Why We Pass Deals

We apologize if we pass the deal early. Our members donate time and we must focus on the promising-looking deals from the over 250 deals we receive each year.

We hope our comments will aid you in presenting your deal to other sources of funding and setting the priorities for your work. As entrepreneurs, most of our members have learned to deal with the early push-back from investors and use it constructively. We find almost all early ideas encounter significant push-back -- if they did not, they would not be sufficiently audacious and established companies would have the discoveries and be filling the market needs.

If your deal is passed and not funded elsewhere, after 9 months consider applying again if you have made progress on items we identified. You will also have to have substantial progress with the product or business so our members who were not interested decide to take another look.

If your deal is passed and you are funded without us, we love to hear back from you so we can understand what we missed. We have passed great deals, some of which have returned to have later rounds raised with the Life Science Angels.

Deal is too Early or not of Interest to Membership

Even with 130+ investors members, we will not necessarily have members who generate the interest for in-person due diligence. About one third of our deals get in-person due diligence. The common reasons for this are below. Do not assume your deal will turn out to be unsuccessful if we judge it not to fit our investment profile. We have 250+ deals a year submitted to us and we (or anyone) cannot always identify the best choices for investment.

  • The science is very early and lacks data for proof of reliability and effectiveness.

  • The breakthrough is too small to get customer attention in a crowded marketplace.

  • We have seen similar deals and already invested in this domain, or this domain has not interested our members.

  • The project is at idea stage without sufficient progress on technology or product.

  • The product will not offer patent protection. It needs early customer experience to show a first-mover advantage that can be sustained as a barrier to entry.

  • The market for the product is too small to present returns to justify the risk. Consider that a company with $8M valuation that raises $2M. Later dilution often 50%-80%. At 66% a $120M exit yields a 4X return on investment. We often see investments with much more attractive risk-returns — which means a lower valuation or a larger market.

Write-up and Business Planning Needs Major Work

Early stage companies are often immersed in the technology and do not give the needed attention to writing up the opportunity in a fashion investors can understand. You need to explain your project to investors. Some will be technical, others will not. The explanations need not be extensive. In later due diligence we have experts to probe deeply; however, your deal application must show promise so it does get to in-person meetings and serious due diligence.

  • The submission does not include a plan with sufficient details - milestones and description of how the funds will be used.

  • Major components of the deal are missing — valuation, customers, identifying risks, competition. We do not research a marketplace to find how big it is, who the competition is, and what is patentable as a new invest. When we perform due diligence on a deal, we are confirming the representations of the company - and they must be there to confirm.

  • Assumptions on customer adoptions and sales growth are not realistic. You should study TAM (Total Available Market), SAM (Serviceable Available Market) and SOM (Serviceable Obtainable Market). A spreadsheet-supported bottoms-up SOM with readable customer acquisition costs and sales cycle times is excellent supporting documentation.

  • You need a slide deck and an executive summary (1-2 page). Your deal will be evaluated by us and others on an executive summary and a slide deck as well as the standard-form entrepreneur application. When we invest, we will work with you to improve strategy, plans, and write-ups of your deal. Until then, it is up to you to show your future investors you can represent your company. Both your writing skills and your presentation skills will be an on-going project for years. We have observed that they are important factors in determining the long-term success of companies.

Guidance From a Former LSA Fellow

A former LSA Fellow, Brian Hsueth, MD, PhD, has written an excellent article on obtaining investments in medical device startups, An Investor Perspective on Forming and Funding Your Medical Device Start-up. This article is available for purchase or $9.50 for a 24 hour rental from Elsevier.

From the abstract:

We survey common sources of capital for early-stage companies, including grants, angel investors, and venture capital, and offer insights into how to differentiate among them to select the best partners for your start-up׳s needs. Finally, we discuss the critical components of pitching your ideas to potential investors, and offer guidance on best practices and common mistakes. We hope this primer on fundamental concepts and the various health care funding alternatives will prepare entrepreneurs to achieve their mission to improve patients׳ lives through commercialization of their medical innovations.

What We Like to See

As a business proposition, we want to see the answer to these questions. Many of our earlier deals are technical breakthroughs and the principals have not given a lot of thought to these questions. Even if your plan is to create and exit before revenue, we find that companies that have good answers to these questions do better than those who do not.

  • Tell us what you do. 

  • Tell us what is special about the way you do it. 

  • Tell us why it is exciting and important/pain-solving for customers

  • Who will your customers be and size of market?

  • Who will you compete with?

  • What are exit valuations in your space?

We hope applying to us and receiving our feedback was worth your time and efforts. All the deals we see are worthwhile contributions to healthcare and society. Thank you and good luck with your project.