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Business and Markets

Imperfect Pitch

Venture capitalist Bruce Booth has moved his blog over to the Forbes network, and in his latest post he has some solid advice for people who are preparing to pitch him (and people like him) some ideas for a new company. It’s very sensible stuff, including the need to bring as much solid data as you can possibly bring, not to spend too much time talking about how great everyone on your team is, and not to set off the hype detectors. (Believe it, everyone who’s dealt with early-stage biotech and pharma has a very sensitive, broad-spectrum hype detector, and the “off” switch stopped working a long time ago).
He also has some advice that might surprise people who haven’t been watching the startup industry over the last few years: “Unless you are really convinced you have a special story that Wall Street will love, please don’t use that three-letter word synonymous with so much value destruction: I-P-O.” That’s the state of things these days, for better or worse – the preferred exit strategy is to do a good-sized deal with a larger company, and most likely to be bought outright.
And this is advice that I wish that more seminar speakers would follow, not just folks pitching a company proposal:

It’s annoying when an entrepreneur touting a discovery-stage cancer program has multiple slides on how big the market is for cancer drugs, what the sales of Avastin were last year, what the annual incidence of the big four cancers are, etc… These slides give me a huge urge to reach for my Blackberry. We know cancer is huge. Unless you’ve got a particular angle on a disease or market that’s unique or unappreciated, don’t bother wasting time on the macro metrics of these diseases, especially when you’re in drug discovery.

Yes indeed, and that goes for anyone who’s talking outside the range of their expertise. If you’re giving a talk, it should be on something that you know a lot about – more than your audience, right? So why do we have to sit through so many chemists talking about molecular biology, molecular biologists talking about market size, and so on? My rule on that stuff is to hold it down to one slide if possible, and to skip through it lightly even then. I’ve even seen candidates come in for an interview and spend precious time, time that could be spent showing what they can do and why they should be hired, on telling everyone things that they already know and don’t care to hear again.

24 comments on “Imperfect Pitch”

  1. Old Timer says:

    Sounds like just about every talk I’ve heard from former Schreiber students.

  2. processchemist says:

    I’ve been in contact with some biotech startups and the reality check level was usually low. Improbable scaffolds, impossible modifications on natural products coming from in silico HTS, and so on. I think that in this field one of the most useless characters is an academic with a biology or medical background playing with a docking software. Glad to hear that some VC is focusing on solid science, because many in the recent past put money in really extravagant outfits. I find a bit scaring the “virtual biotech” approach, and pretty sad the “know how to outsource selectively and aggressively” line. We all know how much agressive outsourcing contributed to the “success” of this industry.

  3. grippo says:

    Slight tangent, but the last part reminds me of a total pet peeve of mine: any symposium I’ve ever been to, each speaker spends 3-4 slides presenting virtually the same introduction as the last speaker. If a symposium is on a specific topic, you only need to hear the overview once. We get it after that. Just talk about YOUR data. I know when you’re putting the talk together in your office, it seems important to have all the intro material there, but at least be nimble enough at the event to go off-script and skip over the background if it’s been covered already!

  4. john says:

    the most annoying thing I hear when a chemist is doing a presentation on results of compound screening is “well I didn’t run that experiment so I don’t know the answer to that question”. I understand that you need those HTS results to justify your synthesis project, but if you’re presenting it take the time to learn it. If you’ve got a decent education it shouldn’t take much time to really learn the basics of the screen, and why your result is significant.

  5. Sundowner says:

    The most disgusting for me was six or seven years ago. Sitting in a room with 30 or 40 investors, watching a presentation about the expected market for anti VIH drugs, when something like 30 million people had already died. Hearing it presented in a naked, commercial way, almost made me throw up.

  6. RD says:

    A one slide presentation! Ooooo.
    Unfortunately, long involved meandering presentations seem to be the desired format. I prefer short, sweet narratives but if you make it look too easy, er, then it looks too easy.
    Actually, most of the stuff that seems to be sooo impressive isn’t generally used in practice.

  7. Cellbio says:

    In principle, the advice makes sense, but this is easy pickings. If an “entrepreneur” comes in giving broad market sizes, and/or talking of an IPO, they are likely to present a plan that in total looks like more like a grant proposal than a business strategy.
    If they come in with no reflection of their market, specific niche, specific advantage, but instead are wholly focused on technical aspects, then at the minimum, they need help, and at the worst, they fail to offer a path to realize value.
    In the end, if an entrepreneur can articulate how technical success will produce a solution to a problem someone is struggling with, then half the story is complete. The second half is an assessment of feasibility in the context of available time and money. This is a key part that discriminates the grant, many years of government money, versus investor backed, 3-5 years thank you. The current identifiable problem needs to stay relevant, or to put it another way, the market moves.
    With feasibility one needs also to assess the failures in that space. I have seen start-ups promise the solution of a problem through technical innovation that has been thoroughly explored in industry (not published), explored due to potential promise, but discarded because of data which reveal, as is too often the case, that our best ideas do not produce a real solution, or at least not an easy one. And this can, in big pharma, create a stifling environment for innovation.
    Final point, hype meters have different levels of sensitivity, VCs like Bruce may have a finely tuned one, many do not, but experienced drug development folks have extremely sensitive hype meters. Often too sensitive, but also often tuned by real life experience to be more precise than the general hype driven VC community. For those with an interest, go to VC websites and read through portfolio companies. You will see a nice mix, but likely see that the ventures encompass a range that is well within your thoughts about opportunities. Think of this next time your current bigco is synergizing/merging or swallowing innovation in process management. Maybe time to go innovate?

  8. Mark says:

    Biotech VC is hurting right now. I’m glad to see that Bruce doesn’t have much tolerance for hype, but Bruce is only one venture capitalist out of many.
    A lot of biotech VCs out there are like lost children. They try and find someone who looks like they know what they’re doing and tag along. There are a few that have held to the “invest in solid science” mantra, but they are grossly outnumbered by those that don’t.

  9. azmanam says:

    I like watching the show Shark Tank.
    I have no idea how true-to-reality it is, but it shows clearly how to pitch a business idea… and how not to pitch a business idea. Also, hearing the initial questions often tells me what information should have been in the pitch but was missing.
    …Not that I have any great ideas that need VC

  10. Still Scared of Dinosaurs says:

    I worked for a company at which the quality of decision making took a nose dive as soon as the big name biotech VC came on board. I think “there’s got to be a better model” but the attempts at virtual companies, etc. that I am familiar with with sold out (or failed).
    AFA the IPO slides are concerned just tell the people doing the pitch to replace them with slides showing how strong their patent position is.

  11. DWJ says:

    “VIH drugs?”
    You should join D.A.M. — Mothers Against Dyslexia

  12. leftscienceawhileago says:

    But this is the VC pitch paradox in drug discovery. No one knows how to create new drugs, trying out a proposed method will cost money, which winds up being a bit of a punt in terms of an investment. What else is one supposed to do other than push the “super star”-ness of their team and size of the potential market…after all, it seemed to work in years past.
    During the boom years (early 2ks), many professors were getting VC money to start companies (and simply transplant postdocs and grad students to those companies with an incremental pay raise and some equity of dubious value).
    The ideas were stupid and terrible. Everyone knew this, but the professor was able to make a decent second salary (as chief scientific adviser or some such title); so the projects got pushed along. Every single one of these ventures that I am aware of is now defunct.
    Now we have a glut of (un(der)employed) scientists who would love to get a few hundred thousand to start drug discovery projects. Problem is that you can’t really start in a garage aiming to do drug discovery. All ideas in this area are “risky”, given the yields on the discovery/development process. It is difficult to really be able to sell something based on science and risk analysis, because we don’t really have a good handle on how to reliably discover new drugs that are safe and effective.
    How can we get completely wild ideas funded for drug discovery, to the point where we can generate some numbers that might give us some insight as to how our idea compares against the processes in industry and academia?
    I think the answer is that you can’t. VC money flows directly from investors to academic labs which work as incubators. There isn’t any room here for the “dropping out and working out of your garage” type stories.

  13. Seen lots of early cos. says:

    @still scared of dinosaurs:
    One of the other big mistakes is to patent too broadly and too early. It is remarkably easy to prior art yourself.
    It is a problem though, the VCs want assurance that you have ‘protection’ (well they call it value). You can burn time and $ and create an illusion of assets.
    I would want to see *focus* and then downstream potential.

  14. pete says:

    It seems to me that the “Exit-Strategy as Business Plan” mentality among budding Biotechs is just another indicator (driver) of the MBA-driven malaise that’s been thrown over drug discovery. IMHO successful players in drug discovery have tended to be determined Tortoises (rather than speedy Hares) and the ability to excel at R&D continuity + stick-to-it’iveness have often won the day. Contrast that with the current gobbling up of biotech IP by Pharmas suffering from ADHD.

  15. Mark says:

    Exit-strategy is always important.
    I mean, would you give me $10M dollars if I never told you how I was going to get you your money back (hopefully more than you gave me to start)?

  16. bbooooooya says:

    “It seems to me that the “Exit-Strategy as Business Plan” mentality among budding Biotechs is just another indicator (driver) of the MBA-driven malaise that’s been thrown over drug discovery”
    Hmmmmm, OK, so how would you approach investing in a biotech? I’m not sure the “please give us a lot of money and someday we may or may not give it back” approach is going to be that successful.
    Are you suggesting that the “determined Tortoises” of big pharma are more successful at making drugs? If this is your conjecture, I would invite you to look at the stock performance of some of the biggest of the big (MRK, PFE, BMY, LLY) compared to the S&P over the past decade: the blind monkey investing in the S&P has done a lot better (including dividends and splits….).
    Most investors are smart enough to disregard what any start-up says about exit strategy in any case, but it’s nice to know that the start-up is at least thinking about creating some value for investors.

  17. Still Scared of Dinosaurs says:

    Thanks. Patents are not my area so my frame of reference is the startup I worked for that bragged about the strength of its portfolio. Seemed like a good thing to me.
    “Go prior art yourself” seems like a nasty, nasty thing for one IP dude to say to another.
    AFA as the “Exit-Strategy as Business Plan” mentality mentioned by pete – OMG! OMG! Yr kiln me! At the same company we were presented with pep talk slides showing increasing sales (in the yes-with-a-B billions of dollars) going out 15 years. At which point they sort of leveled off. Since it was an informal chatty meeting I asked why the sales leveled off at that point and the CEO responded “That’s when I plan on retiring”.
    And some people say you can’t use Powerpoint slides with crappy, made up data to communicate effectively. I got a pretty clear message from that talk.

  18. Hap says:

    16: I don’t think his discussion of exit strategy is focused on investors. When I was little, we had a governor in NJ who was all about balancing the budget, but when he left, all of a sudden, there was a half-billion dollar deficit to deal with. (A similar scenario is playing out in OH – Taft and his legislature cut taxes, knowing that later the burden of the tax cuts would fall on cities and schools, but by then, Taft would no longer be in office.) In these cases, the people running NJ and OH made themselves happy by postponing the consequences of the problems that they created beyond their terms – they made out well, but the investors (the citizens of their states), got screwed.
    It’s easy to promise returns to investors over a certain period if you can postpone the costs until afterwards. Those kinds of businesses, though, aren’t likely to do anything useful and in the long run destroy almost anything of value. Other than the first investors out, everyone gets screwed. No interesting science or medicine comes out of it. Eventually, people get tired of investing in everyone else’s Ponzi schemes.

  19. pete says:

    @ 15-18
    I’m definitely aware of current capital-raising realities but as Hap sez – thanks – there seem to be too many examples where the main driver becomes sell-out at the prospect of the large pile of dough. Financial enablers are happy to help you grease the deal and then you and other officers of the co. can move on from Company X to Company Y.
    Problem is, as we Pipeline readers know, the science necessary for getting to a durable drug tends to take it on the chin as a result of this dog n’ pony show churn.

  20. I’d like to know more about this broad-spectrum hype detector. Can it be used in HPLC or other analytical instruments?

  21. Student says:

    I am interested in reading a reply from someone with personal insight into a full company transaction. IPO aside, if big pharma is buying up a startup company, the ladder will skew the results to get the better deal. Maybe even become more open to selling their company as their results sour. Obviously the buyer will be picking through with a fine tooth comb…Who usually gets the better deal?

  22. Jonny says:

    Student, that depends on who ends up holding the valuation high ground. The buyer usually has a team working on a valuation that suits their purposes; it is therefore incumbent upon the seller to understand the value of their asset(s) and to be be able to robustly defend that value.
    Here’s a good article that speaks to this in greater detail:

  23. Hap says:

    It’s been a very long time since I had to give a talk, but I assumed that you always started with something that explained why you were doing the research and why anyone else should care. Even if previous speakers have done so, I assumed that you should, too, because the reasons may be slightly different for what you do than for what others do. It shouldn’t be long (especially if you’re talking to people whose time is valuable) but I assumed that it should be there.
    Also, irrelevant, optimistic, and overly familiar numbers on your target audience don’t help, but I would have assumed that a VC would want to see how good an idea you have of your market, maybe to get a sense of your business skills and advisors, maybe becuase they don’t (immediately) know. Of course, if you spend most of your time regaling potential investors with financial fantasies or bad logic, well, that tells them something, too.

  24. Anonymous BMS Researcher says:

    If you are a biotech startup, it also behooves you to understand the actual size of your market, which may not be what you think it is. I work mostly in drug *discovery* which involves much smaller sums of money than does drug *development*. Some vendors whose technologies are primarily useful for early stuff like target validation seem to base their thinking about pricing on our total R&D spend, appearing not to realize my part of BMS on a different financial planet from the clinical folks.

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