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Presentation to 4 th Texas Angel Day :

Presentation to 4 th Texas Angel Day : Many thanks to all the organizers, and special kudos to, Chuck McCoy ! March 8 th , 2013 Root cause analysis of 3 Exits in 2012 @ Life Science Angels : Are you a Possibletarian ? Faz K. Bashi, MD E: faz@possibletarian.com.

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Presentation to 4 th Texas Angel Day :

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  1. Presentation to 4th Texas Angel Day : Many thanks to all the organizers, and special kudos to, Chuck McCoy ! March 8th , 2013 Root cause analysis of 3 Exits in 2012 @ Life Science Angels : Are you a Possibletarian ? Faz K. Bashi, MDE: faz@possibletarian.com

  2. Our Founder and fearless leader : Allan W. May Our contact information : Life Science Angels 1230 Bordeaux Drive Sunnyvale, CA 94089 O: 408-541-1152 E: info@lifescienceangels.com W: www.lifescienceangels.com

  3. LSA Structure : • Non profit corporation • (b)(6) Mutual Benefits Association • Operations funded by member fees, sponsorships • No management fees, carry or charges • Only one paid staff member • All members provide time on a pro bono basis • Tax deductible membership dues and fees Life Science Angels

  4. Deal Structure : • Members make their own investment decisions • Strong preference for equity vs. debt • Investments structured as an LLC to allow: • Single investor, single check to company • Avoids federal and state restrictions on number of investors • Reduces logistics and expense issues • Simplifies company’s investor communications • Increases leverage in terms negotiation • Follow up information more readily available to investors • Improves likelihood of participation in follow on rounds • Greater public recognition of LSA participation • Positions LSA to syndicate investment to other groups Life Science Angels

  5. Current Investment Climate :-) • Since 2008 challenging investment climate • Especially acute in life sciences sector • Early stage venture capital funds increasingly difficult to obtain (seed stage, A series) • Angel investors play increasingly significant role in early stage financings • California leads US in percent angel group deals • California companies receive 1/3 of all angel dollars Life Science Angels

  6. LSA’s Proven Track Record: • Forty two companies funded to date • More than $30M invested • Thirty companies ongoing • Seven exits - $4.7M invested, • $14M returned + $10.3M potential • CV Ingenuity, Moleculo, MoMelan, nSpine, Textronics, Vasonova, Zogenix • $700M follow on capital Life Science Angels

  7. Exit #1 : MoMelan • SECTOR: Device; skin grafting/Moh’s sx soln • PEDIGREE: Rox Anderson, MD from Harvard who had created and spun off 7 companies. • TERMS: $4.5M premoney with a $4.5M raise ie. $10M post money • ACQUIRED : By KCI. 2x in 15 months ! • DEAL SHEPHERD : Dr. Sridhar Prathikanti • NOTES: “Even a blind chicken gets lucky and pecks at a good seed.”

  8. Exit #2 : CV Ingenuity • SECTOR : Device; Drug Coated Balloon (DCB) catheter technology • PEDIGREE : Duke Rohlen (FoxHollow !) • TERMS : Series A $2M, LSA invested $300k • ACQUIRED : By Covidien >$300M w triggers • DEAL SHEPHERDS : Allan May et al LSA mbrs • NOTES: Bridge – LSA more than pro rata; converts to $17M series B + $10M ext. of B (LSA total ~$1.5M)

  9. Exit #3 : Moleculo ! • SECTOR : Genomics; Long + accurate DNA read • PEDIGREE : 2 Postdocs @ Steve Quake’s lab SU; soln was 2 orders magnitude better in length and quality. • TERMS : Convertible note raised $750k • Acquired : By Illumina. 5.3x in 12 mo. • DEAL SHEPHERD : Brock Siegel ! • NOTES: No C corp. No mgmt. No VCs/IB. Great technology, solving a major problem TODAY

  10. Moleculo cont’d • Highlights : Break-through technology, needing commercialization direction and content with a quick acquisition ie. 6 major NGS cos. w/PO in <9 months ! 3 AgBio cos. Corn seed – 3 yrs, 30 co-authors, $35M vs. 1mo + $40k; No failures ! • New Model :Taking only seed money and a lower exit value provides excellent return ! • Next test of the model under way ! 

  11. Q: Who am I ?

  12. A: Norman Vincent Peale

  13. Definition of a Possibilitarian • Someone who believes there are always possibilities, if you look for them • “ I challenge you to become a possibilitarian : No matter how dark things seem to be, or actually are, raise your sights and see the possibilities. Always see them, for they are always there.” Norman Vincent Peale

  14. Are you a Possibilitarian ? • NO , if your focus is on $$$ • YES , if you’re driven by Passion, Vision, Energy, Team, Discovery, Problem solving • Book : Heart Smarts Guts and Luckwww.hsgl.comTake the exam and see if you are H S G L • Highest correlation with success ? Self Awareness of decision making inputs

  15. What about Capital ? • Not the $$ type of capital • Three types of Capital investments for investors (and entrepreneurs) :1. Psychological Who you are Proactive – Problem solving – Risk taking – Resilient (fail often, fail quickly) – Results – Scan for change opportunities – Do different things – Do things differently – Think Different2. Human What you knowEducation Experiences3. Social Who you know Goodwill : Connections, Meaningful ‘Win-Win’A shared code of conduct in relationships

  16. Startup Protocol for Scientists • Scientists are Possibilitarians ! Scientific Method is ONE key ingredient for startups • 3 AWESOME RESOURCES:Eric Ries, The LEAN Startupwww.startuplessonslearned.comSteve Blank, The Startup Owner’s Manualwww.steveblank.comAlexander Osterwalder, Business Model Generationwww.businessmodelgeneration.com

  17. The Lean Startup : • Startups are NOT smaller versions of larger companies ! • OLD WAY: [Operating Plan + Financial Model]Engineering (MRD-QA-Ship)  Marketing Sales Bus Dev NO BUSINESS PLAN SURVIVES FIRST CONTACT WITH CUSTOMER ! • NEW WAY: Startups SEARCH for a business modelCustomer Discovery + ValidationScientific Method (PDSA Cycle) : Hypothesis, Test Problem, Test Solution, Verify or Pivot, New Hypothesis

  18. Lean Startup protocol :

  19. Lean Startup protocol:

  20. Validate your Business Model :

  21. G. O. O. T. B. • GET • OUT • OF • THE • BUILDING Go visit customers ! Lots of customers ! Develop your TEAM Skills T.E.A.M = Together Everyone Achieves More

  22. Ingredients for a successful Life Sciences startup • Focused science and innovation – top scientists network • Outstanding management teamBeen there. Done that.Complementary skill setsPassionate and dedicated • STRONG Intellectual Property (IP) *** • Open-minded Financial strategies Science, Management, Finance : must be sync’d “There are too many science projects masquerading as companies” Karen Bernstein, PhD, BioCentury Magazine

  23. Sources of Financing ? Great science. Customers ready to buy. A real business opportunity : • FINANCING 101 for Life Sciences startups :1. Angels : Super Angels, Angel Groups, Angel Funds2. Non-dilutive sources : Grants, Foundations, OTL 3. Strategic alliances* : Pharma, OEM partners, University4. Venture Capital : Where did they go ? Choose wisely !

  24. Venture Capital (??) : • Long term trends to be aware of :- capital markets are very tight- revisions to the traditional VC model; loss of the mega $1B funds and attrition - remaining VCs have moved away from smaller $1-5M investments and waiting for later rounds (de-risked)- many VCs have moved away from Life Sciences • Which Venture Capital group is Angel-friendly ? Do your due diligence ! Make sure goals are aligned. • How do Angel investments survive ?Greater collaboration

  25. Economic package = Startup • Investors perspective : inherent cost of capital is high (>20%) given life sciences risks (time value of money, no return of capital)* Long time to market* Fewer than 1% drugs make it to market* Several rounds of capital infusion* Fewer exits (eg. IPO, Acquisition, etc.)Investors need a high rate of return to make economicsense of the deal b/c cost of capital increases with risk • Successful financing : Focus on the economics for win-win

  26. Trends with BIG Pharma • Facing “innovation gap” with low drug approval rates (FDA, H/C reform) and declining R&D spending • Buying discovery pipelines leading to increased M&A activity • Moving $$$ into corporate venture capital Is Corp VC right for your startups ??? Risks ???

  27. What to look for in D/D ? • Unique value proposition • Sustainable competitive advantage / IP • Key success factors • Experienced management team • Sound business model; scalable practices • Cost-effective marketing/ sales plan & capabilities • Rigorous operations practices & plans • Appropriate technology implementation/ roadmap/ scalable • Attractive and complete financial model with funding plans • Appropriate and fair deal terms DD for Health IT and Life Sciences : Extra emphasis on Management Team, IP + FTO, Business Model, Funding milestones, Exit

  28. Good D/D experience : • Entrepreneurs cohesiveness throughout investigation. • Entrepreneurs responded quickly (same day) for more info requests. • Company allowed multiple site visits. • Company set up a due diligence website. • Investment structure simple.

  29. Bottom line = Get all the facts :

  30. TEAM : Together Everyone Achieves More

  31. What are the intangibles ? • Advisors & Board members • Existing investors & mentors • Team pedigree • Beta customers • Corporate counsel • Quality of due diligence • Referral source

  32. Think Different (new models) !

  33. THANK YOU !!! Questions ?? Darts, Ping Pong, or Bowling anyone ? ;-)

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