Lived It Lecture: Building a better deal

www.NatrixSeparations.com

www.NatrixSeparations.com www.NatrixSeparations.com

Complex Separations Made Simple

Building a Better Deal Lisa Crossley, CEO

Entrepreneurship 101 MaRS, March 11, 2009



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



Introduction to Natrix


Natrix Separations is a supplier of high performance separation

products to the Biopharmaceutical, Veterinary Pharmaceutical, Vaccine

and Nutraceutical markets



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)



Corporate Headquarters

5295 John Lucas Drive, Burlington, Ontario, L7L 6A8

•  Administration •  Finance •  Research and Development •  Process Development •  Application Engineering •  Quality Assurance/Control •  Pilot Production •  Commercial Manufacturing


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

Natrix Technology



Natrix Technology •  A completely novel, patented membrane construct

consisting of a structured hydrogel formed within a suitable support

•  Two different components:

•  The two components can be optimized independently, yielding a revolutionary new low cost, high performance membrane product

Flexible porous support

Anchored structured gel



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



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



3 Critical Elements for Building a Better Deal



Elements of a Deal

•  Three Critical Elements of any Venture Capital Financing: – Business Plan – Advisory Team – Managing the Transaction



Business Plan

The terms of any deal will only be as good as the business plan you

provide to your potential investors



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



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)



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



Example: Natrix Go to Market Strategy



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



Target Market Segments

Liquid Separations ($14B)

Lab Scale Bioanalytics

($4.7B)

Life Science Research

Drug Discovery

Process Development

BioPharmaceutical Manufacturing

($3.1B)

Protein Purification (Capture)

Vaccine Production

Viral Clearance (polishing)

VetPharm

Food/Beverage ($2.5B)

Nutraceuticals

Food Processing

Commercial Beverage

Dairy

Water / Wastewater

($3.7B)

Potable Municipal

Industrial Water/WW

Ultrapure

Consumer (POU)



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



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



Value Prop by Segment



Typical Time to Market

0 1 2 3 4 5

Human Therapeutics

Vet Pharm

UPW/POU Water

Food/Beverage

Wastewater

Lab Scale Bioanalytics

Years

Initial acceptance (early adopters) Widespread adoption



Profitability vs Time to Market



Target Market Segments

Direct Sales

Channel Partner / Strategic Alliance



Go to Market Strategy

•  Product Rollout / Launch Priority 1.  Markets with unmet needs in performance or value

–  Lab Scale Bioanalytics –  VetPharm Vaccine Purification –  BioPharm Capture Chromatography –  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

Focus for 2009-2010



Lab Market Anticipated

Gross Margin: >80%

Competitive Advantages:

Broadest product range User friendly

High performance (binding)

High throughput Lower cost

Barriers to Entry: Established competitors

Diffuse market No brand recognition

Time to Market: Short

Key Competitors: Qiagen

GE Bio-Rad Tosoh Pall

Sartorius Time to Market: Short

Total Addressable

Market: >$500M



Nutraceuticals Anticipated

Margins: 60%


Ability to process high-viscosity, ‘dirty’ feed

streams High selectivity

Low operating costs

Barriers to Entry: No brand recognition

Regulatory constraints

Time to Market: Moderate

Key Competitors: Pall

Koch GE

3M CUNO

Total Addressable

Market: >$1B



Biopharm - Capture Anticipated Gross

Margin: >70%


High performance (binding) High throughput

Low acquisition costs Low operating costs

Lower regulatory burden

Barriers to Entry: Established competitors Highly regulated market Historically conservative

Long adoption cycles

Time to Market: Long

Key Competitors: GE

Bio-Rad Dionex Tosoh Pall

Sartorius

Total Addressable

Market: >$1B



Revenue / Market Development

Lab Market Vetpharm Nutraceutical Biopharm (Capture)

Lab Market Vetpharm Nutraceutical Consumer Water Biopharm (Capture) Radioactive Waste

Lab Market Vetpharm Biopharm (Capture) Nutraceutical Consumer Water Radioactive Waste Ultrapure Water Biopharm (Polishing) Wastewater

2009

2010

2011

Revenues



Advisory Team

Get the best possible advisory/support team in place from the outset



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



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



Managing the Transaction

Every day spent closing on the financing will cost you in legal

fees as well as productivity



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!



Summary

•  Three critical elements of a good deal: – Strong business plan – Good advisory team – Actively managed transaction

•  Bottom line:

– Take the money and run!

www.NatrixSeparations.com www.NatrixSeparations.com


Thank You

Lived It Lecture: Building a better deal

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Transcript of Lived It Lecture: Building a better deal