Membership Criteria

If you are interested in joining Life Science Angels, we encourage you to review our official membership application and agreement.

Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may sell its securities to what are known as “accredited investors.” The federal securities laws define the term accredited investor in Rule 501 of Regulation D as one of the following:

A bank, insurance company, registered investment company, business development company, or small business investment company

A business in which all the equity owners are accredited investors

A charitable organization, corporation, or partnership with assets exceeding $5 million

A director, executive officer, or general partner of the company selling the securities

An employee benefit plan within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million

A natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person

A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year;

A trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes

For more information about registration requirements and common exemptions, read the SEC’s brochure, Q&A: Small Business & the SEC.

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Membership FAQ

Who are the members of LSA?

LSA members include dozens of accredited investors with significant experience in life science operations and investing. Members include prominent executives, physicians, scientists, engineers and entrepreneurs. LSA’s members have been founders, Chairpersons, CEOs, and senior level executives in many healthcare startups. LSA members are active participants in deal sourcing, due diligence, membership screening, coaching, etc. ƒIn addition, LSA’s members include top tier venture capital firms desirous of an early window on healthcare startups, as well as co-investing alongside LSA in some deals.

Why does LSA invest in healthcare?

The demographics of healthcare investing are virtually all positive: An aging, baby boomer population, enormous opportunities to improve patient outcomes and quality of life, an unprecedented focus on entrepreneurialism in our universities turning our more and better educated entrepreneurs and researchers, a large and well capitalized healthcare sector looking for new products, therapies and acquisitions, and an emerging realization at all government levels that healthcare is an enormous driver of jobs and economic growth. Against that are the increasing costs and complexity of bringing healthcare technology to market and obtaining reimbursement for approved devices and therapies. This all spells opportunity, while the U.S. healthcare system undergoes a transition from fee-based service to preventive medicine. The Bay Area is fortunate to include three great universities, all with cutting edge research in healthcare technologies. Our relationships with those universities provide rich interactions as well as access to potential commercialization opportunities and expertise that is invaluable as we analyze potential investments.

How does LSA make investments?

Our deal screening committees – Bio, Device, and Digital Health – work hard to screen and evaluate investment opportunities for LSA members. The investment committees select the companies to present to one of our member dinner meetings based on a rigorous due diligence process. Members make their own investment decisions, including in which deals to invest and how much, but the investments are made through a single LLC. LSA manages all of the paperwork.

Why should I build an investment portfolio?

Successful exits can take several years; it takes time to build a startup. Failures are a natural part of early stage investing. Failures tend to occur earlier, often within the first few years. While there is very little data on angel returns, the XX Report by Professor Rob Wiltbank showed good investments tended to take 3-5 years to exit, and great investments 6 or more years. One or two successful exits make up for all the failures, and more. According to Prof. Wiltbank’s research, angels investing in early stage companies can achieve a 2.6X cash on cash return, which would mean a return equivalent to those achieved by the top tier of venture investors, with patient and careful diligence and investing. Reflecting these facts, the Angel Capital Association recommends a minimum portfolio of 10-12 investments. The macroeconomic environment and the economy at large have a lot to do with exits, too. Increases in valuations and exits often coincide with strong economic growth. In today’s more conservative economic environment, companies need to deliberately and diligently build value before being acquired. Moreover, the economic climate for healthcare investments is in a dramatic period of change, and while financing is extremely difficult currently, there will certainly be great companies created and profound improvements in patient outcomes and quality of life.

How do angel investors manage the inherent risk of early stage investing?

Due diligence is the best conduit to successful early stage investing. Research in early stage investing has shown a direct correlation between the amount of diligence and investment returns. Having said that, infinite diligence will not produce infinite returns. While data remains scarce, available data suggests a minimum of 40-60 hours of diligence as the best practice. It is essential that members actively participate in diligence teams. It is enormous fun and often educational to learn from your angel colleagues while providing advice and insights based on your own experience and expertise. Importantly, successful early stage investment involves picking people and teams more than technologies and engineering. A major advantage of an organized angel group tends to be the scope and depth of the group’s network, enabling insights into the performance and reputation of entrepreneurs and founding teams. Furthermore, LSA’s access to physicians, researchers, scientists and engineers can often provide collaboration of the potential for something to be built and to work as expected. Finally, diversify. A diversified portfolio tends to include some very high risk, potentially high return investments alongside some later stage lower risk, lower return investments. Major considerations for healthcare investments include projected capital to exit and the clinical/regulatory approval pathway, which often determines the projected capital. Balancing deals with shorter, less complicated pathways with those with longer, more complicated pathways is typical. Moreover, some healthcare products can be marketed without any formal regulatory approval, and often provide interesting opportunities for investment.

How many deals should I invest in and how much should I invest in each deal?

Everyone’s financial situation and tolerance of risk is different. There are two general approaches to angel investment. One is to pick individual deals, commonly 2-3 per year. Generally, starting modestly is a good idea both to learn the process and to build a better appreciation for the risks. Another approach is to join the LSA Side Fund. This operates to automatically invest in LSA deals that hit a minimum investment criteria in terms of number of investors and capital raised. As an LSA member, you are expected to invest a minimum of $25,000 per year, in any combination of one or more deals. Importantly, most healthcare investments will require more than one investment. Members should plan to earmark some capital for follow on investing in subsequent rounds.

How does LSA syndicate investments?

LSA is prominent throughout the U.S in the healthcare field and so receive numerous investment opportunities from other angel groups. While we have always syndicated informally among select angel and venture capital groups, the professionalization of organized angel groups over the last decade has created a rich pool of partners where individuals within the groups have ben able to build and expand a foundation of trust and respect. Two years ago, LSA created an informal syndicate of angel groups knowledgeable about and interested in healthcare investing. This group is expanding and is expected to grow during 2012. Syndication group members have agreed to cooperate in the sharing of deals and due diligence, increasing the knowledge of investors in target companies, as well as enhancing the capital pool available to those companies. All of these sources, as well as our members, sponsors and partners keep our deal pipeline full, creating a high quality diversified pool of investments for our members.

What fees and investment expectations are there for LSA members?

There is an annual individual membership fee of $1500. The recommended minimum investment is $25,000 per year. LSA has no override or management fees.

An Alternative to LSA Membership

Healthfundr

If you’re not ready to join yet, you can still invest in some LSA companies through Healthfundr. Membership is free and each time we syndicate a deal, you’ll be able to invest.