During a lively set of panels at the Redefining Early Stage Investments (RESI) conference in San Francisco, sponsored by Life Science Nation in conjunction with the 35th Annual J.P. Morgan Healthcare Conference, early stage entrepreneurs got some tough love from life science angels and venture funds. Among the recommendations: Find like-minded investors with similar views on milestones and exits and look for "smart" capital – funders that will provide coaching, advocacy and access, not just money.

Linda Judge, an intellectual property attorney and member of Sand Hill Angels, set the tone for the first panel by noting that most angel investors that back biotech and med-tech startups look for companies they can "coach to success." An angel investor for more than a decade, Judge acknowledged that "you get really tough about picking and assessing" high-quality teams.

Considering the number of deals that angels review, it's essential for startups to position themselves at the head of the pack. Robert Tucci, managing director of the Texas Halo Fund and life sciences director of the Houston Angels Network, said his group places about $15 million in startup or follow-on investments annually across 50 to 60 firms. Tucci stressed the need for startups to have an advocate when meeting with investors, noting that his board typically reviews about 15 deals at any given meeting, picking the top three or four to present to the larger investment group. Prospects that don't meet the cut may not get a second look.

Karl Handelsman, a member of Life Science Angels, agreed, and said life sciences entrepreneurs need to go further by finding champions at angel funds that are equally passionate about the technology and/or indication and will not only advocate for a deal but also invest their own money. The recommendation of a partner within the angel network goes a long way to moving a funding application along and coaxing buy-in from the larger group, presenters agreed.

The model used at Mid-Atlantic Bio Angels actually builds in an internal advocate, according to Bernard Rudnick, founder and managing partner of Capgenic Advisors LLC, chief business officer of Novobiopharma and a founder of Mid-Atlantic Bio. The investment group, which focused on life sciences, requires entrepreneurs to submit a "remarkably detailed" application, which is forwarded to interns – mostly post-docs. One is assigned as the applicant's advocate and responsible for presenting his or her findings on the company to a screening committee of 17 people, many of them former biopharma execs and life science analysts.

With a high-risk, high-reward investment thesis, Mid-Atlantic Bio initially conducted brutal reviews, making only two financial commitments in its first two years. As the group grows more familiar with the process, investments are picking up steam, including four financings in the second half of 2016. Part of the process in loosening the purse strings was a realization that "Who's going to come to us if we look like a VC?" Rudnick admitted. "You come to an angel to get startup funding."

So how do start-ups position themselves at the top of an angel's list? Although details differ, three qualities – good science, good management and good market opportunity – matter to all. The first are easier to assess, panelists said, but the addressable market "is harder to get our arms around," Tucci confided. Most entrepreneurs are optimists about the potential for a new drug, diagnostic or device, "but when you start drilling down you find the market is considerably smaller."

Entrepreneurs with solid intel on potential competitors – gathered from key opinion leaders in the space, for example – can change that dynamic. "The more you dig into the competitive space, the more value you add to your company," Handelsman said.

Understanding the regulatory process at the outset is equally important, Judge added, observing that many life science startups fail to recognize that nuances in the application process can derail a drug or device candidate before it moves into human studies.

'CEO STANDS FOR CHIEF EXIT OFFICER'

Angel investors want to see their investments succeed, so they'll typically support startups with follow-on rounds until a company can move its technology far enough to do a biopharma licensing deal or M&A.

"We actively try to syndicate," Rudnick said. "We don't want to put money into a black hole."

Some tension exists between angels and venture capital (VC) firms, however, with the former often worried about being squashed by the latter during subsequent investment rounds. Observing that big pharma "gutted its R&D" over the past decade, Rudnick acknowledged that a pharma deal is "significantly more interesting to angel investors for a predictable exit."

But many life sciences companies turn to VCs as part of their financing strategy, and a group of biotech and medtech firms shared their "tales from the road" on that experience, as well.

Peter Savas, a big pharma alum and now chairman and CEO of Likeminds, which is developing an imaging platform to improve the management of degenerative brain diseases, threw out the first piece of advice by informing attendees that "your job as CEO is to engineer an exit. Make no mistake: CEO stands for chief exit officer."

At the top of that job description is the need to identify investors that have goals in common with the company.

"They all want to make money," Savas said. "Who are the investors with whom you have a fit, who have a personal interest in the technology?" The key could be a board member who has experience with the lead indication, but whatever the case, "find investors who know the space and have the motivation to do this other than to make money," he added.

Savas agreed that life science entrepreneurs need to propel their company to the top of a VC's queue "so you get the time and attention you need."

He also advised startups to examine their end game and seek out VCs that have relationships with the company ideally suited to become the eventual owner of the technology or asset.

"If you know your most likely buyer is Pfizer, look at its network," Savas said. "Remember, you're the chief exit officer. If Pfizer is well connected to a fund that wants to invest in your asset, you're better positioned to achieve that end."

Donald Kiepert, executive chairman and CEO of Seropeutics LLC, an early stage biopharma developing drug platforms to treat neuropsychiatric diseases, said life science entrepreneurs need a solid team and a good business plan, which should be revised regularly to incorporate lessons learned as they "redo and get smarter, redo and get smarter." The plan should show where the company plans to achieve a milestone that will be accretive to investors.

Savas agreed, observing that CEOs of life science startups need to define "yesterday, today, tomorrow and someday. And someday is where your imagination goes if the science isn't limiting. But investors are only going to finance the shortest distance to an inflection point. They're not going to finance a phase III if you haven't filed an [investigational new drug] application."

Finally, early stage entrepreneurs shouldn't worry unduly about dilution. While having an appreciation for the concept, "the biggest risk as an entrepreneur is raising capital, not dilution," Kiepert said – another strong factor in selecting investors "that share your passion and aren't constantly thinking about what's best for their portfolio. You want investors who are thinking about what's best for your company."