Community organization Biotech and Money has published its annual investor perception survey, confirming or disproving investor sentiment in the sector. While covering various topics of the biotech investment climate, the survey’s essential takeaway is that communication from management teams toward potential investors is far from optimal.
The number one concern among biotech CEOs remains finding suitable financial means to fund their activities. Bringing promising biotech companies into contact with sound investors is essential for a flourishing biotech ecosystem. However, finding a match between investor and company requires the two parties to understand each other’s language, habits, and incentives. In its annual investor perception survey, community organization Biotech and Money asks the investor community about the state of biotech companies and their management teams, revealing some interesting insights.
Of all of the questioned investors, over 54% of them manage funds under $100 million. This confirms an issue mentioned in our previous article on the European biotech investment scene: While early-stage funding is available, the investors providing these funds are limited in their ability to follow up on their initial investment for long enough. Only 25% of the investors participating in the survey invest in public companies and can therefore function as crossover investors necessary to support IPOs and foster further independent growth. This disparity of early- and late-stage investors remains a hurdle for biotech companies outgrowing their seed funding and evolving to the next stage.
A second issue is that the value of good communication is often underestimated by biotech management teams. Convincing investors of a solid business case requires not only a sound innovation, but also a clear story and vision to support it. A frequently occurring complaint is that management teams assume investors to be knowledgeable, so they dive into scientific details too quickly without plainly communicating key advantages. Investors need to understand the problem a company is solving, how the company will achieve its goal, and how eventual cash flow from commercial partners will compensate for the risk taken by the initial investors.
Finding correct funding is a top priority for biotech management
The value of good communication is heavily underestimated
86% of investors believe less than half of the management teams are efficient
Not only external communication toward potential investors is of importance. Upon financing, company structures become more formally organized, making streamlined internal communication indispensable. Proactive communication is essential to keep a good working relationship with the company board, to get the most out of their networks and the input they provide, and to prevent micro management.
Lastly, companies need to be able to communicate their progress to a larger audience. While this is mainly true for public companies addressing both general and specialized investors, private companies would also do well to hone their broad communicative skills. Too often, public relations communication does not match scientific publication, and it is well-documented that withholding data typically backfires. While communicating about data is often as difficult a balancing exercise as walking a tightrope, not doing so leaves room for unwanted speculation.
More than half of management teams deemed inefficient
Central to an investor’s decision to fund a company is the quality of its management team, which again underscores the importance of fluent communication and presentation. In this context, investor perception is quite dreary. A whopping 86% of surveyed investors believe less than half of the biotech management teams are effective. The clearest and most critical outcome from the survey is that biotech management teams hinder their ability to raise funding due to their lack of communication skills and inability to demonstrate effective management.
As an early-stage VC, V-Bio Ventures is often dealing with first-time CEOs and management teams, but also here quality is a key requirement for a VC investment. Investors at this stage look for management teams to work with during both good and bad times and base criteria on personality, potential, and character rather than track record, which is obviously lacking. Sadly enough, some management teams are desperate for cash to the point of bringing in investors who do not share the team’s vision or strategy. This lack of alignment between investors and managers can prove to be fatal.
This article is based on the Investor Perception 2017 survey by Biotech and Money. Get the full report here.