Forum tackles navigating uncertain investment landscape  

In a panel discussion at the Emerging Company Forum, industry leaders from across North Carolina's life sciences ecosystem shared insights on the current investment trends, challenges, and opportunities facing early-stage companies in the state.  

The panel, moderated by Drew Cutshaw, M.D., principal and medical officer at Pappas Capital, featured a diverse group of experts, including  

• David Adair, M.D., co-founder and managing director, Solas BioVentures;
• John Landers, director of finance, 2ndF; 
• Jimmy Melton, co-founder and general partner, Cape Fear BioCapital; 
• Ned Sharpless, M.D., co-founder and managing director, Jupiter BioVentures; and 
• Kseniya Simpson, Ph.D., principal, Hatteras Venture Partners. 

The event was sponsored by EquipNet, Incubate, Matica Biotechnology, Safety Partners and Smith Anderson. 

The discussion began with an overview of the life sciences investment landscape over the past year. Key points covered by the discussion included the challenges of raising early-stage funding, with series A prices doubling and consolidation among venture groups. The panelists emphasized the importance of commercial viability, early-stage planning and leveraging nondilutive funding like SBIR grants. They highlighted the need for a clear lead program, effective commercial analysis and understanding payer dynamics. The discussion also covered the role of family offices and the importance of building a strong, cohesive team and culture.

Navigating a Shifting Investment Landscape  

The discussion began with an overview of the life sciences investment landscape over the past year.   

"It was an interesting year, a lot of consolidation around larger rounds," Cutshaw said. "We saw Series A average price double roughly, and access to capital became harder."  

Venture groups have focused on supporting their existing portfolio companies and relying more heavily on nondilutive funding sources, he said. 

Despite the challenges, the panelists highlighted several emerging trends they have observed in their respective investment areas and the North Carolina ecosystem.  

Ned Sharpless, whose firm Jupiter BioVentures works with very early-stage ideas, often from academic institutions, noted the difficulty in getting these promising concepts off the ground.  

"It's just really difficult for these great scientists with terrific ideas to raise initial funding," he said.  

David Adair echoed this sentiment, emphasizing the importance of quality and selectivity in investments.  

"We're being very selective on those kind of things in terms of what I think is really muddy and some of the market," Adair said, cautioning against the overuse of buzzwords like AI.  

John Landers, however, highlighted a positive trend – the increasing recognition of the Triangle region as a fantastic place to build a company, particularly in the life sciences.  

"I think more and more people are starting to talk about that. I think we'll see some more of that kind of content, which I'm excited about," Landers said.   

Kseniya Simpson, of Hatteras Venture Partners, noted a general theme of risk aversion among investors, with a focus on practical, asset-based investments rather than more speculative, platform-based plays.  

Transitioning from Research to Enterprise  

A key focus of the discussion was the challenge of moving early-stage companies from a research-focused mindset to a more enterprise-oriented approach. The panelists emphasized the importance of founders recognizing what they don't know and surrounding themselves with the right team and advisers.  

Jimmy Melton of Cape Fear Bio Capital stressed the need for well-organized companies with clear strategies and efficient governance.  

"You have to think of it as a collective unit, not a technology, because the technology is probably going to pivot three or four times and go in other directions," Melton said.  

John Landers added that this transition often requires a shift in mindset, with founders needing to seek input from potential customers, partners and investors early on rather than focusing solely on the research.  

Building a Strong Team and Culture  

The panelists emphasized the critical role building a strong team and corporate culture plays in the early stages of a company's development. Kseniya Simpson of Hatteras Venture Partners stressed the importance of humility and openness to advice, while David Adair shared his experiences in evaluating management teams.  

Adair also highlighted the value of building a strong corporate culture, even with limited resources. "You'd be surprised at building culture. And the latest Tom Cruise movie, Top Gun, the admiral says, What are you doing? We're supposed to be on a mission basis. I'm building a team promoting that, and that's very cost neutral. It's very cheap actually, but people buy into moon shots and purpose-built organizations."   

Navigating Nondilutive Funding  

The discussion touched on the importance of nondilutive funding sources like the SBIR/STTR program and the challenges facing these programs in the current environment.  

Drawing on his experience at the National Cancer Institute, Sharpless talked about the critical role of SBIR funding for early-stage companies.  

"It's a well-run program. You know, we did an analysis of it when I was there that showed there was sort of like 30 to one ROI or something,” he said. “If you looked at grants given over a decade and then looked at followed financings over the next decade, it's very strong and, I think, a really good use of federal resources."  

Sharpless expressed concern about the potential challenges facing the SBIR program, particularly if the NIH is unable to issue new grants due to bureaucratic delays.  

"When you talk to your congressman about nine to 13, which we heard about, which is a great thing, tell them the first thing more important than that, even right at the moment, is that the NIH start working."  

Melton highlighted the importance of early-stage support, including matching grants and potential government initiatives to help companies navigate the uncertain funding landscape.  

On the venture capital side, Simpson emphasized the importance of having a clear path to an exit and the appropriate timing for venture capital investment.  

"We start to think about as a VC firm, typically having tenure funds, you know, big part of that is a line of sight to an exit, high chance of exit, to the extent that we can, you know, try to pretend or try to predict these things," Simpson said.  

Critical Components in Company Development  

The panelists highlighted several critical components that early-stage companies should not overlook in their development journey, including commercial analysis, reimbursement strategy and the selection of the lead program.  

Sharpless stressed the importance of a clear, realistic commercial analysis, noting that many founders tend to overestimate the market opportunity.  

"Everybody's commercial analysis comes in high; the question is, is it two-fold or 40-fold? If you're two-fold, I'll look at but 40-fold? No," he said.  

David Adair emphasized the need to understand who the "check writer" is – the payers who will ultimately determine the market viability of a product.  

"Who writes the check? King, King has the cash, right? So they're ultimately gonna be the one that decides this," Adair said.