Rising Above the Storm
The past two months have seen a series of “atmospheric rivers” create stormy and dangerous weather conditions up and down the west coast. Rain, wind, and high seas have battered the coast. Trees and power lines are down, and floods, landslides, and mudflows have destroyed roads, homes and neighborhoods. Over this past weekend record snows dumped more than 10 feet in the Sierra, shutting down interstate 80 for 100 miles. None of this extreme weather is normal, nor was it unexpected.
It’s been a similarly stormy season for many life science / biotech companies, especially those who have already been at it for a bit and need to raise more funds to push past a critical goal. I recently spoke with the CEO of one such company in exactly this position. The good news was that they had identified an M&A opportunity with some unusually attractive characteristics. There was the potential to take out a competitor at a bargain price, to acquire critical IP as well as an existing product line that was directly complementary to the company’s core products, and a sales force which had strong relationships with key incremental customers. The problem was securing additional cash to get the deal done, at a level of approximately $5 million.
New investors would clearly benefit, but the big VCs didn’t see the deal as large enough given the enormous funds recently raised, and the related need for outsized ROIs. Most other VCs were focused on seed and series A investing in early stage companies, or late stage investing that would bring them a rapid return on a large outlay of cash at somewhat lower risk. This company was in neither of these situations, as it would still take some years to realize the value of the new investment, as attractive as it was.
The solution this CEO came up with is one that is not often considered in biotech circles. Rather than raise funds from VCs, this company – which already has an existing revenue stream and tangible assets – sought a bank loan. The bank was receptive, and had begun moving forward with diligence and preparation of documents. As exciting as this was, no deal is ever done until it is actually closed. Leaders always need to be prepared for inevitable unexpected events.
To the great disappointment of all involved, such an event occurred when certain bank clients in a completely unrelated space started reporting poor results for fiscal 2023. The bank responded by concluding that they needed to circle their wagons, prepare for potential defaults on existing loans, and discontinue discussions about loans to new clients. Suddenly the deal appeared dead.
What’s a CEO to do? Through creative thinking and a strong network of industry relationships they had found and pursued an unanticipated opportunity that could catalyze the growth of their company. Then, as they were in the final stages of pulling the deal together, they encountered a completely unanticipated barrier to proceeding.
This deal is still playing out, so I can’t yet comment on how it will turn out, but the CEO has long been practicing many of the values, skills and approaches I’ve been advocating to prepare for addressing life’s inevitable unexpected events. They built a strong foundation in their field, so understand all of the players, key issues, and competitive activity. Their team is committed to the company’s long term mission, and act with a sense of confidence and persistence in pursuing their goals. They are all focused on the matter at hand, and brainstorming about alternative approaches to secure the funds needed to close the deal.
Having regularly communicated with existing key investors, it was easy and natural to reach out now with a candid update on the situation, trying to leverage their relationships to find ideas, connections and possibly even new financing that might be helpful. As a sign of their commitment, the founders have dipped into their personal IRAs to put up additional funding alongside those who may choose to invest, thereby reducing the additional cash needed, and showing other potential investors their confidence in the deal. In parallel they’re actively considering alternative options around deal structure, and discussing these with the M&A target.
There are no guarantees of success in the life science/ biotech business. The vast majority of technology based startups don’t survive more than five years. In this case, however, I believe it is more likely than not that the company I’ve described will find a way to achieve its goal.
Stories such as these, and the values, skills and approaches that leaders use to navigate past unexpected events, are central to my new book, Can’t Tame a Mongoose: Memoir of a Genomics Entrepreneur. Scheduled for publication March 26, the book is available for pre-order now on Amazon and most other sites where books are sold online. I hope you find it to be an interesting, informative and enjoyable read.