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// By John Bonfiglio, PhD, MBA
Financing MicroCap Biotechs Mistakes to Avoid
A friend of mine recently suggested I write about my experiences and mistakes I’ve made while trying to finance micro cap companies I’ve run over the last 25 years. There are many potential pitfalls when raising capital and every company will have its own set of issues. Below are some of the most common. Do your Homework
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efore approaching investors or the market there are a few key items you should have in hand:
•• How much do you need to raise? This number should be large enough to get comfortably to the next milestone investors would want to see. •• What are the milestones or inflection points you are going to base your pitch on? •• What type of financing are you willing to accept? PIPE? Convertible debt? Other? •• A well thought out and appropriate pitch deck designed to be modified for different groups. It is extremely important the deck is short, to the point, and spells out exactly the what, why , how and who about the company and the market. Even if the deck is sent ahead of the call or meeting it is imperative that the actual pitch is practiced and doesn’t sound like you are reading off the deck. Trust your Gut We’ve all been approached by groups that say they can get the financing done easily even after you’ve already been turned down by several reputable investment groups. Many of these “bottom feeders” are only interested in getting a retainer fee and
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stringing you along with the hope that someone they introduce you to ends up on their “tail” for a future financing. Also, if proposed deal terms seem too good to be true – they probably are. This goes back to doing your homework. You need to understand what the market is offering for financing a company similar to yours. Dilution or Financing? We’ve all heard from Board members and investors about the perils of doing a financing which could cause substantial dilution. In my opinion, this is a myth and has no real value in the strategy. If the company meets its milestones and the technology proves itself, then dilution won’t matter. The valuation of the company will increase and either the dilution won’t matter or the company can execute a reverse stock split. If the company fails, it also doesn’t matter. Just to be clear, I’m not advocating outrageous financing that would give away the company for a small amount of capital. I am saying I’d rather have 50% of a company worth $100M than have 100% of a company worth $5M because it didn’t have the capital to execute the development plan.
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