Christian Elling is Managing Partner at Lundbeckfonden Emerge, the early stage investment unit of Lundbeckfonden that has a range of investments in early stage Danish biotech companies.
What kind of companies are you and your colleagues focusing your investments on? And what stages?
“We seek to identify and initiate development of scientific opportunities that could solve significant unmet medical needs and that have substantial commercial impact and value. We also make Exploratory Investments – investments in exciting and promising projects that have no or very limited data to support the investment hypothesis. It is high risk and we only invest less than two million EUR to begin with, but later – if the idea turns out to be as amazing as we thought – we can make follow up investments and provide substantially more capital to further develop the company. The Lundbeck Foundation also has a philanthropic side, where we grant more than 500 million Danish kroner in academic research grants every year – more than half of that is given to brain research.”
What are some of your basic criteria to invest capital in a company? What factors do you consider especially important?
“To put it simply, we are looking for great science and great people. We often invest in early stage companies. The Lundbeckfonden Emerge is about translating exciting new science and less about late stage clinical phase 2 or 3, unless in niche indications. We invest in early stage companies or even in an amazing idea with not much data that we find exciting. But it can also be a project that has been around for some time, e.g., growing from pre-clinical to clinical. The intention is to stay with the company from the initial investment until an exit, which typically would require clinical phase 2 data. That means we can own companies for quite a number of years. We are quite picky in what companies we invest in. They have to fit us, our strategy and what we are trying to achieve. We make fewer investments than some other investors. However, that enables us to ensure we have enough cash reserves to allow companies to truly test their hypothesis. We are active owners. That means engaging with the company and founders to help them mature their plans and execution, ranging from as early as defining a professional business plan to how to make proper strategic choices later on. Quite a lot of the people we invest in are just out of university and don´t have a mature management team yet. We help them grow and build the company – sometimes we step in as interim CEO or COO and establish a good management team. But most of our later work is done from the board level, as a company over time needs to develop a strong management team.”
Could you give an example of a common mistake among startups?
“Underestimation. In many shapes and forms. Classical biotech drug development projects, and generally speaking new startups, underestimate what it takes to raise money. They don´t see clearly what investors are looking for to invest in their companies. They are great scientists but don´t have the experience it takes to build a company and that often makes them too optimistic with regards to what you can do and how the investors will react. The people we invest in have to show us their business plan and often those business plans require substantial revision. But as long as the idea is right, we can re-write the plan together and come up with something that we believe in – and eventually help get additional investors on board.”
Could you mention a current strength or trend among Denmark’s life science companies?
“Well, in recent years some local companies have successfully built international venture capital syndicates with their existing investors and raised substantial funds in early financing rounds. We have seen that in our portfolio of companies and that is very encouraging. Importantly, it reflects that there are local investors, such as Lundbeckfonden Emerge, who are willing and able to invest substantial amounts early to share the risk with new international investors. It is very important that this trend continues for the further development of local biotech.”
What advice do you have for small and mid-sized life science companies looking to raise capital?
“You are trying to develop a commercially valuable product, so focus on the product! What exactly is your product? What difference does it make for the patients and for the payers? Is there a need for it? US biotech companies are often more successful in building products because they understand that the product is key and focus on that early on. My second piece of advice is think long term, e.g., ask yourself when you want to reach the market. Any investor will look at your project and try to determine if it is thought through. Does your future product have merit – when it reaches the market in more than 10 years? Investors need to exit with a profit, they have to provide a return on investment, and they need to have a commercial product that makes sense for patients and payers when it reaches the market. My third piece of advice is think long and hard about your team. Are you employing the right people? Any investor is in the human resource business and invests in teams. What does your team look like and where will it take the company? And lastly, think about the syndicate of investors you are trying to build. Are you aligned with the investors? How can the investors help you get to where you need to go? Who will add value – money, knowledge, network, experience – to your company?”
Text by Pia Andrea and Malin Otmani