross BlueShield. “We won’t ignore any emails. We look at 500 companies a year and invest in five, but seeing those deals is important in helping us understand the market.”