3 Tips on Valuations and Exits for Emerging Healthcare Companies

Posted by | December 6, 2011

Last week, I sat on a panel session at the IMPACT 2011 Venture Summit Mid-Atlantic conference held by the Greater Philadelphia Alliance for Capital and Technologies (PACT) and AlwaysOn. The summit is a premier venture conference in the Northeast, focusing on the region’s venture community to connect innovative ideas with the people who can make them a reality.

I had the opportunity to meet with some of the brightest minds in the area, connecting with corporations looking for innovative products and new ideas, as well as entrepreneurs who are seeking funding or other support that will help them grow their business. In addition, the conference presented a tremendous opportunity to discuss the big issues and trends impacting our region’s venture community.

I sat on a panel entitled, “Valuations, Exits and Liquidity Events for Emerging Growth Healthcare Companies,” where we discussed the factors affecting valuations for emerging healthcare companies. The conversation covered what purchasers are looking for and touched on various deal structures and terms.

I sat on the panel with Frank McNamara from AstraZeneca Pharmaceuticals; Ned Moore from McKesson Health Solutions (which acquired former partner company Portico Systems, where Ned was Founder and CEO, in July 2011); David K. Reed from Fairmount Partners; and John E. Royer, Jr. from SorinRoyerCooper LLC, who moderated the panel session. Here are a few of my takeaways from the discussion:

1. Think three to five years ahead — While emerging healthcare companies run the gamut from biotechnology and drug discovery to medical devices and healthcare IT, companies providing capital paint them all equally with the same valuation metrics brush. From the company’s perspective, the road to an exit starts the day capital is deployed. So, you need to close your financing while always strategically planning ahead.

2. Prioritize Milestones and Stay Connected to Execute — As I mentioned above, the path to a successful exit begins the day your funding closes. Develop processes to ascertain what your company is looking to accomplish, and what metrics or milestones are most important to achieve those goals.

3. Be truthful from the start — Deals can die early if companies are not transparent or realistic about patent risks, outstanding clinical developments, or revenue projections. It is best to be upfront from the start. A lack of total transparency can lead to a dead deal or a difference in opinion for valuations.

Needless to say, this is an unsettling time for many entrepreneurs. However, the IMPACT conference set out to prove that venture initiatives remain ripe, and it was invigorating to see so many entrepreneurs chomping at the bit with new groundbreaking and revolutionary ideas. Furthermore, the panels carefully explained that, so long as you keep an eye open for potential targets and stay truthful with new partners, you can succeed in any climate. It was an honor to participate in this year’s conference, and I’m looking forward to IMPACT 2012.

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