HealthTech Startup Rules of the Road
Exclusive interview for SPINOFF.COM with Jay Berkman a financial industry veteran, serial entrepreneur, Entrepreneur-In-Residence at The JLC Group, and Co-Founder, Chief Operating Officer at Prospectus.Com LLC, the investor offering document and writing services firm that helps entrepreneurs and spinoff founders.
SOC: Mr. Berkman, thank you very much for dedicating your time to this interview. We would like to start with the overview of your company. Could you elaborate on the story of its creation and the team?
Jay Berkman: Our formation was inspired after several of us, each having spent nearly 2 decades in various parts of the finance, investment banking and capital market space concluded there are few advisory or consulting boutiques that offered a truly holistic and comprehensive approach to helping startup entrepreneurs get to the next level. Most every startup entrepreneur wants to raise outside capital, so they can have the funding to execute a vision. But, many startup entrepreneurs overlook fundamental issues when setting out to raise capital, including an objective view as to the profiles of the best type of prospective investors for their initiative and recognizing that different investor profiles have different hot buttons. This means that every ‘pitch’ needs to be tailored. Towards that, our guidance includes bespoke business plan preparation and developing investor presentation material aimed at specific audiences. At the same time, we help construct and prepare investor offering documents for startup and fast-growing enterprises that are advancing private placements aimed at accredited investors, as well as offering documentation for those advancing a public offering.
SOC: We had a glance on your website and found a lot of positive feedbacks on your company online. Could you please describe your services?
Jay Berkman: We’re best viewed as a consulting firm that provides bespoke ‘value proposition framing’ as well as a para-legal firm that focuses exclusively on securities offering initiatives. One side of the firm is focused on business plan, aka Information Memorandum preparation and supplementary investor presentation materials and works in concert with our in-house investor offering documentation team – which is overseen by securities attorneys that are captive to us, as well as a broad network of securities attorneys domiciled in the US, EU, PacRim, Middle East and parts of South America. In addition, we’re well-positioned to make introductions between entrepreneurs and professional investors: meaning boutique private equity firms, venture capital hubs sponsored by leading corporations as well as other professional investors we know. It should be clear that we are not a licensed broker-dealer and we do not earn ‘success-fees’ in connection with capital raises. We make these introductions as a professional courtesy to clients and institutional investors that we have long-standing relationships with.
SOC: As you know the core of our operation is a collaboration with spinoff founders. This activity involves planning, analysis, product development, legal and IP consultations, investor selection, evaluation of the company etc. Could you describe your potential services for spinoffs and in what way Prospectus can assist spinoff founders in developing their business?
Jay Berkman: Firstly, our value adds starts with helping start-up founders frame their value propositions in ways that will resonate with prospective investors. Having worked with literally tens of dozens of very sophisticated founders across nearly every industry sector and silo, we’ve found a common denominator: an overwhelming number of company founders who have developed innovative or disruptive solutions do not have extensive experience building and advancing commercial business enterprises. Inventing a novel application or medical device or any other product is great, but unless that entrepreneur embraces a disciplined approach to monetizing their idea, too often those innovations die on the vine. In many cases, our job is to be a business enterprise mentor so that smart ideas can be brought to market.
SOC: How would you describe a perfect candidate for your services? What should spinoff founders prepare before they contact you in order to speed up the development of their companies?
Jay Berkman: Within the context of the medical devices, biotech or the overall ‘healthtech’ sector, we’ve worked with an assortment of truly brilliant folks whose academic and scientific pedigrees put them at the forefront of their specialty areas. But many of these folks have limited experience as versatile entrepreneurs who inherently understand what is required to bring a product to market and operate a serious business in a profitable way. We sometimes refer these folks as Mad Scientists – people who are geniuses in one area, but lack the experience or where- with -all to connect the tag line to the bottom line. Many entrepreneurs like to believe their idea is worth tens or hundreds of millions of dollars and when raising money, they place un-supported enterprise values on their company without having all the necessary pieces of the puzzle to justify their investment offering. Many haven’t assembled a team that brings diverse skill sets to the equation or have not fully researched the various channels, deal structures and strategic partners that could bring them to the next level–and worse still, many think they execute a business plan simply by having an out-sized war chest. It doesn’t work that way- explains why so many initiatives become a heartbreak for folks who have spent years building a stadium only to discover they can’t sell tickets.
SOC: As you know, not all the spinoff founders have enough experience in starting the company and they might feel vague at some stages. What advice and warnings you might give them in the area of your expertise? What mistakes can a startup avoid cooperating with Prospectus?
Jay Berkman: 1. Small pieces of big pies are better than big pieces of a pie that nobody wants to eat. 2. Having a credible team in place is crucial – by a team I mean a well-rounded group that includes people who have been there and done that within the framework of product design/development, marketing and sales, a seasoned chief operating officer and business development-client facing veteran who fully capable of addressing the inevitable tough questions that smart investors will inevitably pose. Every founder should be coached in investor presentation best practices and be able to address ‘what if this goes wrong, what if FDA slows us down, what if our manufacturing facility gets shut down’ The last one: every member of the team who is in a client or customer-facing role should be working from the same playbook with regard to company ethos and deliver a consistent message. As far as the mistakes that can be avoided: delivering a presentation that has not been carefully reviewed by at least 2 other senior members of your organization, including the marketing/business development executive. I can share a few ‘nevers’, that would definitely be useful to rely on. Never engage a ‘money raiser’ that does not have vetted references. Never have a single point of failure. Never distribute an investor offering proposal that has not been prepared or reviewed by a professional. Not enough people realize that there is inevitably an investor that comes down with “buyer’s remorse syndrome” and the first thing they/their lawyers will look to are the agreements that were put into place. Never send an external email after 6 pm, or at least not without thinking twice. Never make a critical decision after late afternoon or on a weekend.
SOC: How long, in your experience, a spinoff company need in order to complete necessary fundraising, and what factors influence the success of the fundraising?
Jay Berkman: Great question. I only wish there was a metric or a statistic that could provide a reliable framework to manage expectations. Obviously, the larger the task, the more challenging it becomes to assemble a broad investor group. Having a prominent ‘lead investor’ at the outset will often, but not always, expedite a raise. Some deals can be effected inside of 60 days, most typically require 3-4 months. If after 4 months there’s been little traction, there needs to be a complete 360 evaluation that looks at who has been approached and what the negative feedback has been.
SOC: Money is a critical issue for the rising companies. Spinoff founders take into consideration all the expenses. One of the expected questions from them would be what budget should they consider for Prospectus services?
Jay Berkman: We’re positioned to be an aggressively-priced competitor to law firms-which, by the way, are not the sole resource for preparing an investor offering document that comports with regulatory guidelines. We’ve heard fees for preparing a PPM range from $8k-to as much as $40k-$50k. We’re at the lowest end of the spectrum and we can provide the same quality deliverable that any securities law firm can provide. In point of fact, many of the projects we administer are outsourced or sub-contracted to us by company lawyers and/or law firms.
SOC: You position the company as a consulting firm; in your opinion consulting is a single time action or it’s a constant monitoring?
Jay Berkman: There’s no such thing as a single action when it comes to providing consultative guidance and our process generally includes a series of discussions. It includes research, it includes providing ongoing guidance in the course of assisting companies, and particularly founders becoming attuned to the best practice in terms of how to execute a business plan as well as how to properly raise money from investors so that the initiative can be successful.
SOC: Thank you so much, that’s very detailed. How do you evaluate your prospective client? Do you have a specific algorithm, or it differs from case to case?
Jay Berkman: I think that there is a basic framework that should be embraced, whether working with folks in the medical device field, medtech, healthcare, fintech or consumer product space, or any company, startup or otherwise, within the spectrum of business enterprises. We evaluate prospective clients as if we were sitting in the seat of a sophisticated investor. This enables us to create an outline of what the client has, the degree to which they’ve framed the opportunity they want to present to investors, and the elements that should be introduced into the equation. There is, in my view, a best practice approach for framing the value proposition within the context of the market that somebody is attempting to penetrate or leverage. And, there are certainly basic guidelines in terms of the order in which you are explaining your value proposition or your added value. Further, there are basic requirements for assembling effective and compelling business plans. Within the scientific startup space, which addresses intellectual property, existing problems that are being solved by a new approach or innovation, a focus on clinical data, management credentials and experience, regulatory approval, certification processes, manufacturing, and best practices for go-to-market strategies are some, but not all of the topics that need to be presented. Every industry and product category is equipped with their own nuances, but there are standard elements that every entrepreneur needs to take into account.
SOC: What piece of advice would you give to spinoff founders, who have already started the process of creating their company and those scientists, who only consider turning their idea into a product?
SPINOFF.COM is the Science Business System (SBS) which utilizes free of cost AI-engine driven platform and off-line value-added service (VAS) with 25 in-house employees and 24 external professional syndicate members. Our goal is to create the complete portfolio of all the world’s high potential scientific spinoffs in one place and provide the scientists with the fastest and the most convenient way of fundraising and identification, evaluation and signing distributors and partners. With over 5,000 publications per year, SPINOFF.COM is the largest platform that connects over 600 universities and research organizations with over 30,000 investors (venture capitals – VC, private equity companies – PE, family offices – FO, and multi-national corporations – MNC) and over 200,000 distributors globally. Also, over 2 million visitors use our multichannel platform monthly. SPINOFF.COM is incorporated as Ltd. (Limited) and is non-for-profit organization.
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