It’s that time of year: A sea of people scrambling around hotel lobbies and meeting rooms near San Francisco’s Union Square for the annual JP Morgan Healthcare Conference. This conference sets the tone for the year in bio-tech and pharmaceuticals. It’s where entrepreneurs, start-ups, investors and large multinational pharma companies all convene to discuss financing, licensing and co-development deals. By the time this issue of Review comes out, this conference will be behind us, and if you were part of it, you’re likely working on related follow-up. This month’s OPDI column will highlight a few key topics that have come up recently in our work with clients and partners, preparing plans and strategies for funding discussions—particularly for this event. Here, we’ll gear our discussion toward the new entrepreneur.

In previous columns, we’ve talked about different case studies and deals at various stages in development and the nature of investment funds. With such a busy schedule of meetings, as is common at this conference, it’s critical to ensure you’re focusing on investors that fit the stage and profile of your project. Be sure to ask the right questions in order to understand this early on in discussions, and be able to adapt your presentation to focus on points that’ll resonate the most with certain investment groups. 

On one end of the spectrum, there are investors that focus on or are open to seed-stage financing. On the other end, some investors focus on late-stage financing, which may include already marketed products or services with established organizations that have revenue streams. That type of late-stage investor is generally a completely different type. 

The early-stage label can cover many different expectations on a project’s status, from projects at the ground floor-level or those coming out of academia or an institution, to projects that still need some key work (e.g., animal work, formulation, chemistry, etc.) before entering into the IND enabling stage. Other investors may consider projects already in that IND enabling stage as early stage, where your IND is slated for submission in the near term as a next step. Yet for other investors, early stage may mean you have some preliminary early clinical study proof-of-concept data. 

(IND enabling is generally the time during which you’re preparing your IND’s key materials for submission to the FDA, which will allow you to move ahead with clinical trials. Key components of the IND enabling stage include the GLP toxicology studies that the FDA will view as pivotal support for safety, animal PK, the formulation optimization, stability, and scale-up of manufacturing for supplies, finalization of your planned clinical protocol, regulatory meetings, etc. A similar concept applies to devices for the relevant regulatory pathway for a given product.) 

While a specific early-stage investor may focus preferentially on IND enabling stage-projects versus what they view as seed-stage, there’s a fine line between seed stage and IND enabling. This line may be a single animal study or a single defined formulation step to confirm stability and/or other related activity. Proper positioning and labeling of your project as seed- or IND-enabling stage is key and can help orient investor discussions in the direction you want from the get-go. When it comes to positioning to investors—in terms of the work plan or how funds are being used—being able to message as an IND-enabling project could boost investor perception and help you gain traction at the beginning of your pitch.

Investors generally expect that by the more blocking-and-tackling IND-enabling stage, your overall concept has already been validated to proceed, and you’ve evolved from “seed” and gotten over the seed-specific humps. These humps—which are generally addressed in planned seed-stage rounds—might include confirmation of defined formulation work showing stability, selecting the lead drug, preliminary animal studies for determining the right amount of drug is delivered to the right tissue, confirmation of key efficacy data in animals or refining of drug delivery prototype manufacturing and planning for scale-up. 

IND enabling may imply that a specific project is still within a one- to two-year window of IND submission, for example. You may encounter investors declaring your project to be “too early” for an investment. For some, “being too early” may not be that far off, but for others, “being too early” may mean they’re looking for a project that’s two or more years down the road and closer to IND filing. Focus your energy on discussions you can impact in the near term. Be careful about chasing investors and spending money trying to satisfy specific requests. And at the same time, make sure that any work being done satisfies a specific goal, informs decision making or closes a deal. 

You need to understand what’s really driving a particular investor’s decision. Simply adding more animal work (or in vitro work) into an early-stage preclinical asset won’t necessarily eliminate that label of “being early” or add value or get an investor over the hump. Will that investor be driven by confirmation of pharmacological effects in animals (a lower species such as a rodent) to confirm robustness of your existing data, or is it an issue, for example that PK in higher species (e.g. primates) is really the key gating item you need to raise money to evaluate (as is often the case with a biological or retinal drug delivery project)?  In that case, conducting mouse models or PK in rats or rabbits may not move the needle for investors.

We’re often asked, “Should I raise $2 million now for IND-enabling work (Series A) and go back to raise funds for a subsequent round for IND/Phase 2 (Series B); or should the round be a larger Series A to cover it all?” Ultimately, you should follow the money. You may receive different feedback from investors with different appetites. Don’t always assume that simply moving along the IND-enabling stage process will significantly increase your valuation in the eyes of the investor. You may not have the step-up you hoped for between that Series A (IND enabling) and Series B (to fund the clinical study).  But the investors you are targeting at that stage may have resources just to fund up to the IND.  Regardless, you need to have your plan fleshed out so you know your timeline and budget. Your timeline and budget will get you through the key value inflection, which is your key activity that’ll drive, for example, a license deal, exit to a pharmaceutical partner or IPO (i.e., “going public”).  So even if you are focusing on IND-enabling activities, have your clinical plan and budget defined and ready.

Another important consideration is making sure you have the right investors for your plan. While there’s no right or wrong answer, necessarily, the right investor should have the reserve funds appropriate for your project and risk to support any anticipated shifts in work streams that might require additional funding in a bridge round. Remember that you need to balance your hope and plan for a step-up between rounds, taking into account the risk of macro environmental changes during your program, such as in the stock market, political climate or changes in reimbursement/pricing—all of which may make it more advantageous to raise the larger round up front and avoid the need to go back to investors mid-stream.  

Determining valuation is also not a matter of right or wrong either, but at a given time it’s appropriate under certain circumstances. To get an idea of a fair value, take a look at investment spent to date and comparables (where recently sold assets are compared to similar assets to determine value) that reflect, or are adjusted to, the current state of the project, risks, and the industry in general.  Depending on the size of a particular venture capital fund, an investor may have different needs. A smaller fund investing in a larger round will need that lower valuation to drive a larger stake, taking into account potential for dilution later if they don’t have the capital to follow-on throughout the program like a large fund, and to maintain their target ROI based on the expected future exit. And in some cases even if properly valued, it just may not fit the investment model for a given fund.  

Another important pearl worth mentioning—since it’s easy to get stuck—is to avoid treading water. It’s critical to show progress. Investors can easily get turned off if they don’t see progress since the last discussion. Progress doesn’t always mean a huge step, considering you’re also raising money to run key activities (and with any progress you may be able to go back to investors who said “no” six months ago), but you should be making your way forward. Is there a key FDA meeting that can be held? Maybe you can work on clinical protocol development with help from scientific advisors or key opinion leaders. Other examples of progress beyond the obvious significant activities, can include: recruiting new value-added members to the board (or scientific advisory board); additional pharmacology work showing application across other indications and use; refining patient population, endpoints or scales to help show de-risking of the clinical plan; formulation; ongoing stability testing; a natural history study without the drug that’s defining disease progression; and recruiting and screening patients for ultimate enrollment in the study with the product at a later date. Just be sure your progression adds value and advances your project in an effort to answer key questions. Don’t work for the sake of doing something.

This isn’t intended to be a exhaustive list of all the elements of the fundraising stage. Other areas, such as addressing an unmet need, intellectual property and patentability, reimbursement, valuation planning/future revenue projections, have been addressed in past columns or will be addressed in future ones.

With the plan laid out for your financing rounds, it’s helpful to model the expected returns for investors. Show what activities will drive a particular exit, expected over what time frame/investment and expected comps based on other industry deals. Paint the picture of the end game for investors, whether it’s a license, acquisition or IPO and what the return on investment may look like, so the investor doesn’t have to model and calculate it himself.  REVIEW  


Review and comments on this column were also supported by Aron Shapiro. Mr. Chapin and Mr. Shapiro are senior vice presidents of Corporate Development at Ora, which offers device and drug consulting, clinical research and development, and strategy and support to catalyze new client and partner initiatives. The authors welcome your comments or questions regarding product development. Please send correspondence to or visit