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Posted by Richard Gabriel on Thursday, July 29, 2010 @ 12:00PM 

By Richard Gabriel

I live in Massachusetts and let’s face it; we live in what is perceived to be a high tax state. Whether this belief is true or not we share that belief of high taxes with California, New York, New Jersey and Michigan. On the other hand Florida, Texas and North Carolina, among others share a different belief and it is reflected in each states approach to funding of Life Science companies. And each of those states would kill for the concentration of Life Science, technology and educational institution that we enjoy with California and the other so called high tax states.

Sure, taxes in Massachusetts and the overall business environment for start up companies are less than ideal. There is frankly, no comparison between the incentives being offered in Florida and Texas for start up companies to move to those states and start their businesses. Some entrepreneurs have moved to these states and have taken advantage of the help, financing and favorable state environments. Each time a technology leaves Massachusetts heading for more fertile pastures, we lose jobs, tax revenues and population, which in turn decreases our real estate values, creates more stress on our commonwealth to raise taxes even more, it’s a vicious cycle and yet we sit on one of the greatest natural intellectual resources in the world and have yet to figure out how to fully mine its fountain of bubbling opportunities.

However, in my last blog, we talked about a new funding model for biotech and the life sciences industry and we received hefty responses from VC’s that were interested in exploring a new way of funding. Some ideas that we kicked around included a new ‘fund’ that would have a longer time horizon, attract a more patient and less capricious group of investment partners that weren’t demanding a 5 year exit with double digit returns per annum, but rather a combination of long term debt, mixed with long term equity investment.

How would such a fund work? Well a possible appropriate debt to equity ratio should be 1 to 4. Every dollar in long term debt at a reasonable interest rate is backed by 4 dollars in equity. This ratio, provides the limited debt partner with the interest only coverage for the life of the debt, which in Life Sciences, should be no less than 10 years. Additionally, expecting a short term double digit return on a Life Science equity investment is, frankly, ridiculous. Not only does it place an unfair burden on the entity that is being formed and its management, it is an unfair hurdle and it’s artificial to the practical operations of starting and running this type of business.

Well then, what about the risk? How is a venture fund ever to make any money? All these choices have their pluses and minuses and are self evident. For the entrepreneur, think, Steven Jobs, Michael Dell, Bill Gates and not a veteran of multiple start up companies, all of whom have, by now, failed, been swallowed or otherwise disappeared and, if alive, are headquartered in another part of the country. Perhaps the alternative though of invest big, hold, pay dividends and interest or buy back the shares at an appreciated rate that reflects the true value of the business that was built has some merit today? Take a look at the valuation gaps between a pre-clinical candidate and the sums of money paid by Pharma for Phase 2 & 3 compounds, the gap is astronomical and it is that gap that tells us or should tell us that the current model is wrong

We should be looking more carefully at the broken institution of funding our start ups in our state and instead of letting Texas, Florida, North Carolina and California pirate our technologies and people away, find a way to fund them and keep them here. Build businesses and jobs and people will start coming back to Massachusetts or perhaps they won’t even leave after they graduate! Got any ideas? Write us. We’d love to hear from you.


Richard Gabriel is head of the Life Science practice at Sema4 Inc., dba Semaphore (, a leading global professional services provider of Private Equity funds-under-management and technology diligence services. Semaphore currently holds fiduciary obligations as General Partner for six Private Equity and Venture Capital funds and advises General and Limited Partners as well as Corporations around the world. Semaphore’s corporate offices are in Boston with principal offices in New York and London.

Topics: Biotech, Venture Capital, entrepreneurs, equity, Semaphore, technology, Life Sciences, investment, venture funds

The Life Sciences Success Blog: A Walk Through the Valley of Death

Posted by Richard Gabriel on Friday, Feb. 12, 2010 @ 8:15AM 

By Richard Gabriel

The Valley of Death for a Life Sciences company is that space, as coined by the NCI's Director of Small Business Innovation Research Programs Michael Weingarten, between a Phase 2 SBIR grant and the commercial success of the technology that is being funded and developed.

I've been there as an entrepreneur.  I've been there as an advisor who helps reorganize and counsel companies.  Bottom line is if management decides to follow the money and revitalize the business, the company and its shareholders will survive. I've built businesses from nothing more than purchase orders, down payments on contracts and a check book for financing.  With a smart financial manager, playing the debits and credits and working the receivables and payables, a business can survive those tough economic times. Guess what; those tough times are here again! And want to know something else?  Here's a surprise...your government is listening!

Here are some facts for you to chew on:

Life Science, medical device and services companies that have products for the Life Sciences Industry have a great opportunity with the National Cancer Institute's aggressive programs for Small Businesses under the STTR and SBIR programs. Just recently, I attended a conference in Boston hosted by the NCI's Michael Weingarten the Director of NCI SBIR Development Center; along with N. Stephen Ober, M.D. BU's Technology Development Executive Director, New Ventures. What was most striking about this half day of talks by companies that were hand picked to present by the NCI team and who were award winners of both Phase 1 and Phase 2 grants was the broad scope of the technologies and applications of those technologies. The Life Science technologies represented at the meeting were diagnostics, devices and drugs or as we like to say in the trade ‘D cubed'.

For those of you that don't know about these programs, STTR stands for Small Business Technology Transfer and is done with an institution, a not for profit, a university or medical center.  75% of the fund proceeds are given directly to the institution and the company is allowed to use 25% of the funds. The major focus of an STTR is to transfer important and meaningful technology from an institution into the marketplace through the participating company. The SBIR is known as a Small Business Innovation Research and a majority of these funds are available to the company. Collaboration with an institution is not mandatory.

SBIR phase 1 is up to $200,000 for a period of 6 months. Phase 2 SBIR's are for a period of 2 years and are upwards of $1.5 MM or about $750,000 per year. Most start up companies will be interested in the SBIR program as it helps fund research. If your company is lucky enough to win a Phase 1 SBIR and also a Phase 2 SBIR then your company is automatically eligible for the Bridge Award which is up to $3.0 MM over three years.  These funds must include an equal amount of investment capital that will help the company through the ‘Valley of Death' where many companies have perished even though they have had successful Phase 2 programs and have been, for whatever reason, unable to secure additional funding. The NCI has obviously analyzed its own program and the success and failures of its grantees and saw this valley of death and decided to do something about it!

For all the facts go to and you can find out everything you ever wanted to know about the NCI and their outstanding SBIR/STTR programs.

If your business is in trouble, call someone that has been through it because your best chance for getting through the Valley of Death is to have someone who has been there and come out the other side - more than once. Getting grants, finding new capital sources that you probably haven't thought about, reorganizing your business and focusing on revenues are some of the things an entrepreneur or funding group that holds a position in an ever downward spiraling investment can do.

You can't always sell equity or take on more debt to get your business and your shareholders out of hot water.  Sometimes it takes drastic measures - often painful.  But if a product line survives or a revenue stream is identified, sometimes that's all you need to re-trench and re-start a fundamentally strong business.  With good technology, smart road maps and proper execution you too can navigate the Valley of Death. My biggest problem as an advisor in a tough situation is "will anyone listen?" and "will the management team take action?"   In these cases you need a partner that is more than just a review and a proposal; you need a team that is all about fixing problems and initiating action.    One of the good things about surviving the Valley of Death is that you come out smarter, leaner, and more focused, with more promise and more certainty of success... almost worth taking the journey.

Send me an email and let me know your experience and


Richard Gabriel is head of the Life Science practice at Sema4 Inc., dba Semaphore (, a leading global professional services provider of Private Equity funds-under-management and technology diligence services. Semaphore currently holds fiduciary obligations as General Partner for six Private Equity and Venture Capital funds and advises General and Limited Partners as well as Corporations around the world. Semaphore's corporate offices are in Boston with principal offices in New York and London.


Topics: Venture Capital, technology, Life Sciences, SBIR, small businesses

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