Last week, I spoke with Raymond King, the Senior Manager for Global Diversified Industries, Listings Business Development at the Toronto Stock Exchange (TSX) and TSX Venture Exchange. King will be at MaRS on Nov. 12 to talk about the challenges of securing capital for biotech companies and how such companies are valued by investors.
“Over the past few years it has been difficult, considering the global uncertainty,” says King. “Biotech is definitely one of the hardest hit sectors.” One reason for this is that research and development companies often need a long time before they are ready to commercialize their product. The reality of the sector is that it presents investors with a 90% failure rate.
So what are investors looking for in a biotech company? “The appetite is short-term,” he says. “The biggest thing is to have a solid business model.” The bottom line is that investors want to know how they can make money off your technology. And they might be less forgiving now than they were two years ago.
King reminds entrepreneurs to always speak to the needs of the investor. He has sat through many scientific jargon-laden pitches that investors don’t understand. “They load us up with details of the science and forget to articulate their value proposition in a business sense.”
King’s advice for such companies is to let the scientist focus on research, development and the scientific direction of the company and bring in appropriate business people to manage the company’s finances and market growth.
Before any money flows into a company, though, investors will set a valuation. “Valuations are a point-in-time measurement,” he says. “They are a reflection of the investor appetite in your market.” Valuations are often based on a composite of other industry players in the North American market. Your company will be benchmarked against other participants in that space.
King’s job at the TSX entails educating companies that go public on what’s expected of them. As such, he coaches companies on how to meet the TSX requirements to be publicly listed on the exchange. This might include crafting quarterly disclosures of their financial situation. In many R&D companies there could be big gaps between costs and revenue, but the key is not to hide from investors.
This brings up the importance of an investor relations team to act as a liaison between your company and the people who have invested in it. This is distinct from a public relations role, which is concerned more with public perception of brand and positioning within the market.
Investor relations professionals deal in numbers and interpreting those numbers for the investors and for analysts who might be watching the market. “Investor relations should never be handled by the receptionist,” says King. “You need people to speak to the financial aspect of your company and to share that with analysts and your shareholder base.”
Even in this tough market, King is energized by the new ideas coming out of biotech companies in Ontario. “I enjoy working with companies and their founders to help them gain access to financing.”
Raymond King speaks with Wayne Schnarr, Healthcare consultant with Equicom, TSX’s Investor Relations firm, as part of the MaRS Best Practices Special Valuation Series on Friday Nov. 12 from 12:00 – 1:30 p.m. More details and registration here.