30
d'Agost
de
2016
Act.
30
d'Agost
de
2016
The CEO of Mind the Byte, Alfons Nonell-Canals, tells VIA Empresa that his firm is preparing an investment round of half a million euros for the end of the year. These days the talks are expected to be more complicated than in previous rounds. Just like others in the biotech sector, he knows that "it takes a long time to see results." Perhaps it is because biotechnology is not easy to understand at first glance and seeing a return takes time that the venture capital available is scarcer than is usual for other types of startups.
"It is a sector that a good proportion of investors never get involved in, and it only attracts specialised venture capital. In Catalonia, there are four and one more in the rest of Spain," says Carles Domènech, CEO of Ability Pharma. He laments that among these players "there is no competition because they almost always invest together. And the access to international venture capital is very difficult." The result, he says, is that "the evaluations we get here are between four and six times lower than in the United States or other European countries."
One of the platforms specialised in biotech investment is Capital Cell. Its CEO, Daniel Oliver, makes a comparison between the valuation of these companies and flats in the housing market. "They have a similar mystery about them, it is not regulated and the same flat in a certain area or country can be worth one thing, and in another context it can cost three times more. A little of the same thing happens with companies," he says.
Oliver points out that medical technology is comparable in all countries, so that "whoever develops a medicine in Catalonia is doing exactly the same as in Romania or the United States." Yet he confirms that the valuation of companies in Catalonia is four or five times less than in the United States, as Domènech says. For Oliver, the explanation is as simple as the law of supply and demand: "It is due to the number of people there are around with money in their pockets; and it ends up being difficult to say what the real value of these technologies is."
A long but profitable wait
Mind the Byte uses scientific software to provide services to biotech companies and so they define themselves as BIO-ICT. "If you take a 100% ICT firm, what is valued most is the traction, the metrics, etc. We do a SaS and sometimes an investor asks for metrics… but we don't have any!" says the CEO.
"We are not going for two million users, but for 100 and for each of them to pay us a lot of money. I move between the two sectors and the bio investors value the knowledge there is behind it a lot more, they have more patience," says Nonell-Canals. He insists that in choosing biotechnology "the return will be much slower, but if it all goes well it will be large."
Apart from the investors, Daniel Oliver explains that at Capital Cell they have chosen to put money into biotech "because it is a sector with high growth and high profitability." To illustrate his point he says: "it has been one of the most profitable sectors in Spain since 2008 and the growth of biotech companies on the Nasdaq is three times that of the 500 most profitable companies in the world."
However, he points out that it is about the development of technologies in the highly regulated field of health. "One has to overcome very strict legislation and go through many years of tests. Therefore, any biotech startup will tend to get to market many years later than any other type of startup." On average, from the moment the biotech company begins until it has some success and someone can make money, between four and seven years can go by. "Whoever invests in biotech knows that their money will be locked down for more years than if they had invested in tourism," he says.
How is a company evaluated?
"A pure biotech company is evaluated by the market objective of the medicines or drugs it develops," says the Mind the Byte CEO. In general, "if you are making a drug for a certain type of cancer, you look at how many patients are diagnosed a year with this type of cancer."
For the CEO of Capital Cell, the rules for deciding the value of a company change very little, independently of the sector. "In the end you are deriving its future value. What is particular about biotech companies is that the final market value of what they develop is very high." Although, he insists, the techniques for doing the evaluation are similar. "You look at how much money it will make, how much money you need to make it a reality, and the one divided by the other gives you a multiplier of how much money you can expect to make. From here, the value of the company is achieved," he says.
Carles Domènech, of Ability Pharma, agrees that the evaluation is normally "based on the market potential of the technologies you are producing. We are biopharma, we develop new medicines, and our product has certain sales expectations in the long term, along with expectations of signing licensing agreements that will bring in revenue in the short to mid term." This revenue is what makes the evaluation of the company possible. This is the system used on paper.
The Ability CEO also points to the option of benchmarking in order to analyse companies that have recently received investment (and when the amount is known). "The other reference comes from stock market flotations, which give you some numbers about what your target will be in the event that you enter."
Objective: maximum evaluation
"If you make a low evaluation you dilute yourself more. It is better to make the evaluation as high as you can," says Alfons Nonell-Canals. The difficulties of achieving it here, however, have led companies like Abiility Pharma to look for alternative strategies. "One option is to fund ourselves through soft loans from the authorities. They are without guarantees, they are based on the success of the technology and the risk for the company is low," says Carles Domènech. "That has allowed us to make a lot of progress with the project without the founders or the first investors becoming too diluted (less than 20%)," he adds.
The other strategy they have applied is looking for territorial agreements with other companies in the sector. "A few months ago we signed an agreement with a company in the Chinese market to license the rights to develop and market our first product in this country." This agreement, he explains, brought in money that does not dilute the property and that allows them to fund almost the whole of phase two of the study. "This can bring us 20 million euros in payments over the next three years," he concludes.
"It is a sector that a good proportion of investors never get involved in, and it only attracts specialised venture capital. In Catalonia, there are four and one more in the rest of Spain," says Carles Domènech, CEO of Ability Pharma. He laments that among these players "there is no competition because they almost always invest together. And the access to international venture capital is very difficult." The result, he says, is that "the evaluations we get here are between four and six times lower than in the United States or other European countries."
One of the platforms specialised in biotech investment is Capital Cell. Its CEO, Daniel Oliver, makes a comparison between the valuation of these companies and flats in the housing market. "They have a similar mystery about them, it is not regulated and the same flat in a certain area or country can be worth one thing, and in another context it can cost three times more. A little of the same thing happens with companies," he says.
Oliver points out that medical technology is comparable in all countries, so that "whoever develops a medicine in Catalonia is doing exactly the same as in Romania or the United States." Yet he confirms that the valuation of companies in Catalonia is four or five times less than in the United States, as Domènech says. For Oliver, the explanation is as simple as the law of supply and demand: "It is due to the number of people there are around with money in their pockets; and it ends up being difficult to say what the real value of these technologies is."
A long but profitable wait
Mind the Byte uses scientific software to provide services to biotech companies and so they define themselves as BIO-ICT. "If you take a 100% ICT firm, what is valued most is the traction, the metrics, etc. We do a SaS and sometimes an investor asks for metrics… but we don't have any!" says the CEO.
"We are not going for two million users, but for 100 and for each of them to pay us a lot of money. I move between the two sectors and the bio investors value the knowledge there is behind it a lot more, they have more patience," says Nonell-Canals. He insists that in choosing biotechnology "the return will be much slower, but if it all goes well it will be large."
Apart from the investors, Daniel Oliver explains that at Capital Cell they have chosen to put money into biotech "because it is a sector with high growth and high profitability." To illustrate his point he says: "it has been one of the most profitable sectors in Spain since 2008 and the growth of biotech companies on the Nasdaq is three times that of the 500 most profitable companies in the world."
However, he points out that it is about the development of technologies in the highly regulated field of health. "One has to overcome very strict legislation and go through many years of tests. Therefore, any biotech startup will tend to get to market many years later than any other type of startup." On average, from the moment the biotech company begins until it has some success and someone can make money, between four and seven years can go by. "Whoever invests in biotech knows that their money will be locked down for more years than if they had invested in tourism," he says.
How is a company evaluated?
"A pure biotech company is evaluated by the market objective of the medicines or drugs it develops," says the Mind the Byte CEO. In general, "if you are making a drug for a certain type of cancer, you look at how many patients are diagnosed a year with this type of cancer."
For the CEO of Capital Cell, the rules for deciding the value of a company change very little, independently of the sector. "In the end you are deriving its future value. What is particular about biotech companies is that the final market value of what they develop is very high." Although, he insists, the techniques for doing the evaluation are similar. "You look at how much money it will make, how much money you need to make it a reality, and the one divided by the other gives you a multiplier of how much money you can expect to make. From here, the value of the company is achieved," he says.
Carles Domènech, of Ability Pharma, agrees that the evaluation is normally "based on the market potential of the technologies you are producing. We are biopharma, we develop new medicines, and our product has certain sales expectations in the long term, along with expectations of signing licensing agreements that will bring in revenue in the short to mid term." This revenue is what makes the evaluation of the company possible. This is the system used on paper.
The Ability CEO also points to the option of benchmarking in order to analyse companies that have recently received investment (and when the amount is known). "The other reference comes from stock market flotations, which give you some numbers about what your target will be in the event that you enter."
Objective: maximum evaluation
"If you make a low evaluation you dilute yourself more. It is better to make the evaluation as high as you can," says Alfons Nonell-Canals. The difficulties of achieving it here, however, have led companies like Abiility Pharma to look for alternative strategies. "One option is to fund ourselves through soft loans from the authorities. They are without guarantees, they are based on the success of the technology and the risk for the company is low," says Carles Domènech. "That has allowed us to make a lot of progress with the project without the founders or the first investors becoming too diluted (less than 20%)," he adds.
The other strategy they have applied is looking for territorial agreements with other companies in the sector. "A few months ago we signed an agreement with a company in the Chinese market to license the rights to develop and market our first product in this country." This agreement, he explains, brought in money that does not dilute the property and that allows them to fund almost the whole of phase two of the study. "This can bring us 20 million euros in payments over the next three years," he concludes.