Time to cast some pods! We’ve teamed up with Tjarda Polderman and Joshua Peper, the hosts of the awesome Dutch podcast 20voor12. So first up in a series of special episodes, a behind the scenes look at the ins and outs of a startup’s investment process, with EV Biotech CEO Linda Dijkshoorn and Carduso Capital partner Koos Koops.
Carduso Capital was one of three early stage investors in EV Biotech. But as a very early stage life science startup with a promising idea, how do you convince an investor you’re worth the risk? What’s the negotiation process like and how does it feel to end up with a weighty tome of a contract where the simple task of writing down your initials on every page takes up about 45 minutes of your time? Linda and Koos discussed the ins and outs, wins and fails and the relationship between startup and investor. The podcast (below) is in Dutch, but here are some of the highlights.
Yeast, vanilla and pitching
So what exactly does EV Biotech do? “Microorganisms are wonderful little creatures that can produce wonderful things for us humans, like the alcohol in your beer or insulin”, Linda explains. “We engineer these organisms to produce other things, like vanilla. But that’s a long and arduous process of trial and error and that’s not what makes us unique as a company. Our real innovation is that we use self-learning, predictive computer modeling that calculates the best and most efficient way to engineer these microorganisms.”
Linda was still working on her PhD thesis when she got the idea and joined the VentureLab North Weekend where she pitched it in front of a panel of experts and, as fortune would have it, Koos was one of those experts. He has a degree in biochemistry and was an entrepreneur in the pharmaceutical industry, before he became an investor, so this pitch was right up his alley. Was he wowed by the pitch? “I actually thought it still needed a lot of work.” Both of them laugh. “It was my very first presentation and Koos was sitting there stoically, arms folded”, Linda adds.
The bottom line
“To give you some context, in the past 5 years, we had meetings with around 330 companies and invested in 19 of them”, Koos explains. “And we normally invest in companies that already have a proven concept. EV Biotech is really our first very early stage investment, which is risky, so it took a few meetings and some feedback before we decided to be on board.” “I actually locked myself up for an entire month to write the business plan”, Linda adds.
“The thing is, EV Biotech’s innovation is wonderful and very sustainable and the fact that they use microorganisms to produce something really speaks to the imagination”, Koos continues. “But ultimately, all of that shouldn’t matter, because the bottom line for potential customers is whether the product is cheaper or of better quality, not the story behind it. That’s your job as an investor, to look at how this will ultimately be profitable. So we decided together that the revenue model for EV Biotech isn’t about selling the product the bacteria produce, but selling the production process, through licensing.”
45 minutes of signing
So what’s the negotiation process like? “I think we initially asked for around €1.5 million, maybe €2 million? Because you do need a sizable amount of capital to create a solid foundation, along with lab equipment of course”, Linda says. “And when it comes to the amount invested and the amount of shares, we also needed to take into account the early stage of the company and that for us there is proof of principle, but not yet proof of concept, which is all added to the equation”, Koos adds.
“But our shares range from 10% to 50% and we want a say in certain aspects of the company”, Koos continues. “So we’ll end up with a term sheet with all the agreements and then a lawyer and notary will turn that into a contract.” “And it takes about 45 minutes to sign all the pages of that contract!” Linda adds.
“But when you’re negotiating, it’s not about what you think you deserve or how to make sure everyone’s satisfied”, Linda continues. “It’s about choosing what’s best for the company. For the first draft, I didn’t agree with some of the terms, but it’s a process of figuring it out together, because everyone benefits from a healthy company.”