Speaker: Lisa Crossley, President & CEO, Natrix Separations
Lisa shares the lessons she's learned about how to get good VC financing terms for your business and how to ultimately close a deal.
This is part of a series of “Lived It” lectures in the program, sessions that offer a great opportunity to hear firsthand and ask questions about the experience of starting up an innovative company – from people who have seen it and done it.
2. Complex Separations
Made Simple
Building a Better Deal
Lisa Crossley, CEO
Entrepreneurship 101
MaRS, March 11, 2009
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3. Outline
• Introduction to Natrix
– Company Overview
– Natrix Technology
– Fundraising (“the deals”)
• 3 Critical Elements for Building a Better Deal
– Business Plan
• Example: Natrix Go to Market Strategy
– Advisory Team
– Managing the Transaction
• Summary
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4. Complex Separations
Made Simple
Introduction to Natrix
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5. Natrix Separations is a supplier of
high performance separation
products to the Biopharmaceutical,
Veterinary Pharmaceutical, Vaccine
and Nutraceutical markets
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6. Company Overview
• Natrix Separations was formed in 2005 to commercialize
a patented technology originally developed by Drs. Ron
Childs and Alicja Mika in the Department of Chemistry at
McMaster University in Hamilton, Ontario
• Inventors brought the science, my contribution was on the
business side (fundraising, managing and growing the business)
• The company is privately owned and backed by major
institutional investors from Canada and the US (BDC
Venture Capital and JovInvestment in Canada; DE
Shaw Ventures in CA, USA)
• Natrix currently employs 40 people: 35 in Canada (all
functions) and 5 in the US (sales & marketing)
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7. Corporate Headquarters
• Administration
• Finance
• Research and Development
• Process Development
• Application Engineering
• Quality Assurance/Control
• Pilot Production
• Commercial Manufacturing
5295 John Lucas Drive, Burlington, Ontario, L7L 6A8
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8. Natrix Technology
Natrix has developed a unique, patented
chromatographic separation technology
Natrix technology combines the high
throughput and ease of use of membranes
with the high capture efficiency and
selectivity of chromatographic resins
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9. Natrix Technology
• A completely novel, patented membrane construct
consisting of a structured hydrogel formed within a
suitable support
• Two different components:
Flexible porous
support
Anchored
structured gel
• The two components can be optimized independently,
yielding a revolutionary new low cost, high performance
membrane product
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10. Seed Investment
• $2 Million tranched investment provided by MDS Capital and
BDC Venture Capital
• The seed round was intended to fund a proof-of-principle
program that would demonstrate the commercial viability of
the technology
− Funds used to lease office and lab space, hire a small team of R&D
scientists, file IP, business development/travel
• Payout of tranches triggered by achievement of technical
and business development milestones as specified in the
original Subscription Agreement
• Draft Term Sheet received Dec. 2004, transaction closed
(i.e. documents signed and funds received) April 1, 2005
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11. Series B
• $19M round that included the existing investors (right to
participate from seed round); round led by new US investor
• The funds raised were used to:
– Move the company to new space; build new offices, labs and
production space
– Construct a commercial-scale manufacturing line
• (25,000,000 sq ft of membrane per year capacity)
– Expand the senior management team (CFO, VP Sales, VP Ops, VP
R&D, VP Marketing)
– Expand the Sales & Marketing team
– Commercial launch
• Term sheet to close in six months
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12. Complex Separations
Made Simple
3 Critical Elements for Building
a Better Deal
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13. Elements of a Deal
• Three Critical Elements of any Venture
Capital Financing:
– Business Plan
– Advisory Team
– Managing the Transaction
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14. Complex Separations
Made Simple
Business Plan
The terms of any deal will only be as
good as the business plan you
provide to your potential investors
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15. Deal Terms
• Valuation
• ESOP
• Liquidation Preferences
– Straight or participating
• Redemption Rights
• Anti-dilution Protection
– Full ratchet or weight average
• Pre-Emptive Rights to Participate
• Approval Rights, Board Seats
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16. Business Plan
• Critical Elements from the point of view of potential
investors:
– Management Team
• Proven track record in business
– Market Information
• Go-to-market strategy, market size, market pain
– Intellectual Property
• Do you have sufficient protection and FTO?
– Budget / Use of Funds
– Exit Strategy
• Timing and valuation (ROI)
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17. Business Plan
• Purpose is to articulate your value proposition for potential
investors
• Focus on the market: target markets, market size, time to
penetrate, potential market share, unmet needs
• Rule of thumb:
– At a minimum, investors want to see a target market with a >$400
Million value, and a plan that explains how you will capture 10% of
that market (i.e. $40 Million) within 4 years
• Exit strategy
– Depending on the investor, you need to be able to demonstrate a
potential ROI of 5-10X
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18. Complex Separations
Made Simple
Example: Natrix Go to Market
Strategy
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19. Target Markets
• Natrix products address the unmet needs of
three distinct, large and rapidly growing
verticals within the global Separations market
– Biotech Separations / Bioprocessing
– Food & Beverage Processing
– Water and Wastewater Treatment
• Total value of these verticals is $9 Billion
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20. Target Market Segments
Liquid Separations
($14B)
BioPharmaceutical Water /
Lab Scale Food/Beverage
Wastewater
Bioanalytics Manufacturing
($2.5B) ($3.7B)
($4.7B) ($3.1B)
Potable
Protein Purification
Life Science Nutraceuticals
Research Municipal
(Capture)
Industrial
Food Processing
Drug Discovery Vaccine Production
Water/WW
Viral Clearance Commercial
Process Ultrapure
Beverage
Development (polishing)
Consumer
Dairy
VetPharm
(POU)
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21. Market Trends
• Separations Market
– Increasingly complex molecules
– Increasing market pressures to:
• Reduce manufacturing costs
• Increase product yields
• Rapidly scale from lab to process scale
– Increased pressure from regulatory agencies
on final product safety and purity
– No new “step change” separation products
have been introduced in decades
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22. Natrix Value to Customer
• Better, faster, cheaper
• Lower cost
– Product price, fewer processing steps, lower operating cost
• Ease of use
– Wide range of formats, scalable, smaller footprint, fast startup
• Simplified regulatory compliance
• Flexibility
– Single or multicycle use disposable products
• Faster time-to-market
• Better product performance
– Increased purity can potentially increase efficacy, reduce side
effects
• Unmet needs
– Cost/performance ratio of current products does not meet
current or future market need
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23. Value Prop by Segment
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24. Value Prop by Segment
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25. Typical Time to Market
Lab Scale Bioanalytics
Wastewater
Food/Beverage
UPW/POU Water
Vet Pharm
Human Therapeutics
0 1 2 3 4 5
Years
Initial acceptance (early adopters) Widespread adoption
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26. Profitability vs Time to
Market
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27. Target Market
Segments
Direct
Sales
Channel Partner /
Strategic Alliance
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28. Go to Market Strategy
• Product Rollout / Launch Priority
1. Markets with unmet needs in performance or value
– Lab Scale Bioanalytics
Focus for
– VetPharm Vaccine Purification
– BioPharm Capture Chromatography 2009-2010
– Nutraceuticals
2. Markets where we can establish a strategic partnership
– Lab Scale Bioanalytics
– Biopharm Capture Chromatography
– VetPharm Vaccine Purification
– Nutraceuticals
– Consumer Water (PoU)
– Radioactive Wastewater
3. Markets with high competitive performance and value
– BioPharm Viral Clearance (Polishing)
– Precious Metal or Isotope Recovery
– Ultrapure Water
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29. Lab Market
Anticipated
Gross Margin:
>80%
Competitive
Key Competitors:
Advantages:
Qiagen
Broadest product range
GE
Total User friendly
Bio-Rad
High performance
Addressable
Tosoh (binding)
Market:
Pall High throughput
Time to Market:
Sartorius
>$500M Lower cost
Short
Barriers to Entry:
Time to Market: Established competitors
Short Diffuse market
No brand recognition
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30. Nutraceuticals
Anticipated
Margins:
60%
Competitive
Key Competitors: Advantages:
Pall Ability to process high-
Total viscosity, ‘dirty’ feed
Koch
streams
GE
Addressable High selectivity
3M CUNO
Market: Low operating costs
>$1B
Barriers to Entry:
Time to Market:
No brand recognition
Moderate
Regulatory constraints
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31. Biopharm - Capture
Anticipated Gross
Margin:
>70%
Key Competitors: Competitive
Advantages:
GE
High performance (binding)
Bio-Rad
Total High throughput
Dionex
Addressable Low acquisition costs
Tosoh
Market: Low operating costs
Pall
>$1B Lower regulatory burden
Sartorius
Barriers to Entry:
Established competitors
Time to Market:
Highly regulated market
Long
Historically conservative
Long adoption cycles
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32. Revenue / Market
Development
Revenues
2011
Lab Market
2010
Vetpharm
Biopharm
Lab Market (Capture)
Vetpharm Nutraceutical
2009 Nutraceutical Consumer Water
Consumer Water Radioactive Waste
Lab Market
Biopharm Ultrapure Water
Vetpharm
(Capture)
Biopharm
Nutraceutical
Radioactive Waste (Polishing)
Biopharm
Wastewater
(Capture)
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33. Complex Separations
Made Simple
Advisory Team
Get the best possible advisory
/support team in place from the outset
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34. Advisory Team
• General corporate counsel
– Get recommendations from your investors
– Choose someone who has experience with VC
deals, and who is very accessible (24/7!)
• Patent counsel
• Financial team
• Consultants as needed
– For the seed round closing Natrix engaged a
Venture Management consultant with specific
relevant expertise
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35. Advisory Team
• Draw on paid advisors, mentors and relevant
contacts for input on any draft Terms Sheets
received
– Get counsel’s opinion on the legal ramifications
of any reps and warranties you are required to
make
– Use external input to ensure that your
expectations for the deal are realistic
– Good advisors can help you determine which
deal terms are negotiable and which are not
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36. Complex Separations
Made Simple
Managing the Transaction
Every day spent closing on the
financing will cost you in legal
fees as well as productivity
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37. Managing the Transaction
• The company must manage all parties involved in
the transaction (investors, attorneys, university?)
• Get a Closing Agenda in place as soon as possible
(ask the lead investor’s attorney to provide one)
– Assign each agenda item to a specific individual and set
a “due by” date
• Managing the transaction needs to be the
company’s top priority
– Remember that closing costs for the company and the
investors come out of your financing!
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38. Summary
• Three critical elements of a good deal:
– Strong business plan
– Good advisory team
– Actively managed transaction
• Bottom line:
– Take the money and run!
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