#19: Bruno Montanari - The Life Science Investors Perspective

Since the beginning of the SARS-CoV-2 Pandemic, more and more people got interested in the Life Science Industry.

Scientists worldwide have worked together for decades and centuries to solve the world's most severe health problems.

In the last decades, a unique Eco-System of start-ups, investors, industrial partners, and public funding organizations evolved out of this search for finding cures against the world's most complex diseases.

In this episode, you will hear:

How important is building strong relationships?
How does this Life Science Value Eco System function in 2020?
How do companies, investors, and Start-Ups interact with each other?
What roles does the player have?
How do investors life look like?
And how do Start-Ups approach investors?

Speaker:
Bruno Montanari (https://www.linkedin.com/in/bruno-montanari-882559/)
Christian Soschner (https://www.linkedin.com/in/christiansoschner/)

Companies:
CS Life Science Invest (https://www.cslifescienceinvest.com/)
Seroba Life Sciences (https://www.linkedin.com/company/serobalifesciences/)

Join Christian Soschner for expert coaching.
50% Off - With 35+ years in deep tech, startups/scaleups, and public companies, Christian offers power video sessions. Elevate strategy, execution, and leadership. Book Now.

Transcript

Christian Soschner 0:39

Today we have the great opportunity to listen to one of Europe's most economic lifestyle investors. Bruno Montanari from the role of life science. Welcome to the show. Thanks, Christian. Welcome to the Bruno. One question I would like to ask you right away. I hear a lot of um, let's say, um, interesting ideas how to become a life science investor. So one of those ideas is you need to make billions before and then you can become a life science investor. Uh, is this really true? Uh, how is it to become a life science investor? What is necessary for that?

Bruno Montanari 1:24

Uh if this assessment was true, there wouldn't be a lot of VC investors, I guess. Maybe I would add unfortunately. I mean, no, to become an investor, you can you can have different backgrounds, and actually you come probably at different levels as well. Uh, you know, in an established uh VC fund, uh, you can think as well, uh, actually, but this goes back to your point because having having made a fortune before, um, you can become as well a business angel. Business angels are perfect investors as well to support uh the creation of uh of companies uh and bring that to a level of maturity where institutional funding can be can be found, or actually uh sometimes uh down to the finish line, which can be an MA for an exit or um a public listing. And so the the the profiles are very different. Uh you can find people coming from program like myself, some others from a consulting background, uh always obviously in our uh in our sector healthcare. Uh you have people having run companies, having professionals as well. Um so it's it's it's it's quite diverse, and as I said, you don't necessarily enter a VC fund at the same level, given your previous experience. Uh and you can you can be part of the core investment team, you can be an entrepreneur in residence, you can be a venture partner. You've got different shades of gray here in order to um to fulfill your role as an investor, uh, which can be uh completed with maybe a slightly more operational role when you think about entrepreneur in residence or venture partner.

Christian Soschner 3:16

Um you mentioned that you can uh do two things. So there are two types of investors. One is the business angel and one is a venture fund. How do you see the difference between those two categories of investors?

Bruno Montanari 3:29

But the business angel they can act collectively through through a group of such of such individuals, but usually um they would they would tend to be very early at inception of a company to put the first um limited funding more limited than what a VC institution can bring, especially since VCs syndicate together. Uh I'm making a generalization here because we've got deep pocketed uh BAs that actually uh can put dozens of millions in companies as well, but usually what you will what you will find is uh BAs that uh will put a few hundred thousand, maybe one or two million uh to start with and try to put uh a company on on track. So it's really the uh the kind of friends and family money, if you want. Uh and I would call it uh savvy um funding when those BAs come from the pharma or medical industry because of the it goes just beyond initial support and and love of entrepreneur uh or innovation, it's really there to add value with accessing network and making sure that um the startup can tap into the experience of the BAs. So the VC funds are more institutionalized, uh more people, there's a process we need to go through. Uh you need layers of uh of due diligence analysis. Uh it can be very often maybe less intuitive than what VAs can have the freedom to do, depending as well on the relationship. So it's uh I would say it's more um uh yeah, more process oriented, larger funding is different.

Christian Soschner 5:18

What is the point uh when USAVC decides to take over the investment lead from the business angels? What is your ideal uh investment object?

Bruno Montanari 5:30

Whether we take it from BAs or not for us, and it will depend upon the investment thesis from one fund to the other. Um but uh for early state funds, uh some of them can actually already be there with seed financing, or even what we call now pre-seed. They have more and more uh a business model for some VCA funds where they would put the first money in a form of convertible loan as a pre-seed before doing an equity raise, which would be a proper seed. Sometimes depending on the size, it would be called a series A. The um I would say that uh the name of those funding rounds has less and less importance because we see a variety of size and achievements with those first fundings. Um and so uh and so either they come along, actually can substitute for VA's, or either they come tightly afterwards, when there is the beginning of a team with a company, uh the some first data which supports the claims and the original hypothesis, which put a bit more comfort around the story and the and the investment visits. Uh, and then it's a classic one which we might uh discuss further, which is uh the alchemy that can exist between the founding team and those early stage uh VCs, uh, and how strong can be the data. Sometimes, but it's it's rarely the case, but some firms may have the network and money to try and confirm again this type of data with external work so that they can then move forward with the with the first investment and becoming part of the cap table.

Christian Soschner 7:14

I would like to go back to a point that you mentioned that you said that it's more it's becoming more and more interesting for VCs to also come on board via convertible loan uh in a pre-seed or seed phase. Uh I was absolutely not aware of that. I always thought uh I can approach a VC once a company has generated uh sufficient data, has formed a team and already proven that it can bring um, for example, drug towards the clinical phase one. Uh since when does this model exist that VCs are also interested to come about?

Bruno Montanari 7:49

I see that a lot in um well, a lot. Actually, it's still relatively rare, but I see it more and more over the last uh four or five years. Maybe one has to check in the US, because maybe this happened as well in the US, more under stealth mode, uh, but whereby uh one doesn't want to put yet a lot of money on the table, other one put the valuation, and this money is there to structure the company uh at creation and make sure that the first key elements can be confirmed. So when I say uh doing some confirmatory external confirmatory studies, this can be the case with such money. Uh and then then you open it up for a formal equity round. So this is where the evaluation will be discussed, completed, uh, looking carefully at the cap table, etc. But um, yeah, this is something that I saw in uh in uh seed funds happening more and more.

Christian Soschner 8:49

That's great news because I think it's very beneficial to have a VC and the expertise on board very early in the company. Uh, what's the model that uh you're currently working for Cerroba Life Science. So what's the investment model that Cerova uses?

Bruno Montanari 9:02

So uh we are we are doing both biotech and medtech investments in Europe, but as well with some um exposure in North America. Uh for biotech, we are usually uh quarterly stage for first investment. Um and then, like any VC fund, this might vary over the investment period. The earlier you are in your investment period when you create a fund, the earlier stage you can go. It's all about an assumption around time to exit, given the fact that a fund usually is closed after 10 to 12 years, 10 to 12 years. Uh and so and so it can be uh really even before having a preclinical candidate or a confirmatory uh in vivo efficacy in a relevant animal model for such preclinical candidates. This can be uh earlier than that. Uh medical device, it will it will depend our experience and to make us believe we would probably invest later stage than what we did before at first investment, and ideally for medtech having already first immense data, except different drivers between between both biotech and medtec, and uh hence uh a different way to approach uh first investment for for us.

Christian Soschner 10:22

Uh let's talk a little bit about the the life science business model. Um, I learned at the university that actually every company needs a customer. And um when I talk with people, especially now that we have this uh heightened awareness for life science investment with the noble coronavirus, um, some people say, uh, well, that means we need to build another pharma company because we need to get access to patients. And uh that actually costs uh billions. How uh for an investor like you does the life science business model work? Uh how do you develop a company?

Bruno Montanari 10:58

Uh there there are there are multiple ways to develop a company. You've got you've got companies which are centered around one or process, and companies which are qualified as platform companies where uh actually you can address several targets, several indications. Uh and there the um the way to think about building a company is really different because out of a platform, what is key is to make sure that you select the right programs you're going to finance and push forward. And selecting the right programs is probably with a twofold objective: further validating the platforms with additional data. Uh, and as well, uh having ideally programs which are not just there for principle to then be shelved, but actually uh programs that are commercially viable and that will be of interest to uh the large corporations for either monitoring or maybe the acquisition of the company. So obviously, it's uh I would say it's a more daunting task when you have a platform uh to make sure that uh you build as well the organization and the internal competencies around some given therapeutic areas uh and at various levels, at various stages of development of those programs. When you have one asset, usually it's pretty focused, uh, and it's uh obviously it's not the same, the same bets and the same way of building company.

Christian Soschner 14:12

How does that work to to get in touch with pharma companies to do an M ⁇ A deal? Um, I can imagine it's uh how the process works to bring a product to the patient. Um, but as a VC, how do you get access to the pharma industry?

Bruno Montanari 14:28

Actually, the those two worlds, VC and pharma industry, have been increasingly in contact in the last 10-15 years, understanding each other's language, objectives, and understanding why we need each other. Um and so and so those uh pharma companies are easy to access, I would say. Uh they are not in the hybrid power, uh not understanding what is the VC like, and actually uh us as well um thinking that we don't need pharma and that the startups are always better. Not at all. I mean those two will communicate at various levels, and actually it's needed because those pharma companies need to have, in a way, um a feedback from those startups where we invest from different groups, and actually they talk to various co-investors in the same companies on top of having some management presentations so they can cross-check the information, uh, and it enables them as well to monitor the progress or not. Uh, and and for us, it's important uh as because we have two hats, very often we have a hat as a on the board and we have the shareholders' hat. But in both cases, it's important to make sure that the company is visible to the pharma industry uh because it's not because you're the best or you believe you're the best that things will come uh out of the sky. I mean, a management team uh needs to make sure that is well known to the pharmaceutical industry. So that uh when a deal is ripe, actually uh they don't dispose of you. Uh they have followed this, there have been interactions, there's a direct connection made between manager, the startup found a champion inside the farm industry who hopefully will not change by the time a deal can be done. So all of this is kind of uh of step-by-step process paving the way towards uh a transaction. So uh so those two worlds talk, talk often on a more or less regular basis. Uh so it can it can be for a deal, for example, an investor support for the company. But sometimes it happens that we, as we are meeting dozens, actually hundreds of opportunities, very often it's the case that uh we don't have much of a clue yet about an education or a disorder. And um we can give a call sometimes to some pharma colleagues that can help as well uh to tell us more and maybe point out to us a few um a few interesting um uh academics or clinicians, and sometimes we even reciprocate towards the industry because a lot of of those industries are thinking about biostrategic moves or reinforcing them to our franchise, and very often they are they are open to hear about who we talk to, what come across, and where is the innovation coming from.

Christian Soschner 17:31

It's a very interesting point that you made before. You said um a company should be well known when a deal becomes ripe. This is one of the fears I hear very often when I work as a mentor with scientists who want to found a company. Uh, when I tell them, look, guys, uh you need someone who goes out and speaks with investors and the pharma industry, then they simply uh they really go back and say, no, we can't do that, because why should farmers buy from us? I mean, they just pick up us up our they just pick up our idea and develop it, they develop it themselves. Is this really a just fear or is this something that uh you would say people should overcome and should really uh be open-minded, go out and talk to farmers?

Bruno Montanari 18:18

I would answer the following way. If there is a confidential agreement being signed, if uh the innovation is well protected by patents, this fear should be overcome. Because those two parties, startups backed by scientific founders and industry, need to talk. And then uh things don't happen over 24 hours. So things like time, people move from those big farm organizations into others. Uh sometimes the startup needs to redo again the exercise of educating, not evangelizing uh some of the farm industry guys to what they've been working on before as academics and now uh in the more process for intercession to get the candidates. So um I I definitely need to be overcome. Of course, um I I one can understand that here if um the patent production is weak or inexistent, uh anyone would say, well, then big pharma if they believe it's a great idea, why don't they put resources onto it and just and just do it themselves? But this as well is is easier said than done because the pharma industry has got its own budget, reporting, focus. Uh and it's not like uh every week uh they're going to put 20 people on one idea because they think it's great and it's an open space with competent uh and try to do it themselves, not at all. And this is really the difference between uh uh a startup and a big farm industry. The startup is totally focused to progress um one idea, a program, a platform, and probably will do it as well, if not better, than in a big farm organization where on a more or less regular basis you have arbitrage between programs, between business units. Uh one has to defend the budget. I mean it's it's a different setting. So even in those case where yeah, maybe it's super early, it's a great idea, and oh, I'm fearing that uh the big guys are going to take my idea. I think that um it's it's rarely the case. Uh and then it's up to the scientific founders to just disclose what they are comfortable with, not to say too much. Uh and especially not publish early before there are the relevant patents to be written and file. This is important to uh note as well. Uh and then later on, as the discussion progresses and as there is more protection involved, then they can open it up a bit more.

Christian Soschner 21:07

That's interesting what you say. Um, I see more and more also with farmer companies that farmers like Berdinger, for example, with the Research Beyond Borders program, uh set up programs to support scientists very early, sometimes even before a company is formed. And I also would say, I mean, if there is no patent or if an idea is not strong enough to file a strong patent, it's a question then of if the idea really can become a company. So I would not worry be worried at all.

Bruno Montanari 21:36

It takes years, it takes years, efforts, millions to make something happen. I mean, it would be known if Pharma was a kind of uh of institution that can just uh seed uh projects from nearly scratch out of academia and and spend all those years and and budget. I mean, they they they they are better off actually having us stand before maybe friends and families and business and money to try and bring forward something which is a bit more validated uh rather than doing it themselves. And and another point is that uh there's a lot of credibility at stake. So um if really uh uh a pharma industry, or actually some executives in the pharma industry would not behave properly, that would presonate badly when paint and it would be it would be known. So people are very cautious about that. It takes it takes years to get to uh credibility, oh yeah, people to respect you. It doesn't take much actually to break that down. Um so this is as well another factor to take into account.

Christian Soschner 22:48

Yeah, absolutely. Um it takes years to build a reputation and uh a few wrong moves, then the reputation is gone quite quickly. Um I I know that from the very early stages, so as a business angel, that uh the world is very dynamic. Um but I think this is not so really the spot of a VC. The VC world that I got to know over the last 16 years was a little bit more later down the road. So between efficacy data in clinics and uh the pre-clinical work. Um, in your opinion, when you when we talk about timing, uh how long does it take uh when you start talking with the pharma industry to structure a deal until you get the final signature and uh the deal really happens?

Bruno Montanari 23:35

Well, it's it's like any transaction, it's um it depends on a couple of factors, well actually more than a couple. The first is the fit between the company, the startup, and the big farmer, and making sure that there is a level of desire to make a deal which is fair with the right people interacting. And again, it's all finding the champion inside the farming industry that will be convinced and will convince its own guys through their internal process that this is the deal to be done. Okay. So this is the this is an utmost requirement. Then it's about um alignment of the stars. At some point in time, uh you feel that everything is ready and you need to make sure the process is going smooth and quick. And this can only be helped if there is a bit of competition. Obviously, if if the farmer guys uh strongly believe that they are the only one really sitting on the negotiation table and they're not going to be uh be uh taken away, or some I would say rather in in proper English that no one will take away this deal from them, but then they will take more time, of course. Uh if they believe that actually there are a few big guys around the table that that can offer more and quicker, then it's an incentive to be more quick. So a deal can take uh in my experience anywhere between uh two years or more of monitoring, progress checking, discussions before we really discuss about uh terms and conditions to actually uh three or four months. And and I've heard not experience, but I've heard of deals which were actually taken only weeks. But those ones, if you have not been monitoring the company before, I would be very cautious about them. But usually they never say how quick it was and why. Uh sometimes they don't even say how much it works.

Christian Soschner 25:41

Yeah, the word changed a little bit with the corona crisis. I also heard from from deals that within six weeks uh they were signed, but I'm pretty sure, as you say, that the pharma company already had the target on the monitor for a longer period of time. Uh talking about timing and risk, USDBC invests uh in assets before the pharma company picks them up. Um when I invest on the stock market, I mean I get a lot of information, a lot of data. Uh, and of course, I mean investment is always risky, but uh with listed companies it's a little bit narrowed down. Uh, how is the risk in the life science industry at the stage of companies when you invest? How do you handle that?

Bruno Montanari 26:26

Uh so the risk assessment, I mean, depending on the fund and depending on the investors that fund, uh, you've got very different ways of doing stuff. There are two key aspects to um tackle and to tackle and to investigate. It's a team you're talking to. Uh, how appropriate have there been so far uh in terms of where they stand with the problems, what data have been generated, by who, and the quality of it. Um and and and the team, is the team fit or purpose for the next coming two to three years? Uh, which is generally the scope of uh of a financing round that you are contemplating. Okay, so um first thing in an analysis is to make sure that you are comfortable with this team, and if there needs to be maybe additions, that uh they are in agreement with you as to what the next steps are and what type of profile they need to unlock to make sure that I can execute and deliver on the lab. Okay, and this is there is some research I hear. I always tell uh the management teams I meet before an investment. Make sure that if you have the possibility, you choose the VCs and especially the VC representative that you're going to embark with. Because it's it's not only money, you're going to have on your governance uh on the board of your company going to have those VCs being being represented, and you need to make sure that on a one-to-one basis the the discussion and interaction is going well. Well doesn't mean that it's uh just uh yes man being yes to everything, but that there is a constant system, okay, where everyone can uh hear challenging views and try to do the best for the company and make informed decisions, but it's not only on a one-to-one basis uh because you've got a bench of investors reps on on the board, but you've got uh as well independent directors, so all of this needs to be boiled well enough so that it can be really uh going well moving forward. It's like a bit of a short-term wedding, and uh and we want it to be so the the the human uh aspect is very important, very important. You can have the best programs, the best data. If a team cannot deliver, or if worse, there is a bad chemistry at a governance level with perhaps wrong decisions being made, whatever the reasons, uh then it's going to be done. And then there is something which is much more technical, much more ethical, which is the data. Uh here, usually uh the VC funds will uh likely find relevant independent experts outside, will mandate them to look over their shoulders and check out if the data is strong enough. Uh, if the plan is the right one according to the petitioning, if there is something coordinated competition that might be a paradigm shift and that will totally change um the way the company needs uh the direction it needs to go into. Uh so this is uh the analytical side, which is I would say maybe busiest in a way, even if it can get very complex, it's still based on data hypothesis, and you can talk to a lot of different people, highly relevant, highly skilled, to try and understand exactly what's going on and if if the hypothesis of the company are the right ones, or if we need to change them. And this is where it needs to be uh a constructive exchange. It's not about who is right or wrong, but it's to make sure that already collectively, before even the event is made, we can talk openly and decide really what is best. Sometimes the BP is good enough, so it's all a matter of execution, sometimes it needs to be adapted, and so at the end of the day, you've got a more clear picture as to where the level of risks are, what are the risk mitigation factors, and according to your fund, I would say, objectives in building the portfolio of vestees, and as well with what you and your colleagues at your investment committee are more comfortable with or not, the deal will happen or will not. And if a deal is not happening, it's not that the door is possible, it's just that, well, okay, there have been a few red flags or a few things that eventually are not are not good enough for us.

Christian Soschner 31:18

Uh let's make progress or let's further discuss and we'll you said the human factor is very important when you decide uh upon investing in a company. Um, when I look at the academic side, there is uh mostly a lot of data. And uh when you say the human factor and the team is important, I think you're not talking about the academic team. I think you're talking about the development team, so that you want to see the right skill set.

Bruno Montanari 31:48

Sometimes you've got scientific founders who are CEO and CSO and CTO, you know, having the the C status, uh which is fine, but obviously this is where you need to make sure. Well, at least this is my point of view, all the investors might act and think differently, but you need to make sure that those guys understand uh what the game is all about, and that um developing um well designing and executing studies with an academic objective in mind to further explore mechanism of action and pharmacology is really different compared to trying to select or preclinical candidates, which will later be drug candidates getting into healthy volunteers and thereafter patients. Uh so it's a different way of thinking, of anticipating. Uh and this is where uh those interactions before investment are very important because if the scientific founders believe they know it all and better than anyone else, even in areas like regulatory, clinical, or even preclinical animal talks where they never went into, uh this is going to be a bit of an issue. Okay. If they say, you know what, we are very good at this level, uh, yes, we'd like to be kept as CEO, CSO CPO, we'll see how things evolve. But obviously, we will need to uh bring in a translational person, someone more versed in CMC, maybe have earlier than expected some people with a clinical and regulatory background. Perfect, perfect. I mean, I'm not the type of this who would say uh oh, you scientific founders do nothing but how to be put in an advisory seat and and we'll have a brand new team. No, not necessarily the case. Um, but it's true that this is where you take a bit of a bet. It is, which is well, are the evolve the way we think they can, and they say they are, or are we going to meet some issues later on?

Christian Soschner 33:53

Well, what I would be interested in, I think when people think about investors, mostly they think about retail investors because it's quite simple and easy today to invest on the stock market in listed companies, and uh the process is straightforward. You can I can rely on um analysis that I find on the internet. I can almost uh not talk with the CEO or with any uh person in the company because it's just uh the investment is too small. And once the investment is done, uh there is usual quota-d reports, annual reports. Uh how is it in the VC world? Uh, how much is the VC engaged in the operations, or is the VC similar to a retail investor in handling the investment process?

Bruno Montanari 34:38

No, no, it's it's really well actually again you you have different VCs, different VC funds. Okay. Um but uh it's it's nearly obvious that uh a VC fund will do much more work than reading a few reports around uh the disease, uh and just putting a bit of money and waiting for board meetings to happen, a shareholder meeting every year, uh, and having a nice chat with the company when it can. Uh it goes much more in depth. It's a lot of publication reading, it's a lot of discussions with experts uh from the company or and actually out of side of the company again in the process. Um so so it's really a two different way of acting. And and on the retail market in public, in public, there's a lot of manipulation, and and the reports you can find usually are in a way bias, especially in Europe. I can allude more to that, but uh just look at the number of of buy um uh that are being put on companies versus neutral or sell. You will maybe think that something is odd. Either they're all great, either there is something that's that's not normal. Okay. So yeah, it's two different ways of approaching companies, approaching investments. And uh and when you are with an investors on the stock market, uh you can play around, uh, buy one day, sell the other day, there's some liquidity or they should be. Uh as a as an institutional VC in a privately held company, uh, you are there for years going through the tough times with the management, your co-investors and other uh board uh fellow fellow board members to try and help go through those hard times, find solutions, and move it to the next steps. It's totally different. Totally different.

Christian Soschner 36:32

One advice I got it was years ago. So um I heard the the story when a company needs money, it's the the only time when they engage with VCs. Uh so they put basically the story on the market for a certain time period, and usually three or four weeks later the money is uh on the bank account. Um I never saw this, so in 16 years.

Bruno Montanari 36:54

Uh for those that can see my face on video, I think they got my reaction. Uh no, it it really happens like that in privacy held um uh companies. Uh usually there have been more or less regular talks with the various VCs at various conferences, just to provide them with some update under or not confidence, depending how uh the relationship went before and to what to what point. Um, and then uh and then when really the company is ready in an ideal world, they will have already aligned investors actually selling the ones that make more sense to them to reach them out this this time around formally for fundraising, and this is where they're trying to put in place a process that is not going to take ages, uh, but you don't you don't do it three months before you're running out of cash. Uh more and more you start to do it uh uh uh maybe a year before because it it can take as long as a year to get the money in and the closing done. Uh it's uh it can be pretty painful.

Christian Soschner 38:05

No, I see it absolutely the same way, and um I also had the feeling that uh as you said with the pharma company, it also makes sense to reach out to VC before a company needs money to just have this initial um get-to-know phase and to see if uh the team is the right fit with the VC and also the other way around. Uh, you said the human factor is very important. Um, how much time does the robot take to get to know the people actually? Do we talk about days or um more on the month side?

Bruno Montanari 38:37

No, it's it it smalls even more than that. I mean, some companies will monitor over over years. Uh and uh and as far as I'm concerned, because I cannot talk necessarily for all my colleagues, my fellow investors in some other funds, but as far as I'm concerned, it happens that um even if uh if a company is not fit yet for an investment from our fund, uh I keep in touch on a regular basis because they want me as well to provide some some genuine feedback as to what they think uh and and the data they have. Uh and it's it goes both ways. It's it's one feedback, one opinion among others, but at least hopefully it's valuable to them. And it's as well keeping the relationship with an investor uh to make sure that at the next stage, maybe uh here it will be the right moment for the consulting investment. But the human factor is very important, and sometimes, and this is where um startups need to keep that in mind as well, we are um quite busy receiving nearly every day uh some new investment opportunities. Uh at Zero Bar, we're trying to be quick in saying, yes, let's organize a first presentation formally to go through this tech, uh, or thank you, but doesn't fit what we're looking for now, or not yet of interest because of such and such, but we're trying to have such a feedback because it is very uh very difficult for a starter uh not to receive a feedback or to hope for actually something positive just because there's no feedback. Um, this is this is not the right the right thing to do. Having said that, VCs are pretty busy sometimes, yes, things slip. Um so um so so this this relationship is um is ongoing always.

Christian Soschner 40:35

To get a little bit better understanding of the other side of the negotiation table, the VC table, uh out of interest, how many deals do you see, how many potential deals do you see in a year?

Bruno Montanari 40:48

Uh so for Seroba, I think we are at 450, 500 every year, which come to us or that even an interest in some area from time to time, or just because we looked into what maybe uh the industry has been doing, uh, what publications we've read, uh maybe as well from uh discussions with fellow co-investors from the portfolio of what they are interested in. You see, it's our resources proactive or reactive, so there's a lot coming. It can come directly to us uh because we've got a website where which is where we are very easily accessible, uh, or through conferences or through the recommendation of someone. Um, I would say that out of this, probably a third can make sense, and this is where we will likely have uh an hour presentation to start with. And so, yeah, and this is this is what I wanted to say before, uh, which escaped my mind what is important is this first hour. This is quite critical because this is where we will have a sense if the equity story, the investment thesis is well presented, well articulated, and if we have uh a clear view as to what's going on and where they want to go, or if it's fuzzy, confusing, when we ask questions, the answers are not specifically straight. You see, hours very important, very important, and so uh it's not a matter of um clustering together with deck and improvising by bringing six people uh to discuss with the VC. Uh actually, the the startup needs to rehearse and make sure that in one hour the key security messages are clear. Because if it's not, guess what? Uh then in the next two or three hours I will have another presentation which might be more attractive to me or to my colleague, because usually at Cerobar, very often we're two on a presentation, it's not only one guy doing and hearing whatever you want to hear or do. Um, and if this this next one is more attractive, this is the one we will discuss the next morning with our guys. Uh, to say, oh, okay, this is the literature that we went through, and this one we're going to dig into it. The others, probably not. You see? So there's for us, it's always an arbitration. And this is, in my view, the most tricky, which is to make sure we can prioritize early on our time on what really can make an investment happen to closing. Because our time is super limited. We don't have dozens of people in a VC fund, it's just a few investors, uh, and it's only 24 hours in a day, and therefore, um, if you spent days and nights on a deal that eventually doesn't come to fruition, it's days and nights that you didn't spend on something else, which would have been more productive, you see. So we were super super careful about that. So this interaction is really important.

Christian Soschner 44:05

I see that we have a question from uh from the audience from Christine Bernard. Let's see if she's here, then I can hand her the microphone.

Bruno Montanari 44:14

Um I can read it as well.

Christian Soschner 44:16

Yeah. So how do you perceive in companies having more consultants than employment? How does this wait for VC's investments?

Bruno Montanari 44:25

It depends on which stage they are, but I would say that usually advisors are not payers. So um a full-time employee obviously is more vested and put more into the story of the company, and um it's its salary and um later valuation outcome of the shares you can have in the company is more important than an advisor. Uh, but sometimes uh because the company is young, uh, it it often happens that uh there are more advisors than managers, and the other situation is where you have those virtual or semi-virtual uh structures to try and avoid high fixed costs. This is particularly true with um one asset companies, and this makes sense as well. You don't need a little army uh to try and develop one program, especially if it's a program that is entering the clinic. Um, so you need to make sure that uh this situation and the balance between internal people versus external advisors is well weighed and appropriate for the stage where the company is and for what it's doing. I mean, if you tell me it's uh it's a two man's person for. YouTube platform and you have 30 advisors, for example, I would I would be a bit scared of that.

Christian Soschner 45:52

That's interesting. Bruno, another question when I look at the process. So you get a lot of deals on your table and you have uh limited amount of time in a year. Um there is this uh pitch deck term uh that I think everybody in the startup world, meanwhile, is familiar with. What information flow would you like to see from a company so that the company stands out of the crowd, that it's not comes across as messy?

Bruno Montanari 46:20

In in this first interaction, in this first interaction, the pitch deck. Um there are two things. There are things which are going to be found in the back and things which are going to be discussed. What I like to hear, and maybe like being a kid in a body in an adult body, is to hear a story. I like to hear stories, see, and not bedtime story, obviously. So I I like to understand the background once upon a time. Exactly. But I like to understand the background of the company, where the founders were coming from, how they met, how they come up with the idea, who helped structuring the first steps of the company, um, and maybe how to better the science where the publications are coming from. This is very important because it's it's years and years of hard labor and of actually human relationships that I was not part of and which explains a lot. And actually, it explains as well very often the DNA of the company. And this is where I'm always intrigued to hear about those stories because then I have a better feel already as to who in a way I'm facing over a conference call or video conf, uh, and better understand maybe how things have been structured. Then it's about the data generated, and uh of course there is confidential confidentiality aspects and all this that we called, complicated and plot, but this is where I need to see some data. Uh a pitch where I have no data, I mean it's going to be hard to be convinced. I need something there, okay. And data which has been generated from the company or the collaborators in relation to the program or the platform, but not data which I can still see from coming from the different companies. Well, because there's nothing to do with what the company's been working on, but just trying to say it's validated. So we are validated, not the same thing, you see, and then it's a forward-looking statement. Okay, from where you are, where do you want to go and why? And then naturally you end up with discussions and needs, uh, and you've got in an hour, an hour 15, a first good understanding of where the company is coming from, where it is, where it wants to go, and if actually it's well articulated and makes sense for you to take more time and this tongue sign maybe an NGA and get more informality to check what you heard and more.

Christian Soschner 48:54

So it really means taking as a company, taking your time sitting down, uh thinking about how to develop a compelling storytelling. Um, usually when I talk with scientists, I see a lot of data, um, but they really miss that uh storytelling component out. So you you really, if I got it right, you really recommend to any company who reaches out to VCs to really sit down and do the homework first before sending just a bunch of data over.

Bruno Montanari 49:26

Oh, yeah, definitely. Definitely. And and I would be even maybe a bit more cynical. Well, in a sense, uh, first and then cynical. The first uh maybe suggestion I would have is to tell them well, if you have some early investors' business centrals uh that supported you, try first the the pitch on them, use them, check out how clear it is because if they get it right and they believe it's clear, or they know the story, it's already a good talk. If it's not the case, then it means that you you you get something wrong. Okay, and then the cynic cool suggestion, which is well, you've got a few dozens of investors that you can reach out to, some of them probably are not a fit anyway for various reasons. You know what? Test the water with them first, and and and see how the reaction goes. And this is where if there's anything obvious that is really not not right, you you should you should see it and adapt accordingly to always enhance, improve your deck and your pitch.

Christian Soschner 50:33

Um, at the end of the pitch, usually, as you said, there is uh the use of proceeds or the amount of money a company tries to raise and uh giving also some reasons. Uh, from one of my mentees, uh, I heard that during a pitch, the investor asked the um the CEO of the company and said, Okay, you need three million euros, just let's just assume I give I give you 30 million euros. What would you do? And the mentee said, What is the right answer to that question? What's your opinion on that?

Bruno Montanari 51:02

I mean, maybe one reason was that this VC had lots, lots of cash to deploy, and a three million ticket was not making any sense. So maybe as well, it is perhaps something that would have been known by the startups before going to the VC, just to keep that in mind. But then if it's just a kind of tricky question asked by the VC, I mean, this is where uh the startups need, even though they don't have necessary and obviously rarely the internal competency, to check out whether they need over five years down the road and how much money do we need, they need to have at least on that. So imagine a company uh just starting some in vitro uh study to try and test the pharmacology hypothesis. Obviously, they don't need 30 million, so they can try and get to in vivo proof of concept. Okay, uh so 3 million is largely enough with the data. But to have question, it means oh yes, of course, we have 30 million, so it means that we go into GRP talks into animal species, it means that we produce the supply for the clinical trials, it means actually uh we might have uh implications in relevant and animal models, and then as well, it's all about planning to be ID ready and starting in a clinical trial, which means hiring people, uh getting to know the sites where we're going to enroll patients, uh, etc. So it is a specification, and obviously it shows to the VC that oh okay, they can see just beyond the next 12 months, and those three million, they know what is the end game, but of course no one has a critical role as they can be 3050 and how it will go, you see. But this is I would I would say this is what the startup can answer, and not being stuck drawing and not understanding what that's true.

Christian Soschner 53:03

So let's just assume, let's go a little bit further to on this journey, and let's assume uh we got the first pitch right, uh, we also got the first hour right, and uh Seroba decides to invest in any company. Uh the investment is not done then. So, what is the aftermath uh uh that the VC has with the company once the investment is done? What has uh a life science entrepreneur to expect?

Bruno Montanari 53:28

Okay, so I as far as I'm concerned, before I put a question on the table, usually if I'm acting as a leader or co-lead, I will have done some technical due diligence with external experts before. Because who am I to say if the data I'm being shown and the positioning I'm being told is the right one and the best? So I need external people to go over my shoulders at a point where I heard and interacted enough to believe and understand what's going on, and to ask the relevant questions to my expert as well. Um, so it's only when I have the report which is substantive and supportive enough that we will enter into a term sheet. In a classic world, I would say the term sheet will have for me, will be quite detailed. It's not just a one pager, it's a few pages, okay. Uh taking most of the clauses that will be found in the final legals, and it will be pending of something obvious, which is my investment committee decision. Okay, it has the eventual yes or no decision. It's not me making the decision, it's a partnership. Uh, then obviously the situation of the company by the time uh we decide with IC to go forward and why other money there shouldn't be any uh major adverse event, the famous back close that's happening, which will just put everything in doubt at the last minute. It happened in the past, unfortunately. Just think about the COVID-19 situation. Okay, maybe this this created a serious serious issues in some cases. Um, and then the there is a classic, uh, I would say large expat due diligence that still needs to be done, which is a financial audit. It's more or less important depending upon how complex, how old is the company you invest in. So it's legal and financial due diligence. There is usually a freedom to analy uh to cooperate analysis and IP assessment, which is FTO, cluster and ability, which is pretty key. Because if we end up discovering that actually the patents are weak or being heavily challenged, actually that you are probably infringing on other people's business and patents, this is going to be an issue. Uh and if this is clear, then yes, uh the lawyers, uh the lawyers will have been engaged, and you will have moved move into legals, then legals can take some time, depending on how details in the termsheet. And and sometimes people have double thoughts, you know, uh they didn't think carefully about it when we're discussing the term sheet, they want to go back on that. There are a few things that can be necessarily detailed in the term sheet, so this can take a bit of time.

Christian Soschner 56:18

So when I when I calculate the time, roughly, I would say we are talking about the year from the first contact. Um, going uh over the term sheet phase, then uh the detailed utilities phases.

Bruno Montanari 56:31

Oh no, no, less less than that, less than that, less than that. I mean, uh uh you can't uh it depends on the outcome of those experts. I would mandate, obviously, because the more red flag, the more questions, the more time we need from them to get and get some reassuring answers. But um in an ideal situation, uh you will I will probably take a few months uh from the first interaction down to having the relevant expert reports. If they are free, if they could be mandated on time, it's as well if because they're not waiting for you, those men, those experts have things to do as well. Uh then uh if there if the term sheet is clear and there's no match, it's just a matter of weeks to find it, and then you've got maybe another two to three months, I think, uh to finalize the uh due diligence before and get the legals done so that uh everything is set to be wired and for the new story to start. So it could be five, six months. Sometimes we create an extension if in the case of an extension of a previous round, you piggybacking on all the legals, you don't have to rewrite all the legal features, and as you know better than me, in some jurisdictions as well, it can be pretty painful to have to go to not three to get translations done, uh get it all uh approved, stamped. I mean sometimes right there, and this can be lame process. So I'm not even talking about those effects.

Christian Soschner 58:07

Uh so let's assume further that we got everything right and uh Zeroba is happy to sign the contract and wire the money. Uh, does that mean then uh job is done, the company can work for the next two or three years to uh reach the promised value inflection points, and that's the first time when uh the company re-engages with Ceroba, uh claiming the next money, or is there something what is the expectation that they have?

Bruno Montanari 58:34

Uh it's it's a beginning of a new relationship whereby uh uh you will have uh new investors sitting on on your board. Uh you will have um, I would say on average, b-monthly board meetings, in between board meetings, you will probably be monthly. Bi-monthly, yeah.

Christian Soschner 58:54

Every every two months.

Bruno Montanari 58:55

Yeah, but it's about the it's about the rhythm of those board meetings. Maybe there will be subcommittees as well uh on some given topic that will need additional work. Uh, in between, you can have informal calls, meetings, discuss some situations, uh, when the when there's a close relationship between management and and and the investor that act as a sparring partner to find bounce off ideas uh of him or her. Uh so no, it's it's the beginning of multiple and multiple and multiple uh face-to-face or phone calls, and and the companies shouldn't feel challenged or threatened by that at all. I mean, uh obviously when they're trying to access VC money, it's not only for the money, it's as well for the experience for the fit between individuals and to make sure they have their required guidance and help as well. One thing that you you asked, which I think I only partly, if not until at all, I think I earlier you mentioned about how deep are you in the operations? Actually, my take is very simple. Uh, even if I had been an industry operative in biotech or pharma, whatever you want to name it, there's a red line to cross, which is I'm not a manager. Okay, so I'm not there to manage people of the startup, I'm not there on a daily basis, I'm not there uh to make decisions on my own for the company, not at all. Okay, I'm there to ask, try and ask the relevant questions, try and help and find the relevant solutions when problems are anticipated or happen. Okay, and this is done collectively. This is important. So this is pretty key because at the end of the day, an investor is betting on the team, and and it's up to the team then to to execute and be transparent and honest enough to raise the hand when they have problems. Okay, the issue that might happen is is twofold. When you have an investor that actually believes he or she can do better than the team and wants to make decisions or acts on behalf of a company, well you don't have that type of mandate, okay. Uh, or actually the other way around as well, where the management team actually is keeping its hearts close to the chest and don't want to admit there are issues, hoping to solve them before it's being seen. This is really going in the wrong direction, and you can be sure that it's going to fly back into every issue, everyone's face at some point, and the later it happens, the worse it's going to be. This is going to be a wreck, damages will be done, and and this is where there's going to be a development.

Christian Soschner 1:01:45

So it's basically your recommendation is open communication. So look at the human factor initially before approaching investors. Uh, does the founding team really feel comfortable with the personalities of the investor and vice versa? And once the investment is done, it's everything about honest and open communication.

Bruno Montanari 1:02:04

Exactly, exactly. It's it's all about building trust, you see. I mean, uh, in some situations, the guys will have known each other from a previous investment experience or from a previous world, or through maybe as well connections. So that's put more rationale and confidence. Other than that, it's professional interactions, monitoring a company and a point where you invest, but still, you didn't have to go through yet the tough moments together and have to sweat together, thinking that maybe the stake of the program or even the company might be at risk, and how do we answer that? Okay, this is going to be the the key um the key and the key proof that you can work together. And so it's all about building trust and making sure that there is informed decision making. Uh, and then obviously, if it has it, if it is, if it ends up being the bad decision, so be it. Uh, but but it's it's very important. It's again all about the human factor here.

Christian Soschner 1:03:06

So let's assume further we got everything right, we developed the company further. The drug uh gets uh great efficacy data in the clinic, and uh we also have a farmer company that is willing to sign a license deal but not acquire the company. Um, who keeper farmer, for example, it's an Austrian company decided to do an IPO at the Nasdaq. Uh, what relevance has an IPO to a VC like you in this game?

Bruno Montanari 1:03:35

IPO is not an exit for a VC. Uh it's uh it's a refinancing first. It can become an exit once the lockup period when our pre-IPO shares are locked is over. And assuming there is some liquidity and something for us. Okay, so an IPO is really a refinancing event. And and you can all uh you can find a situation of um of a dual track process where the company actually engages advisor both for IPO and MNA track. And this is interesting because the IPO route means for the potential acquirer that, well, they better hurry up before IPO to acquire the company because maybe later on it's gonna be more difficult and more expensive. And uh and at the same time, um the IPO process is there to ensure that you are not depending upon search licensing here, even funding the company. See, so it puts the company in a in a better negotiating position as well. So that's that's quite important, but easier said than done. An IPO is not done just because you decide it. Uh, there are market conditions, and and then again, uh, once you become public, it's a different story, okay, different rules. And very often managers of privately held companies don't foresee well how tough and demanding becoming public will be. And you will even regret your VC investors, and sometimes provided some some moment to you and challenging challenging uh questions.

Christian Soschner 1:05:21

So I I didn't do any statistics, um, but just from my personal observations, I see from European companies in the life science industry. I see a lot of IPOs in the United States on the Nasdaq. And I'm aware of one IPO in Europe in the last three years, it was in Austria, Marino Med. Uh, where do you see what are the reasons why so many companies decide to go to the to the United States?

Bruno Montanari 1:05:48

So in the last year, there have been more than that IPO in the biotech and network world in Europe, thank God. And and and but the issue with Europe is that it's still uh very uh spread over in between countries, and so usually a French company will go to French uh company will think about AIM or maybe LSE. Uh then you build the African turns back. Um, so and and obviously in each of those stock markets in Europe, you don't have the breadth and depth that you can find in terms of investment base and money available, as well as valuation you can expect, as on NASDAQ. And this is why for a few years now, companies have been going either in a two-step process, i.e., first European IPO with then a follow-on and a listing uh and an offering of shares on Nasdaq or directly to NASDAQ, because it is on NASDAQ that you will find not only special investors, which can be helpful as well as a validation system, and helpful maybe as well. Uh you find the crossover investors, which are the guys that are going to bring a lot of money before the IPO and paving the way towards the IPO, pressuring IPO. So um, this is um this is all the reasons why a lot of companies are not buying an NASDAQ IPO and not anymore an IPO in their own stock market. The other thing is about liquidity, and this is both for the the well, actually it's for all shareholders of those European companies, including uh us, VC investors, historic investors. I mean, at the end of the day, you need to trade. Because if you step in company for years, you're not going to make any realization or any exit. Okay, you need to find liquidity on a daily basis or a good enough interest for at least both trades, and sometimes it's tough on European market. So for a company to raise a lot of cash at nice valuations with hack liquidity, unfortunately, still it's been going on for years and years and years. Yes, the US and NASDAQ is somehow better. Okay, but then not everyone is fit to go to NASDAQ, and sometimes it's perfectly reasonable to stay European and keep having an IPO listing and make the best out of it. You see, it's not it's not the ultimate objective that any company should reach. And again, there are many constraints, it's a different game, and just ask the questions about manager of talks of having gone IPO NASDAQ. I can tell you take a picture of them before in a few years after Nasdaq listing, you will see physically a change.

Christian Soschner 1:08:36

Yeah, I worked in listed companies. I completely agree. It's a different game, it's a total, it's a totally different game. Yeah. Uh Bruno, we are coming to the end of today's episode. I would like to ask one final question. So let's assume you have a time machine and you can go back uh into the past and meet your younger self. So at the time when you finished school, uh, what is the most important advice you would like to give to your younger self with all the experience you gained over years?

Bruno Montanari 1:09:12

Um I think it would be one just for uh a career path, which is understand the organization the organization you're working for, the people you're working for or with, uh, because it is as important as what you bring. So managing your own career uh needs to be thought of carefully, and and largely it is the understanding of organization, how things work, what are people's centers and interest to make sure that um you're not surprised by some decisions, or you're not the one actually being hit by such decisions a bit surprising you. Okay. Uh yeah, this is what I would I would give as an advice.

Christian Soschner 1:10:00

Bruno, thank you very much for your time and your insights. I wish you all the best at Sarova Life Science and a lot of nice and successful exits.

Bruno Montanari 1:10:10

Thanks for the invitation, Chris.

Christian Soschner 1:10:12

Have a great day. Bye. Bye bye. Thanks for listening. Please share the podcast and make sure you've subscribed. Have a great day.