In our first post summarizing Ryan Sansom’s Google Hangout, “Strategic Investments for Life Science and Technology Companies” he clarified who exactly is making strategic investments and noted some interesting trends in strategic investing.
Continuing this series, Ryan moves on to the ways that strategic investments arise and what motivates strategic investors.
How discussions with strategic investors arise
Traditionally – for example, in the software industry – investor discussions would be later in the company’s growth stage, and would be related to or a precursor to an acquisition. With life sciences companies, however, it’s more fluid, with strategic investments often arising out of broader business development discussions that touch on multiple structures.
Bigger companies have business development teams, with people who are trying to understand the life sciences space and talking about several different arrangements that include Joint Ventures or other collaborations; commercial agreements and joint marketing; staged acquisitions; and a full acquisition. The conversations can range within any point on this spectrum, ending in non-exclusive licenses to exclusive licenses to even a staged acquisition (with an option to buy on pre-set terms).
These discussions can quickly morph; often they will settle on fundraising and strategic investment. That right there is where recent trends have come out.
What Motivates the Investor?
The motivation for strategic investors represents a drastic departure from traditional institutional investors. For traditional non-strategic investors, the core goal, of course, is to generate financial returns by way of the classic disruption of markets and other typical tech “hockey stick”-style growth scenarios.
For strategic investors, motivations are far more varied. The top motivators for strategic investors are the following:
- For the purpose of getting an inside track to a future acquisition.
- As a component of a licensing transaction (one in which the equity is a vehicle to support the license); in these scenarios, the value of the company is irrelevant – it’s about the license.
- Fostering a commercial relationship – especially in the areas of HCIT and devices, strategic investors want the product development in a favorable place and are willing to make an equity investment.
- Access to Information – investors want to stay abreast of developments in the space and maintain access to info.
These motivations all impact what the strategic investors want for terms – a topic we’ll cover in our next post.
To learn more about strategic investments for life science startups watch the full Google Hangout here.