How can angel investors support animal health innovation?
With a growing population putting demands on farmers and producers to create sustainable protein, and the transformation of pets from companion animals to family members, the animal health industry is seeking innovation. Consultant Amanda Curtis explains how angel investment could fuel this much-needed innovation.
To ensure these advancements in animal health innovation continue, resources and funding must be made available where innovations are housed – start-up companies.
Funding start-ups in the animal health world is a relatively new and complex mission. Many of the same pitfalls that surround human health investments mirror themselves in animal health start-ups. Whether it is timeline of product launch, proof-of-concept studies, regulatory approval pathway or the ever-looming rate of return, the animal health industry faces the same complications as human health, with less options to secure capital.
Within the past decade, angel investment individuals, syndicates and networks have emerged to address the lack of funding with intentional selectivity for animal health start-ups.
What is angel investing?
Angel investing in its most basic form is essentially capital financing. There are four separate forms of capital: working capital, debt capital, equity capital and venture capital.
Angel investors tend to favor either equity or debt, though a hybrid structure of different capital is also possible. An angel investor is a high net worth individual, who invests their personal money in a start-up for an equity stake in that company or in a debt structure such as a convertible note.
If an angel investor takes an equity position in a company, a certain number of shares of the company are delved out to that angel with the intent for the company to get acquired or to sell his or her stakes for a significant profit. If an angel takes part in a convertible note, the terms are set that the investors will receive shares of stock as part of the start-up's initial preferred stock financing as opposed to repaying the principal amount with interest like a typical loan.
Angel investors can either act alone or as a group of angels – known as a syndicate – who invest collectively in a company.
How can angel investors help animal health startups?
Most animal health angel investors not only provide money for these start-ups to grow but also play an important role as advisors by bringing their industry connections and expertise to these entrepreneurial firms. This guidance is crucial as one small misstep in the beginning of a company's growth can completely throw off a successful trajectory.
Current and retired executives from large animal health companies find themselves drawn to angel investing, not only due to the possibility of return on their investments for their expendable cash, but also due to their passion about advancing the scientific field and subject matter expertise. These animal health influencers can open doors in the community that would normally be inaccessible to an entrepreneur, offering unprecedented opportunities and admittance to a wealth of resources.
The more involved investors will take a seat on the company's board, lending their name and reputation, which can make palpable impacts when entrepreneurs are pitching to other angel investors who are familiar with the animal health industry.
In addition, angel investing can be some of the most important sources of investment in an early-stage company, as entrepreneurs give up less of their company than they would to that of a venture capital group, yet still receive the critical funds that are necessary to get their business to the next milestone.
What is the ecosystem of angel investing?
In the US alone, there are over 13,000 active angel investors registered with the Angel Capital Association. However, it is estimated that nearly 300,000 people have made an angel investment in the past two years.
As investing in animal health technologies is an emerging movement, many of the angel groups have other areas of expertise other than just animal health. Few angel investors are starting to narrow their focus to agriculture start-ups encompassing agriculture technology, animal health and human health companies that have the possibility for scientific crossover. These categories of investment are usually decided by the professions that the investors have the most experience in.
Many angel groups do this not only to match their group's area of expertise but also to diversify their portfolio and mitigate some risk.
What are the examples of animal health angel investors?
One particular angel group that focuses in investing in animal health start-ups is located right in the heart of the Kansas City Animal Health Corridor.
Innovation in Motion (iiM) is an angel investor group made up of over 20 individuals, who have years of industry experience in three main pillars – human health, animal health and agribusiness. With an average investment size of $200,000 the group meets every other month and listens to entrepreneurs pitch their products and companies in an attempt to gain funding in exchange for equity.
It is a relatively new firm but has already made 10 investments and has seven companies in its portfolio, with a goal to continue adding more into 2019.
The company has made two investments in animal health companies, the first being Innate.ly, a software business that allows collaboration between animal health professions, and the second being Mazen Animal Health, which is a company developing oral vaccines for both livestock and companion animals.
iiM managing director Lydia Kinkade explained: "Deep expertise in the animal health world tends to be difficult to find at the angel level. iiM is unique in that we are laser-focused on the animal health, human health and agriculture industries.
"This allows us to provide guidance and support to our portfolio companies that they might not otherwise have access to."
As mentioned before, many entrepreneurs may not have the right expertise when it comes to commercializing a product for industry, thus, it is important to have people who have access to that knowledge and connections on their board.
This thought seemed to be echoed on the startup side of things as well. When asking Dr Jenny Filbey, chief executive of Mazen, about the value of having animal health expertise as part of your investor base, she stated: "Our angel investors have not only facilitated our reaching proof-of-concept of orally-dosed vaccines with their investment dollars, but also provide meaningful guidance related to both development and commercialization in the animal health sector."
Several other groups have joined the animal health and agribusiness investing arena such as Mid America Angels (investing in companion animal cancer company Aratana Therapeutics), Centennial Investors (investing in Animal Health Specialties, which creates treatments for cachexia in animals), and AgVentures Alliance (investing in swine welfare company SwineTech).
Hybrid organizations that were traditionally focused on other industries are now dabbling in the animal health space, offering similar resources and funding like angel investor groups. Institutions such as the Sprint Accelerator have teamed up with corporate partners like the Dairy Farmers of America to guide animal health start-ups and match them with market specialists right out of the gate, allowing access to leading executives and immediate pilot testing of products not available to most entrepreneurs.
Funds like Ag Innovation Fund IV raised $31 million to invest in animal health, agribusiness and AgTech startups in rural America. Incubators like Stonehaven Incubate help develop and fund human health technologies to crossover into veterinary medicine.
These are just a few examples of the many angel and angel-like groups that are emerging and narrowing their focus in animal health start-ups.
What is an angel investor network?
The animal health space is such a tight knit community. This means many of the angel groups, venture capital entities and similar funds have a widely cast network, where they share deal flow.
This can be in the form of quarterly meetings or monthly phone calls where these groups discuss what entrepreneur is fund raising and who the rising startups are. Through this mechanism, a single start-up can raise several million dollars in funding by making just one good impression at a pitch presentation. This is encouraging news for entrepreneurs who may be overwhelmed at the thought of fund raising.
Getting in front of the right angel group who has deep industry connections and a well-known reputation for smart animal health investments can exponentially change the funding climate of a start-up.
Angel investing in animal health is a new and fluid movement that can gain high return for investors, and to push innovations into the forefront of the industry.
Though it may be too early to forecast what the end return will be for some of these start-ups, it is promising to see the resources, networks, contacts, and funding that is transpiring from these deliberate attempts to better animal health and welfare. Perhaps now with the influx of capital to these fledgling companies, one can witness a true success story from discovery to exit, which five years prior would not have been possible. It is exciting and inspiring to ponder, what will the next five years bring?
Amanda Curtis is the chief executive and founder of Nutripeutics, which is an animal health consulting company. She currently works within a large network of angel investors in the Midwest region of the US, who specialize in animal health and agribusiness investments. Her focus is product commercialization, capital management and market analysis. She is currently working with startups and businesses in the US and internationally.