Lived It Lecture: Building a better deal

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Speaker: Lisa Crossley, President & CEO, Natrix Separations

Lisa shares the lessons she's learned about how to get good VC financing terms for your business and how to ultimately close a deal.

This is part of a series of “Lived It” lectures in the program, sessions that offer a great opportunity to hear firsthand and ask questions about the experience of starting up an innovative company – from people who have seen it and done it.

Published in: Business, Economy & Finance
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Lived It Lecture: Building a better deal

  1. 1. www.NatrixSeparations.c om
  2. 2. Complex Separations Made Simple Building a Better Deal Lisa Crossley, CEO Entrepreneurship 101 MaRS, March 11, 2009 www.NatrixSeparations.c om
  3. 3. Outline •  Introduction to Natrix –  Company Overview –  Natrix Technology –  Fundraising (“the deals”) •  3 Critical Elements for Building a Better Deal –  Business Plan •  Example: Natrix Go to Market Strategy –  Advisory Team –  Managing the Transaction •  Summary www.NatrixSeparations.c Complex Separations Made Simple om
  4. 4. Complex Separations Made Simple Introduction to Natrix www.NatrixSeparations.c om
  5. 5. Natrix Separations is a supplier of high performance separation products to the Biopharmaceutical, Veterinary Pharmaceutical, Vaccine and Nutraceutical markets www.NatrixSeparations.c om
  6. 6. Company Overview •  Natrix Separations was formed in 2005 to commercialize a patented technology originally developed by Drs. Ron Childs and Alicja Mika in the Department of Chemistry at McMaster University in Hamilton, Ontario •  Inventors brought the science, my contribution was on the business side (fundraising, managing and growing the business) •  The company is privately owned and backed by major institutional investors from Canada and the US (BDC Venture Capital and JovInvestment in Canada; DE Shaw Ventures in CA, USA) •  Natrix currently employs 40 people: 35 in Canada (all functions) and 5 in the US (sales & marketing) www.NatrixSeparations.c Complex Separations Made Simple om
  7. 7. Corporate Headquarters •  Administration •  Finance •  Research and Development •  Process Development •  Application Engineering •  Quality Assurance/Control •  Pilot Production •  Commercial Manufacturing 5295 John Lucas Drive, Burlington, Ontario, L7L 6A8 www.NatrixSeparations.c Complex Separations Made Simple om
  8. 8. Natrix Technology Natrix has developed a unique, patented chromatographic separation technology Natrix technology combines the high throughput and ease of use of membranes with the high capture efficiency and selectivity of chromatographic resins www.NatrixSeparations.c om
  9. 9. Natrix Technology •  A completely novel, patented membrane construct consisting of a structured hydrogel formed within a suitable support •  Two different components: Flexible porous support Anchored structured gel •  The two components can be optimized independently, yielding a revolutionary new low cost, high performance membrane product www.NatrixSeparations.c Complex Separations Made Simple om
  10. 10. Seed Investment •  $2 Million tranched investment provided by MDS Capital and BDC Venture Capital •  The seed round was intended to fund a proof-of-principle program that would demonstrate the commercial viability of the technology −  Funds used to lease office and lab space, hire a small team of R&D scientists, file IP, business development/travel •  Payout of tranches triggered by achievement of technical and business development milestones as specified in the original Subscription Agreement •  Draft Term Sheet received Dec. 2004, transaction closed (i.e. documents signed and funds received) April 1, 2005 www.NatrixSeparations.c Complex Separations Made Simple om
  11. 11. Series B •  $19M round that included the existing investors (right to participate from seed round); round led by new US investor •  The funds raised were used to: –  Move the company to new space; build new offices, labs and production space –  Construct a commercial-scale manufacturing line •  (25,000,000 sq ft of membrane per year capacity) –  Expand the senior management team (CFO, VP Sales, VP Ops, VP R&D, VP Marketing) –  Expand the Sales & Marketing team –  Commercial launch •  Term sheet to close in six months www.NatrixSeparations.c Complex Separations Made Simple om
  12. 12. Complex Separations Made Simple 3 Critical Elements for Building a Better Deal www.NatrixSeparations.c om
  13. 13. Elements of a Deal •  Three Critical Elements of any Venture Capital Financing: – Business Plan – Advisory Team – Managing the Transaction www.NatrixSeparations.c Complex Separations Made Simple om
  14. 14. Complex Separations Made Simple Business Plan The terms of any deal will only be as good as the business plan you provide to your potential investors www.NatrixSeparations.c om
  15. 15. Deal Terms •  Valuation •  ESOP •  Liquidation Preferences –  Straight or participating •  Redemption Rights •  Anti-dilution Protection –  Full ratchet or weight average •  Pre-Emptive Rights to Participate •  Approval Rights, Board Seats www.NatrixSeparations.c Complex Separations Made Simple om
  16. 16. Business Plan •  Critical Elements from the point of view of potential investors: –  Management Team •  Proven track record in business –  Market Information •  Go-to-market strategy, market size, market pain –  Intellectual Property •  Do you have sufficient protection and FTO? –  Budget / Use of Funds –  Exit Strategy •  Timing and valuation (ROI) www.NatrixSeparations.c Complex Separations Made Simple om
  17. 17. Business Plan •  Purpose is to articulate your value proposition for potential investors •  Focus on the market: target markets, market size, time to penetrate, potential market share, unmet needs •  Rule of thumb: –  At a minimum, investors want to see a target market with a >$400 Million value, and a plan that explains how you will capture 10% of that market (i.e. $40 Million) within 4 years •  Exit strategy –  Depending on the investor, you need to be able to demonstrate a potential ROI of 5-10X www.NatrixSeparations.c Complex Separations Made Simple om
  18. 18. Complex Separations Made Simple Example: Natrix Go to Market Strategy www.NatrixSeparations.c om
  19. 19. Target Markets •  Natrix products address the unmet needs of three distinct, large and rapidly growing verticals within the global Separations market –  Biotech Separations / Bioprocessing –  Food & Beverage Processing –  Water and Wastewater Treatment •  Total value of these verticals is $9 Billion www.NatrixSeparations.c Complex Separations Made Simple om
  20. 20. Target Market Segments Liquid Separations ($14B) BioPharmaceutical Water / Lab Scale Food/Beverage Wastewater Bioanalytics Manufacturing ($2.5B) ($3.7B) ($4.7B) ($3.1B) Potable Protein Purification Life Science Nutraceuticals Research Municipal (Capture) Industrial Food Processing Drug Discovery Vaccine Production Water/WW Viral Clearance Commercial Process Ultrapure Beverage Development (polishing) Consumer Dairy VetPharm (POU) www.NatrixSeparations.c Complex Separations Made Simple om
  21. 21. Market Trends •  Separations Market –  Increasingly complex molecules –  Increasing market pressures to: •  Reduce manufacturing costs •  Increase product yields •  Rapidly scale from lab to process scale –  Increased pressure from regulatory agencies on final product safety and purity –  No new “step change” separation products have been introduced in decades www.NatrixSeparations.c Complex Separations Made Simple om
  22. 22. Natrix Value to Customer •  Better, faster, cheaper •  Lower cost –  Product price, fewer processing steps, lower operating cost •  Ease of use –  Wide range of formats, scalable, smaller footprint, fast startup •  Simplified regulatory compliance •  Flexibility –  Single or multicycle use disposable products •  Faster time-to-market •  Better product performance –  Increased purity can potentially increase efficacy, reduce side effects •  Unmet needs –  Cost/performance ratio of current products does not meet current or future market need www.NatrixSeparations.c Complex Separations Made Simple om
  23. 23. Value Prop by Segment www.NatrixSeparations.c Complex Separations Made Simple om
  24. 24. Value Prop by Segment www.NatrixSeparations.c Complex Separations Made Simple om
  25. 25. Typical Time to Market Lab Scale Bioanalytics Wastewater Food/Beverage UPW/POU Water Vet Pharm Human Therapeutics 0 1 2 3 4 5 Years Initial acceptance (early adopters) Widespread adoption www.NatrixSeparations.c Complex Separations Made Simple om
  26. 26. Profitability vs Time to Market www.NatrixSeparations.c Complex Separations Made Simple om
  27. 27. Target Market Segments Direct Sales Channel Partner / Strategic Alliance www.NatrixSeparations.c Complex Separations Made Simple om
  28. 28. Go to Market Strategy •  Product Rollout / Launch Priority 1.  Markets with unmet needs in performance or value –  Lab Scale Bioanalytics Focus for –  VetPharm Vaccine Purification –  BioPharm Capture Chromatography 2009-2010 –  Nutraceuticals 2.  Markets where we can establish a strategic partnership –  Lab Scale Bioanalytics –  Biopharm Capture Chromatography –  VetPharm Vaccine Purification –  Nutraceuticals –  Consumer Water (PoU) –  Radioactive Wastewater 3.  Markets with high competitive performance and value –  BioPharm Viral Clearance (Polishing) –  Precious Metal or Isotope Recovery –  Ultrapure Water www.NatrixSeparations.c Complex Separations Made Simple om
  29. 29. Lab Market Anticipated Gross Margin: >80% Competitive Key Competitors: Advantages: Qiagen Broadest product range GE Total User friendly Bio-Rad High performance Addressable Tosoh (binding) Market: Pall High throughput Time to Market: Sartorius >$500M Lower cost Short Barriers to Entry: Time to Market: Established competitors Short Diffuse market No brand recognition www.NatrixSeparations.c Complex Separations Made Simple om
  30. 30. Nutraceuticals Anticipated Margins: 60% Competitive Key Competitors: Advantages: Pall Ability to process high- Total viscosity, ‘dirty’ feed Koch streams GE Addressable High selectivity 3M CUNO Market: Low operating costs >$1B Barriers to Entry: Time to Market: No brand recognition Moderate Regulatory constraints www.NatrixSeparations.c Complex Separations Made Simple om
  31. 31. Biopharm - Capture Anticipated Gross Margin: >70% Key Competitors: Competitive Advantages: GE High performance (binding) Bio-Rad Total High throughput Dionex Addressable Low acquisition costs Tosoh Market: Low operating costs Pall >$1B Lower regulatory burden Sartorius Barriers to Entry: Established competitors Time to Market: Highly regulated market Long Historically conservative Long adoption cycles www.NatrixSeparations.c Complex Separations Made Simple om
  32. 32. Revenue / Market Development Revenues 2011 Lab Market 2010 Vetpharm Biopharm Lab Market (Capture) Vetpharm Nutraceutical 2009 Nutraceutical Consumer Water Consumer Water Radioactive Waste Lab Market Biopharm Ultrapure Water Vetpharm (Capture) Biopharm Nutraceutical Radioactive Waste (Polishing) Biopharm Wastewater (Capture) www.NatrixSeparations.c Complex Separations Made Simple om
  33. 33. Complex Separations Made Simple Advisory Team Get the best possible advisory /support team in place from the outset www.NatrixSeparations.c om
  34. 34. Advisory Team •  General corporate counsel –  Get recommendations from your investors –  Choose someone who has experience with VC deals, and who is very accessible (24/7!) •  Patent counsel •  Financial team •  Consultants as needed –  For the seed round closing Natrix engaged a Venture Management consultant with specific relevant expertise www.NatrixSeparations.c Complex Separations Made Simple om
  35. 35. Advisory Team •  Draw on paid advisors, mentors and relevant contacts for input on any draft Terms Sheets received –  Get counsel’s opinion on the legal ramifications of any reps and warranties you are required to make –  Use external input to ensure that your expectations for the deal are realistic –  Good advisors can help you determine which deal terms are negotiable and which are not www.NatrixSeparations.c Complex Separations Made Simple om
  36. 36. Complex Separations Made Simple Managing the Transaction Every day spent closing on the financing will cost you in legal fees as well as productivity www.NatrixSeparations.c om
  37. 37. Managing the Transaction •  The company must manage all parties involved in the transaction (investors, attorneys, university?) •  Get a Closing Agenda in place as soon as possible (ask the lead investor’s attorney to provide one) –  Assign each agenda item to a specific individual and set a “due by” date •  Managing the transaction needs to be the company’s top priority –  Remember that closing costs for the company and the investors come out of your financing! www.NatrixSeparations.c Complex Separations Made Simple om
  38. 38. Summary •  Three critical elements of a good deal: –  Strong business plan –  Good advisory team –  Actively managed transaction •  Bottom line: – Take the money and run! www.NatrixSeparations.c Complex Separations Made Simple om
  39. 39. Complex Separations Made Simple Thank You www.NatrixSeparations.c om

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