Grant Thornton, an international tax and consulting firm, will sponsor and host a workshop at OneMedForum SF 2012 to discuss funding strategies for life sciences companies. Over the past several years, the primary sources for life science funding have remained largely the same. However, research indicates that the financial crisis has led to a shift in the popularity, focus and type of deals that are being done. Further, the bar has undoubtedly been raised for life sciences companies seeking funding because investors’ appetite for risk has decreased significantly. Many criteria can be used to evaluate financing options – all of which have pros and cons depending on the current position and future direction of your business.
Join members of Grant Thornton’s Life sciences practice as they discuss:
- The pros and cons of various funding sources
- Venture capital trends and opportunities
- New opportunities in government funding
- Tips to developing the optimal financing strategy for your business
Below Tim Zingraf, a partner, is interviewed by OneMedRadio where he provides insight on the challenging nature of the markets today and how companies might navigate in this economy.
Please click below to hear interview audio and see full transcript to follow. To register to attend OneMedForum SF 2012, click here.
Brett Johnson: Brett Johnson in New York here. Today, I am with Tim Zingraf who is partner in the San Francisco office of the international firm Grant Thornton. He’s experienced and has been exposed to a variety of financing strategies and structures and today we’re talking about financing strategies and alternatives for growth companies in the healthcare and life sciences sector. Tim will be hosting a workshop on strategies such as this at the OneMedForum in San Francisco January 10th and 11th. Thanks for joining us today, Tim.
Tim Zingraf: Thanks, Brett.
BJ: Tim, what do you see as the major categories of alternative investment strategies for emerging companies?
TZ: Well, Brett, over the past several years, the funding sources for health and life science companies have remained largely the same. Those funding sources include investors from private capital markets, which would include high net worth individuals, angel investors, venture capital firms, and private equity groups. There are also funding sources available in the public markets and this would traditionally include the IPO and also for current public companies private investments made in those companies through a vehicle known as a pipe, which can either be a registered offering or unregistered through accredited investors.
There are also ways to preserve and generate cash through more operational means and that would be through renegotiating your debt arrangements with your lenders, selling non-core assets or research projects effectively managing your working capital or entering into strategic partnerships with third parties to assist the companies in developing and commercializing their technology.
BJ: Can you give us a little bit of a historical perspective on how the markets are today versus how they were sort of three years, five years ago for life science and healthcare companies?
TZ: Well the markets have been very challenging lately. The economy is still a little slow. What we’re finding is that the companies that are getting funding today tend to be those that are maybe more established or have a product that’s very close to being commercialized. There are funding options available, it’s just the strings attached are a little tighter today.
BJ: And so the valuations are lower than they have been and the restrictions on the entrepreneur have been tighter?
TZ: I think that’s true. I think what we’re seeing, you know, is a similar number of transactions that are occurring, yet the overall funding levels, whether it be through the venture markets or through M&A transactions, for instance, the aggregate funding levels tend to be a little down, yes.
BJ: So, Tim, in terms of strategies for companies depending on their size, do you see different strategies for earlier stage companies versus later stage companies?
TZ: Yes. Early stage companies are likely to seek funding in the private capital markets through either VCs or high net worth individuals while private equity funds traditionally invest in more mature companies that have products on the market or a revenue stream already in place. Access to capital in the public markets is increasingly being reserved for later stage companies again who either have a product in the market or a technology that’s in the later stages of its development.
BJ: Do you see that changing at all in terms of the IPO window opening at some point?
TZ: That’s very hard to say. It’s really become an unpredictable process in terms of timing. I think we’re seeing extended periods of time that companies are in registration. Again, it’s really almost a market of the haves and have nots. You’ve got very high profile companies that create a lot of energy in the IPO market and they sell very well while others tend to have a tougher time telling their story and convincing investors that they’re right company to invest in.
BJ: So what general advice do you give growth companies now in terms of getting funding?
TZ: Well some advice I guess I would give to growth companies that are in need of funding would be to be patient and to stay focused. All companies are passionate about what they do and this requires a level of patience because not all investors will share the same passion that they do. Different investors at different stages will share your passion at different levels. My suggestion would be, you know, don’t jump at the first funding opportunity and risk losing control of the organization too early. At the same time, companies need to stay focused on their core strategies. They need to recognize that they can’t be all things to all people and knowing when to give up on a strategy that might be failing and re-shifting that focus to something more productive is also very important. Most importantly, it’s very critical to surround yourself with advisors that share your passion and have the best interest of the company in mind more so than those that are really interested in developing a quick profit from their investment in you. So selecting the right advisory board is also very important.
BJ: So, Tim, what are some of the pros and the cons of the different strategies that exist for growth companies in the healthcare space?
TZ: Well, Brett, each funding strategy will have its own pros and cons that will be of lesser or greater importance depending on the current state and future direction of the business. For instance, funding from high net worth individuals and VCs can provide early stage companies with a source of medium-term funding, however it can be highly dilutive. While private equity growth capital can provide a longer term funding source oftentimes without a change in control.
IPOs on the other hand can provide liquidity to the organization and its early investors, yet comes with the cost and regulations of becoming a public company. And it can also be a lengthy process with little certainty that the deal will get done. Once a company is public, pipes can provide a faster access to capital, but the shares are typically offered at a discount from market and will result in a dilution to the existing shareholders.
BJ: Right. So tell us a little bit how you got into this business and in your experience area?
TZ: Okay. Well I’ve been an audit partner in Grant Thornton’s technology practice for the past six years, but I’ve served clients in public accounting collectively for about 15 years, and I’ve also worked in industry serving in senior financial management roles for middle market companies for close to ten years. I’m not a broker or an investment banker, but in my role as an audit partner and my positions that I’ve held in the industry, I have been exposed to many different types of funding strategies and the challenge these businesses face in accessing the capital that they need to grow their business.
BJ: Well, thanks. Certainly, it’s a challenging time in market and, you know, being able to be creative in coming up with the right structures and strategies is a critical piece to success. Thank you very much for joining us today, Tim.
TZ: Thank you, Brett.
BJ: That is Tim Zingraf who is with Grant Thornton in the San Francisco office. He and some other members of the Grant Thornton team will be offering a workshop on alternative financing strategies at the OneMed Forum on January 10th and 11th in San Francisco. You can get more information of that at OneMed Place. Thanks for joining us. Brett Johnson from OneMedRadio signing off from New York.