Strategies for attracting angel investors
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Strategies for attracting angel investors John W. Holaday, Steven L. Meltzer and James T. McCormick Date received (in revised form): 13th September, 2002
Steven L. Meltzer is a partner at the law firm Shaw Pittman LLP and a founder of the Maryland Angels Council. James T. McCormick is an associate at the law firm Shaw Pittman LLP in McLean, Virginia.
Keywords: angel, investor, biotechnology, investment, funding, entrepreneur, capital, business plan
Dr John Holaday, EntreMed Inc., 9640 Medical Center Drive, Rockville, MD 20850, USA E-mail: [email protected]
Abstract In the early stages of corporate growth, biotechnology entrepreneurs can attract funding from a particular category of investor: the ‘angel’ investor. This paper describes different types of angel investors and discusses the role angel investors play in providing funding, advice and contacts to early-stage biotechnology companies. Further, some of the qualities angel investors seek in the companies in which they invest are reviewed, and techniques that biotechnology entrepreneurs can employ to increase the likelihood of obtaining funding from angel investors are discussed.
INTRODUCTION In today’s biotechnology sector, the task of securing investment in the private (and public) markets seems next to impossible. Although news reports lead us to believe that there is ‘plenty of money out there waiting on the sidelines’, it is hard to find investors who are willing to loosen their purse strings and fund the potential medical breakthroughs of tomorrow. Investors are gun-shy, and with good reason, not only because of uncertain market conditions but also because of legislative threats to drug pricing, the poor performance of recent end-stage product candidates, the absence of a Commissioner at the US Food and Drug Administration (FDA), and a wave of mergers and acquisitions that has reduced the number of large pharmaceutical companies which are potential customers and acquirers of biotechnology start-ups. Despite this shortage of willing investors, medical research continues to generate great ideas that, if implemented, could dramatically change the future of healthcare. We are living in a time of remarkable discovery. Significant progress has been made in unravelling the mysteries of the human body, notably the recent elucidation of the human genome, which affords researchers the opportunity to discover the proteins and structures that the genome encodes to form a living being.
Laboratory discoveries funded by academic institutions, government grants, foundations or corporate sponsorships may become key technologies that serve as the foundation for new biotechnology companies, which turn creative ideas into practical advances in medical care. But prospective bioentrepreneurs face a vicious cycle: it takes data to get dollars, and dollars to get data. Once the seed money has run out, the entrepreneur must find an earlystage investor to break the cycle. This paper discusses what a particular type of early-stage investor, the ‘angel’, looks for in an emerg
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