Why life science start-ups are losing millions to software companies

Stoic Venture Capital

It’s a golden era for life science technology but many startups are losing out the software sector because of a failure to communicate relative benefits to investors sufficiently, a prominent venture capital fund says.

Stoic Venture Capital Partner Dr Geoff Waring said life science technology companies in Australia were missing out on millions of dollars-worth of funding to the software sector.

Software attracts around 70 per cent of venture capital funds, compared to life science which attracts about 15 per cent and other categories such as hardware, clean energy and advanced manufacturing which attract even less, Dr Waring estimates.

“The COVID-19 pandemic has revealed Australia’s lack of health technology capacity, and investors are angling for opportunities,” Dr Waring said.

“There are some high potential life science startups out there but they’re failing to adequately capitalise on available funding.

“Life science companies must make clearer their relative advantages for investment if they are to attract a greater share of funding.”

Communication is key

Dr Waring said life science companies needed to get better at conveying their value proposition to different stakeholders, from investors, grant providers and regulators to marketers and media.

“People must be able to easily understand the unmet need and the impact it will have on their quality of life or standard of care,” he said.

Commercially-minded leadership

Life science tech companies also need to attract and retain commercially-focused talent.

Chief Executive Officers and other key staff must have the skills, mindset and ability to talk the same language as investors.

“Science and medical start-ups often spring from university research conducted by highly specialised professors which is their strength, but often these people do not have adequate commercial experience,” Dr Waring said.

Early alignment with acquirer’s needs

Life science tech incubators including universities should communicate more with pharmaceutical companies to better understand market opportunities.

Venture capital funds can also play a bigger role in helping startups build the right business skills to survive a downturn in the market, Dr Waring said.

“Some life science companies don’t survive, not because they aren’t safe or effective, but because they did not meet big pharma’s other needs,” he said. “This is a costly mistake that can be avoided with better understanding of an acquirer’s needs.”

Timing it right

Life science companies don’t engage enough with stakeholders early on to build market opportunities.

“Companies could be interacting more and early on with investment bankers for potential acquisition, but many are cagey about doing this,” Dr Waring said.

“With intellectual property secured, life science companies should be hitting the ground running lest they miss out on opportunities that often arise by network building.”

This can accelerate the path to acquisition.

About Stoic Venture Capital

/Public Release.