We are a 27 month old biotechnology company with 3 pending patents. Our IPs are very well received by the leading companies in our field. We recently signed a contract with one, we expect to sign at least another one in January but the licensing revenue won't kick in until we get the FDA approval which we think will happen in about 6-8 months. In the meantime, we would like to raise $1.5-$2mil for our new research and to build a small production facility to support our licensing revenue.
I understand that this is a small amount and most likely, it's more of an angel investment than VC's. I am hoping to get some help from this community for that kind of information/connection/reference.
Biotech investors
Answers
Early stage investing in Silicon Valley has been taken over, with a few notable exceptions, by angel investors. These things do come in waves, but given the current state of the economy and the need for more traditional VCs to feed their already funded businesses, they are retreating from seed and series A deals.
The space is being filled by angels. Angels typically take early stage deals and invest from tens to hundreds of K each. Companies will often put together rounds via a syndicate of angels who, adding up their K's, can provide hundreds of thousands to a million or more for a round of funding. The angels know this is how it often works and thus conveniently arrange themselves into groups. This gives them leverage - they get to see more and higher quality deals b/c the group has more pull than any one individual would have. This also makes deal diligence easier b/c they can spread the burden. This also works well for the entrepreneurs who can now pitch dozens or more angels at a time, rather than having to do literally hundreds of pitches to different people.
When you raise funds from angels or angel groups you typically go through their particular process. Most of them have a roughly similar path, though. First, you need to be found by them. There are a number of ways to do this. You can contact them directly or go to one of the many pitch events that happens in Silicon Valley (and other geographies to a lesser extent). Check out: the VC Task Force (http://vctaskforce.com/content/view/10/8/), the SDForum (http://www.sdforum.org/index.cfm), and the angel groups themselves (http://www.angel-investor-network.com/) who sometimes set up their own pitch events. There are also some angel/VC aggregation sites which can be useful. Two that I like are Angelsoft (http://angelsoft.net/) which is free for entrepreneurs, and The Funded (http://www.thefunded.com/) which is free for most (see their T's & C's).
Whether you find angels through a pitch event or on the web, it is helpful to have someone at the group help to inform you of and steward you through the process. That's one of the nice things about pitch events. If you find someone from an angel group that likes your pitch, it can be very helpful to your process.
Once connected, you apply. This can take the form of online submission (see Angelsoft above) or direct submission to one of the angels or to someone who works for the angel group. You need to get through the first cut by having a compelling exec summary, pitch and possible a biz plan and financials. Then they may have a call with you or invite you to do a pitch to part of the angel group. If you do well with the early stage vetting you can move on to the final pitch(es) to the group at large.
Yes, it's a bit like a game show. If they like you, you move on. The idea is to get to the final live pitch and interest some of the angels. They do not all need to love you. Typically the investing is done by some subset of the angels in the group and you only need enough interest to fill out your round.
Your company seems like it's in the angel neighborhood given the amount you are looking for. One thought might be to see whether you can break your ask into two parts. Not necessary, of course, but it may be easier for the angels to swallow, for instance, a million now to get you to milestone a, b, and c, and a million you will raise later on the strength of hitting those milestones.
A few parting thoughts:
-You can do either a note or a priced round. Angels vary on where they stand on this but the conversation can be had.
-Angel rounds can be quick or they can take as long as "traditional" venture rounds - which is to say 3-6 months.
-Some of the bigger angel groups in the Valley are: Keiretsu Forum (http://www.keiretsuforum.com/frontend/index.aspx), Band of Angels (http://www.bandangels.com/), and Tech Coast Angels (http://techcoastangels.com/), although there are certainly others.
I have only done a limited amount of angel investing in my
John's comments are pretty thorough.
One thought would be to look at the sub-debt market. It appears to be reviving. You would need to see if your collateral and cash flow models are applicable to that type of financing.
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