Raising Money with David Esposito, Part 1
ONL Therapeutics was in a tricky spot. The company’s bank accounts were shrinking, and it needed its next financing round to fund key drug development activities, including important clinical trials. The company knew that 2020 had to be a big fundraising year.
But raising money is hard. Really hard. Even in the best of times. And in a pandemic, who knew what was going to happen.
David Esposito
Working at ONL Therapeutics, I got a firsthand experience of this fundraising process, including all of the ups and downs, false starts, dead ends, long lists of due diligence questions, and – eventually – a successful Series B financing. I recently talked with our CEO, David Esposito, to discuss his perspective. Based on our conversations, I’ve assembled a series of blog posts describing David’s philosophy on fundraising and some of my observations of how the company got things done.
David has been ONL’s CEO since mid-2019, having previously been the CEO in a number of other startups and small companies and experiencing a number of financing deals and successful exits that have helped shape his approach to fundraising. With this previous insight and his background as a West Point-educated platoon leader in the 101st Airborne Division during the Gulf War, I was intrigued to see how he would approach ONL’s fundraising.
Having talked with David, seen him work, and been a part of his process, I’ve gleaned what I believe is his fundamental lesson: communication, communication, communication.
Yes, I know what you’re thinking, this seems obvious. If you’re trying to raise money, you need to talk with people and ask them to invest in you and your company. So, clearly, communication is key. But until I saw how David worked, I didn’t fully appreciate how central communication is to the whole endeavor.
And for David, this endeavor begins with a plan.
Start with a Communication Plan
Before sending the first email or making the first call, David believes in developing a plan. Who are you going to contact? What is the desired outcome for that first contact? Answering these questions, along with a number of similar questions, helps form the outreach plan.
Previously, I naively thought that such a “plan” simply meant identifying potential investors that might be interested in you, contacting them, presenting your pitch, and hoping that they invest. Easy, right? But having now worked with David, I’ve realized that there is more to this simplified thinking. Through his experiences in fundraising, David has learned this lesson too.
His thinking has evolved beyond just asking financial investors – like venture capital (VC) firms – for money, and he now recognizes the importance of communicating with additional types of potential investors, like strategic partners (Big Pharma companies, mid-sized drug companies, etc.). David has found that these established drug companies (“the strategics”) are looking more often at earlier stage companies, like ONL, than they had in the past. By diversifying the types of investors we wanted to target, we increased our options for what a potential deal could look like. With diverse investors at the table, the deal structure didn’t have to be limited to a simple equity investment. Instead, options like strategic partnerships, co-development deals, license agreements, and acquisitions could be part of the picture.
But there’s a constellation of investors and strategics, groups that invest in technologies across the gamut. Where do you start? As a therapeutics company, pitching to an investor who only puts money into software companies would be wasting everyone’s time. So, we needed to identify which groups to contact and had to do some homework. We reviewed the attendee lists of relevant conferences and investor meetings to help identify which investors were actively interested in our field. As we built our outreach plans, the University of Michigan’s Office of Technology Transfer helped us add more details on our outreach targets, including information on their investment history, fund size, and interests.
As our outreach target list grew and became more informed, David accelerated the outreach process and set out to fill up the so-called funnel.
Filling the Funnel and Calibrating the Message
The “funnel” was a tool to categorize the seriousness of a potential investor and – importantly – a means for us to calibrate our message for each group. For example, we wouldn’t want to overwhelm someone by sending them a science-packed slide deck in an initial email. Nor would we want to use detail-free, high-level summary statements with groups who were about to sign a deal. So, over time, we mapped each investor to a tier in our funnel, which helped us match the appropriate communication plan for each group. As the investors showed increasing interest in our company, we moved them further into the funnel and provide them with an adjusted level of communication.
Our outreach targets were initially placed at the top of the funnel, the broadest outreach category that corresponded to the most basic message about ONL and our technology. In this initial phase of outreach, David would often cold call or email people off of our target list or message people through LinkedIn, making hundreds and hundreds of these various overtures. Fully aware that no one reads long emails, he refined these quick notes to be crisp, using bullet points to make a few key points that were easy to comprehend. To David, this artful message creation is a big part of outreach. He tried to make his message short enough to actually be read and interesting enough to give a stranger a reason to reply.
But, as you might imagine, big spray and pray email campaigns aren’t often successful, and while David has learned that individualizing each email with some personalization seems to improve the odds, the odds still aren’t that high. Sometimes, David would receive a quick “No,” and occasionally, these rejections would provide a quick rationale, such as an explanation that the firm doesn’t invest in our therapeutic area or that they only invest in companies with later stage clinical trial data. This type of feedback helped us manage the funnel process, since we could remove these firms from any follow up campaigns and focus on more promising leads. On rare instances, David would get a “Yes” and a follow up call would be scheduled with the interested investor group, moving them down the funnel. However, the quick “No” and “Yes” responses were outliers, and the vast majority of David’s messages were met with silence. But that didn’t mean that those investors were dropped out of our funnel. No, for those lucky individuals that just meant that David put them into his follow up process, a cycle that involved polite but recurrent messages that continued until he got a “Yes” or a clear “No.”
Consistent Persistence
With the sheer number of messages sent out during the outreach process, receiving an avalanche of “No” responses might get discouraging. But David emphasized to me that a huge part of the outreach process is learning to accept a “No” and rejection, noting that this can occur regardless of where you are in the funnel or how promising an investor may look. His key lesson is that you can’t get emotional. You are going to be rejected, and people will totally dismiss your ideas, your company, and even yourself. Knowing from the start that rejection is likely, David has raised his tolerance for disappointing responses and has learned to keep his cool when things don’t go his way. Importantly, David has found that people generally aren’t rejecting you or your message, specifically. Instead, the source of their rejection is often a reason you can’t control. So, rejection just means you have to knock on another door. Informed by his time as a salesman for Merck earlier in his career, he told me “the fun side of raising money is that there’s always another door to knock on.”
Witnessing his work firsthand, this practical optimism was essential. It helped keep everyone’s energy level up and boosted our team’s morale, even though we were watching our bank account shrink as we got deeper and deeper into 2020.
David’s approach to investor outreach reminded me of a phrase that a former grad school lab-mate taught me: consistent persistence. David’s consistent persistence was on full display throughout the outreach process and especially during the initial stages when he was trying to fill our funnel. And to be successful at fundraising, he needed to make sure that we had enough people in our funnel. It took a lot of work and meant dealing with a lot of rejection. But David knew that the more people in the funnel, the better our chances of getting to “Yes” even if that meant that he had to experience more people saying “No.”
Being able to identify and craft a few key bullet points was vital during David’s initial outreach campaigns. These points were the distilled essence of the company, a hook to try to catch an investor’s interest. But as investors want to learn more, we had to have a more detailed message to share with them. We needed a story.
In the next blog post, I’ll describe David’s approach to storytelling, touching on how we shaped our pitch, the importance of the messenger, and how he balances investor feedback.
Special thanks to:
David Esposito, CEO, ONL Therapeutics (desposito@onltherapeutics.com)
Connie Chang, COO, ONL Therapeutics (cchang@onltherapeutics.com)
QIAGEN and Todd Festerling, PhD for sponsoring the blog