While many biotech and life-science companies have impeccable products and intellectual property pipelines, they are often in need of appropriate capital to execute the company’s mission.
There are numerous ways to raise capital, from many different markets (private and public). For purposes of this discussion, we will focus on five measures that all companies should implement to maximize value and minimize risk when undertaking any capital raise.
- Undertake Company Record-Keeping Housekeeping:
An audit should be conducted as to the condition of the company’s books and records. Are they accurate? And have they been updated? When seeking capital from sophisticated investors, family offices, private equity or funds, extensive due diligence is undertaken. This requires preparation and ensuring that your corporate records are both accurate and organized. Reviewing the company’s foundational documents (articles of incorporation/organization, relevant governance documents and capital table(s) are critical in this regard). - Audit and Organize Company Financial Records:
An arguably even more critical component is ensuring that company financial records are accurate and easily referenced. Most often a “data-room” is prepared where company financial records (and other documents) are deposited for review. As raising capital has substantial legal implications (representations and solicitations to investors), this is a crucial step. Ideally, an outside review or audit of the Company’s financials should be undertake before going to market. - Back-up Valuation:
Another best practice for any company seeking to raise capital, is to have a valuation or appraisal prepared (pre-money). This ensures that the Company has a solid footing when determining the valuation for purposes of setting the market. - Build A Great Team of Advisors:
Prior to actually tapping into Capital markets, it’s critical that the company assemble an exceptional team of advisors. This would include accountants, attorneys and potentially private investment banker, or advisors. This team of advisors will set the framework for a successful capital raise, and will bring immediate credibility to the raise itself. Each team member will have specific tasks that need to be executed timely and in coordination. - Communication is Key:
Both during and after the capital raise itself, the company and key executives should communicate regularly with both prospective investors and those who consummate the deal. This means regular reporting of material events (whether adverse or not) and sharing financial records (best practices would be quarterly sharing of financial reports).
