Biotechnology Associates

Due Diligence: The Problem

Investment managers at any financial institution must show diligence before making each investment decision. Because most portfolio managers have trained in finance or business they have no difficulty evaluating the fundamentals of the majority of their opportunities. Technology investments are different. Larger institutions, for instance a national brokerage, have the volume and resources to employ technology analysts in house. Smaller firms, particularly those in the venture capital industry or brokerages that specialize in small cap stocks, cannot afford to employ experts across the range of technologies they handle. The financial size of the transactions are too small to carry the overhead of full time analysts.

Due Diligence: The Solution

Dr. William Topp, General Manager of Biotechnology Associates, has been providing due diligence to the investment community since 1986. Prior to entering the financial world he directed his own research group in the field of cancer research (resulting in 35 publications in refereed professional journals over a ten year period.) This was followed by stints first as President of a NASDAQ firm and then as Director of Research in a Fortune 500 firm. Over the most recent 25 year period he has conducted in excess of 125 detailed due diligence studies, in over ten countries worldwide, in fields as diverse as drugs and medical devices, medicinal manufacturing, and bioinformatics. Roughly 25 of these studies preceded substantial investments, in total over $75M in the first round. Nearly all the investments were followed by later rounds. Perhaps as important, roughly 100 studies preceded negative investment decisions.

Your Alternatives

We occasionally hear from investors that they have previously sought out and retained, as needed, highly visible academic authorities in specific areas to meet their due diligence requirements. These authorities come with an excellent reputation and have earned wide respect for their knowledge and skills in their particular area of science, engineering, or medicine. They understand what it takes to make a good scientific report or a good research proposal. Their analytical skills are honed for the peer review of academic articles or grant applications.

Academic or medical experts do not know how to recognize a solid business plan nor how to spot the flaws that may make a plausible-sounding plan non-viable . Dr. Topp is not concerned about criticizing a project for fear of angering a professional colleague. His advice and opinions cannot be influenced by academic politics.

Very few academic experts have the perspective that comes from working through large numbers of plans, forming opinions, and afterwards assimilating the results of the investment decisions. Dr. Topp has worked through over one hundred plans and looked at many hundreds. Professional investors have a fixed amount to invest and a fixed amount of time to devote to investing. It is of limited use to find that a plan is “good”. What is needed is the relative quality of the plan, how it compares to other plans that have been and are circulating. The goal is to invest in the best plan, not a good plan, and more important to avoid investments that are not the best available. Topp’s purpose is to highlight for you the investment value of the plan.

Doriot is reported to have said he'd take a B technology with an A team over an A technology with a B team any day. Imminent academic or medical experts can tell you if you have an A technology but that's less than half of what you need to know. Understanding the investment, not simply the facts, requires the skills and experience of Dr. Topp.

How it Works

Typically, first Dr. Topp will scan documentation prepared by, or pertaining directly to, the candidate investment. This can be an "executive summary", a business plan, or unfortunately often a PowerPoint presentation. The initial feedback depends on your needs as an investor. The first impressions drawn from an executive summary can often be summarized in a simple e-mail, and may or may not be provided free of charge. BA does not bill for less than a half day of effort.

Often an investor already knows they have a serious interest in a project but a formal due diligence analysis is needed to support an investment. This can take up to a month but the period can usually be shortened, if necessary, to conform with existing time lines. It is nearly always useful to schedule a two to three hour personal meeting with the inventors and/or prospective management team, most preferably at their location. There is no need for the client/investor to be present at this meeting.

The diligence study may be undertaken by Dr. Topp alone or, if needed, in collaboration with one or at most two others with complementary skills but similar years of experience. No work will be delegated to less experienced individuals. Invariably the final written report will be the work of Dr. Topp although, particularly if requested by the client, an oral wrap-up may involve a meeting with the team.

Related Activities

Plan Authorship

A PowerPoint presentation in lieu of a business plan is a red flag. Academics, inventors, and even some entrepreneurs often cannot write a business plan. At first thought this may be hard to understand, considering their impressive skills and accomplishments. However, writing a competent business plan is not something that is routine in most professions and can usually only be done by someone with prior experience. Occasionally an investor is ready to close but in spite of many promises no plan is forthcoming. Nor will it be. Intelligence and determination are not enough to craft a business plan that can justify an investment decision. Few investments will succeed if not based upon a solid business plan. After consulting with both management and investors Dr. Topp can quickly and professionally write a plan for your candidate investment. If needed he can summarize parts of the plan for pasting into sections of the investment documents.

Board Representation

He is an experienced board member so that if needed he can afterwards represent you on the Board. Often the most critical issues presented to the board of a young technology-based firm are technical in nature and it is important that your representative have a grasp of the fundamentals.

Fund Prospectus Drafting

Investing is unfortunately not the only activity of many professional investors. If you are a fund management team you may find yourself at the point in your investment cycle when it is time to sell a new fund, either to your management or to potential investors. Often this means defining and refining a strategic focus and then explaining it in a selling document. Over the past five years Dr. Topp has researched and written reviews on subjects as diverse as biofuels and biomass, graphene and carbon nanotubes, and metabolic syndrome/obesity as understood from the perspective of an investor. Frequent topics have been those related to green investing, early stage investing in drugs and platforms, and personalized medicine. One or more such reviews can help you develop or focus your investment strategy prior to writing a fund prospectus. Afterwards, he knows the audience for your selling documents and can write to that audience as you find necessary when preparing your book.

Strategic Subject Reviews

If you are an institutional or an angel investor drawn to a new field of investment, Topp can create for you a summary of that field. The document will be written to inform investors, not general readers and not other technicians. You can waste considerable time and money evaluating eight or ten plans in a particular field based on your initial enthusiasm, only to realize afterwards that you’ve after all no basic interest in investing. Perhaps it’s earlier than you thought and there’s no credible exit strategy, or it’s already too expensive because you’re too late. Simply asking BA to characterize and summarize the field for you first may save considerable amounts of your time and avoid useless overheads on projects going nowhere.

The easiest way to get initial feedback or arrange a conversation to discuss your project is to e-mail wctopp@gmail.com . Ideally, attach an executive summary or other synopsis of your project. Our assumption is that all materials, and your inquiry, are confidential. In most cases you will have an initial “read” on the contents within several days. If the situation is too complex to do this gratis, as a “loss leader”, you’ll receive a simple fixed-price quote.

We do not bill hourly nor daily. The price you are given is the total price you pay, exclusive of documented and agreed travel expenses. This is one reason why we don’t bill for up to half a day work on a preliminary analysis. We would need to do this anyway in order to generate a quote. If you prefer, a project can be divided into stages each priced separately so that you can re-evaluate the situation at one or two points during the work.

Again, if there are time lines highlight this. Good “deals” get done quickly, bad ones fail slowly. If you choose to call rather than e-mail, note that visiting a job site is an important part of the due diligence process and this means travel, so it may be a half day or day before your call is returned.

Phone: 01 845 386 1938 / Skype: wctopp / Time zone: U.S. Eastern Time (GMT - 5 or -4). The current time (refresh your browser) at our location is 05:06.

Address: 351 Shoddy Hollow Road, Otisville NY 10963-2821, U.S.A.