tech podcast here we talk about everything healthcare and technology and i'm your host James Sommery. Hey, everybody. This week, delighted to be joined by Sophie McGrath, who is partner in global law firm... Goodwin's Life Sciences Healthcare and Technology Groups. Sophie is co-chair of the European Healthcare Initiative and of its Women's Health and Wellness Initiative and has 20 years experience. focusing on transactions in the life sciences, healthcare and technology sectors.
acting for companies at all stages of development and their investors. Sophie, delighted to have you on. Welcome to Healthset Podcast. How are you doing? Thank you. I'm very well, thank you. Good. Whereabouts are you speaking to us from today, Sophie?
I'm in London where the sun's shining, even though it's the beginning of February. So that's making a nice change. It does make a nice change. Remarkable how many people talk about the weather on this from the UK. When you go to the US, it's just... glorious all the time on the west coast so never never get to speak about it with the u.s people which is probably a good thing
But anyway, yeah, listen, delighted to have you on. I was saying before, I think you're probably the first lawyer practicing law that hasn't gone into entrepreneurship that I've had on the healthcare podcast. So it's nice to actually... It'd be nice to talk about some legal stuff for health tech and biotech companies and founders and advice and information because it's a part of growing a company.
that certainly I was a little bit blindsided by the requirement for it because you can go into company building quite naive thinking that everyone is good willed everyone wants to do the right things everyone's gonna act on the right side of the law at all times and everyone's gonna everyone's gonna pay on time everyone's gonna
gonna gonna obey contract as if as it because why wouldn't you but obviously none of those things are true whatsoever So, yeah, delighted to have you on to talk about some good legal hygiene of building a company, but also because of the investment side of the world that you work on.
talking about how you see that lie of the land and what things are like and how companies do grow and finance themselves to exit with all the multiple things that they can do. So looking forward to getting into all of that with you. But first, it'd be good to hear about you. So how or why does a lawyer choose to work in health tech and biotech?
Tell us a bit of your story. Yeah. So I don't know if you picked up from the accent, but I'm Australian. I moved to the UK over 20 years ago now for three months to convent with the law firm I was working for at the time. Well, the weather is much better. Well, you're quiet. So, I mean, that's why I appreciate the sun. But yeah, stage. So stage. And...
And don't regret that. I really enjoy living and working in the UK. I think it's a fantastic place to be, particularly for people working in lab sciences and healthcare, you know, lots of great innovation. in the UK. So that's been great. I, out of law school, worked for an American law firm as my first job out of law school and have ever since. Apart from a short stint at a UK law firm, so my entire career really has been at US law firms.
Originally by accident, but then by design because of the... types of sectors i work in you know these companies um need to scale they need access to capital which goes beyond the european borders you know most of them will require us capital in either private or public forms at some point. And also the US, of course, is a huge homogenous market for health tech and biotech.
products, so a very important market to the sector. So eventually I formed the view that to be able to properly service these companies, I needed to be on it. on an international platform. And the interest in healthcare and life sciences really comes from the fact that my father is a doctor and my mother was a nurse. And I grew up... then not wanting to be a doctor, having watched how hard he worked. I was going to say, how did you get away with not going into medicine? Yeah, exactly.
I was given three options, really, medicine, law, or engineering. Oh, the classic, the big three, yeah. We had no lawyers in the family, so I had no one to disabuse me of the notion that it was going to be just as hard as medicine. Although I still think probably not. Doctors work extremely hard, particularly doctors who work in the public system. So yeah, so I ended up being a lawyer. Which, in fact, you know, I've enjoyed very much.
I enjoy working with, you know, the people I work with. And by that, I mean the people in the companies, incredibly clever, motivated, driven people trying to solve really big issues. You know, it's a privilege to be able to work with those people. It's intellectually challenging and it's given me the opportunity to work on a global basis in sectors that I'm really interested in. So I feel fortunate. Amazing.
So talk to me about exactly what you do for clients. So your clients, as you've said, are health tech and biotech companies. What stage do... you work with and I guess what do they require of you at different stages? Yeah, so we work with companies. at all stages in their life cycle. So even from pre-incorporation, you know, founders will come to us with an idea. They won't yet have a company. They might not even have the technology yet. They might be in licensing.
Some of it from either a strategic or a university, or they're developing it themselves, or a mix of all of the above. Ah, with an idea they want to protect, I guess. Yeah, exactly. So we will start very early and then we do everything through to acting for very large listed companies. And I think seeing both ends of that journey is really important. It informs the way that you advise across that spectrum.
I think we're very expert at understanding proportionality and pragmatism. You know, what's appropriate for a global listed company is not necessarily what a... speed financed company needs to be doing. And we can have that conversation. We can also have the conversation about what is this going to look like when you are that global listed company?
And within my team, so I'm a corporate lawyer and I focus on financing as well as the scale up of these companies and their exit, which sometimes involves exits to the US public market. But within my team, we have people who focus on all the different things that these companies would need. So IP licensing, patent protection, employment, the equity incentive arrangements that we put in place for these companies.
cross-border tax advice, M&A. Public markets lawyers, you know, regulatory lawyers, absolutely everything you could imagine. companies in these sectors might need. There are other people within the team who I bring in, depending on the different needs of the companies. Yeah. So you mentioned quite a lot of things there, but what I want to draw attention to, first of all, you talked about equity and incentive structure, patents, regulatory.
If you talk to a seasoned founder... they automatically just know the gravity. of the decision making, particularly around, let's just say, initial equity split between founders or something like that. Something which a first-time entrepreneur might go, oh, there's two of us 50-50. You must see quite a lot of issues as they develop through a company's life cycle, given that you see people right at the beginning all the way through to right at the end.
When it comes to things like equity split incentives, even patent or regulatory, Can you think about these types of things too early? Are these the sorts of things that people should be getting done early?
the lessons for people early in their entrepreneurship careers that might be first time second time found or let's say first time founders that may not have made mistakes before what are the mistakes that you see what does good legal hygiene and practice look like for an early stage founder with big ambition yeah so i mean i would this sounds like a you know a self-serving plug well it will it will by the way and that's okay
Yeah, having good advisors is key, right? And I think lawyers who work in start-ups are used to helping their clients manage this tension between, we understand that the capital, the cash in that business, it's hard to raise. You want it to go into the business, into the product. So we're sensitive around fees. We don't want to be...
Charging companies for work they don't need to do now or taking, as I alluded to before, you know, a sledgehammer to a nut when a more proportionate approach could be used at the stage the company's at. But I would say that working with.
advisors who really understand the sector and know what they're doing is key because they also won't spin the plates. You know, they've seen it before. They can give you a quick answer. They're not going to go off and spend hours trying to work it out because they've never seen it before. So that would be one. Two would be, you know, I see, and again, it's totally understandable there's a tension between wanting to minimise cash spend in the early days.
There's some areas where it's really worth investing because they are things which can be hard to fix later on. Equity incentives is an obvious one. You know, if you... And the main point there is get the plan set up correctly. And it's about the valuation at which you issue the equity. And if you're issuing equity to people that live in multiple different jurisdictions, making sure that you're doing that effectively. Interesting.
Because they are things you often can't go back and change. Right. What I mean is that if you get, so I've had examples of companies very early stage, they might have employees based in Spain, the US, the UK and Germany. but they're only getting advice on the UK grants. And then they find that they haven't gone and got a 409A valuation in the US and that that gives rise to some problems for the US person down the line. And the basic difference there is, you know, you're trying to get...
People tax incentivised options. You're trying to get this taxed as capital and not income. And so that type of stuff, it's hard to solve later because if the valuation of the company has gone up. and you find that you got it wrong, you may be forced into a situation where you have to reground to the highest strike price. So for me, you know, when I think about these companies, the two most important things in these companies are their people and their technology, the people and the ideas.
You need to make sure that people are properly incentivised through their equity and their comp and that they're looked after. So this goes to that pot. And then the other point is making sure that your technology is properly protected and looked after. And again, there are ways which... without, you know, burning the bank account, that you can do targeted looks at your IP.
I would say one of the things that we often see is a company might get to even a Series B stage before they've really looked at. What am I building? What will I be selling? Where will I be selling it? How am I going to do that? What are the regulatory issues associated with that? And do I have freedom to operate? And you don't want to have taken in a whole heap of investment and spent a whole heap of money to find out three or four years into it that you've got problems with any of those things.
So the earlier you can sort of look ahead and just understand that landscape, the better. So can you give me an example of... streams of work or when you would do them so is it like in the run-up to a series a or a series b for example are are you plotting with that company okay once the series b comes in
here's now what we're going to do here. And I guess that's then an argument for before a raise, you should be engaging people to decide the future rather than doing the raise and then trying to retrofit everything. Is that kind of what you're saying? From day one, and I'll take them separately, equity incentives versus the IP and regulatory piece. From day one. On equity incentives, you're looking at how you get your founders their shares in the most tax-efficient manner.
You're then looking at, do you need to put in place an equity incentives plan to be able to hire people, to be able to attract people? And if so, what's the right form of that plan? Where are those people going to be located? That's a conversation from day one. You might not need to put in those plans immediately, but we're looking at that on day one.
And it's responsive to the company's hiring needs. So if I have two founders and they're not hiring anyone for 12 months, well, we don't need to do that work. We don't need to go to that expense yet. We need to make sure that the founder's shares are properly issued, but we don't necessarily need to put in an option plan. So it is, that piece is driven by the specific company and what their hiring needs will be and where they're operating.
A similar analysis on the IP and regulatory, and both of these things are, of course, iterative, you know, as the company grows. and develops its thesis and its product and more. one would say in a refined manner, or, you know, it might pivot. Often we have to come back and look at these things again. But even on day one, we're looking at, you know, if the company on day one knows.
what it thinks it has, what it wants to develop. And let's take the US. You know, the US will almost certainly be a key market for any of these companies. On day one, we're having a conversation around, do you have freedom to operate? Is this proprietary technology or unlicensed? It's unlicensed. If you sell, what's that look like? You know, do you have control over this in such a manner that you could IPO or exit by way of M&A?
And then we're looking at the regulatory piece as well. Now, particularly in health tech, that can be quite fast evolving. You know, I think the way AI is interfacing with health tech at the moment is a good example of that. So we have lawyers in our team who, you know, are really deep in this stuff, keeping an eye on all that. But we're looking early on saying like, you know, if you came to sell this product. Who are you selling it to? How would you sell it? And what's your regulatory pathway?
This is interesting. So I interface with a lot of health tech and biotech startups increasingly and exits are... interesting, let's just say. There aren't many of them to point to. And there are things like... Babylon that SPAC can almost do well and then disintegrate and disappear. There are examples of people that seem pre-IPO for quite a long time on the health tech side and never quite get there.
certain diabetes ones in the us for example and things like that on the biotech side obviously it happens very different to grow a biotech business as you've said before like there's less Less of an operating business within there and more on ideas and value. But thinking about the exit is clearly important. And I don't know how much people... truly are thinking about their exit and allowing that to dictate how they build the company my question then is
How much should health tech founders have a certain exit in mind or options of exit in mind? And how much can that or should that? influence the way they build their company. and do these things that you've just mentioned. Yeah, it's a really good question. And actually, I was just looking around to see if I could find there is a great report by Silicon Valley Bank 2024. about the current state of health tech in terms of both financing and exits for anyone who wanted to...
Look a bit more deeply at those statistics and hopefully throughout this conversation I'll find it somewhere in my office. But a couple of things. So, you know, macroeconomic activity is cyclical. And so we see, particularly for equity capital markets, And, you know, at the moment, we are in a more challenging exit environment. No question about that, you know.
IPOs for new companies have been very hard to come by in 2022, 23, 24. We're seeing some activity now on the US capital markets for biotech. But it's been a prolonged period of dampened activity for new IPO activity. M&A exit. are also tricky because just because you decide that you want to sell your company doesn't mean someone's going to buy it. You know, as people say, you know, companies get bought, not sold.
And so most companies we work with will have an eye on all options available to them. including increasingly staying private for longer. You know, there are now some interesting sources of late stage capital coming from some private equity players. that allow companies which maybe previously would have been looking for an IPO as that source of large capital.
And in the absence of the ability to do that, other types of funding coming into the market. So that's been an interesting evolution over the last couple of years. We see a lot of companies, no question about it, maybe more on the health tech side than the biotech side, where they're building something and they know that there's only three, four, five players globally.
who really understand the space and who could acquire the technology. And I think when that's the case, you of course have to have an eye on what are they doing. What are they interested in? Making sure that you build those links with their business development teams early. Some people take the view of trying to do pilots with those organizations so they can get closer to the technology and so that you can make sure you get firsthand feedback. on any concerns they might have on the technology.
But building for a specific buyer, look, there's examples of where that's worked. But I think most people come at it from, you know, they're building something because they see a gap in the market. They see a need for it. plays are always safer. Because if you develop something which really is best in class or the new gold standard or a step up or does something that we currently do but cheaper and faster and quicker or better.
That gives you a lot more optionality than trying to build something with a specific acquirer in mind. You don't know how their strategy changes. You don't know whether your product will be successful. You don't know whether they're potentially developing it in-house. So there's a lot of risks around that strategy, I think, of just developing something with one buyer in mind. Yeah. So that's an interesting point because I...
Have you noticed anything in the people that you've represented and the experience that you've got? Have you noticed anything about the ones that are really sick? Is there anything that you've spotted about the founder, the team? Is it? a particular focus is it a particular way that they've scaled or speed that they've scaled or certain problem that they solved or certain customer or certain like
Do you have a feel for when someone has either approached you for representation or you've got them under your wing and you're watching them? Is there anything that you think, oh, hold on a minute, we've got a real winner here? It's such a good question. You'd be an ambassador if this was a clear yes, by the way, I suppose. Well, look, I became a lawyer, so clearly I'm quite risk averse.
It's a very, very good question. You know, I would say first, there's a huge amount of luck in all of this, right? There's a lot of right time, right place, but underpinning all of that. Whatever you do, it has to work. And I know that sounds stupid and simple, but often you'll get to a point in your product development journey, and this is whether you're a health tech or a biotech.
And it just doesn't work, or it doesn't work as well as you hoped it would, or it doesn't work in the way you thought it would. You can't solve for that. You know, so I think most of the companies that really knock it out of the ballpark, I mean, they have something that works. It works really well and it's a paradigm shift. That normally is the now.
startup game is that you often don't know that at the beginning. You have an idea, you start working on it, you hope it will be that game-changing technology. But that's the journey. You know, that's what you're raising money for and you're working it out. And so you hear a lot about this fast to fail kind of approach or, you know, doing pivotal things.
studies or tests or proof of concepts, which allow you to work out really quickly or as quickly as possible, whether you have serious issues with the technology and some of them might be around If we get this to a point where it works and we can commercialize it, how do we sell the product? How do we get it to the end user? You know, really looking at that full chain of...
Is there anything in there which is going to mean that when we get to that point and we look at it, we fail? So trying to look forward and really... going to test all that stuff as early as you can. I think... Very successful companies have that combination of something amazing, but they've probably also spent an awful lot of time thinking about in what ways could this fail? And they've thought about those early. I'd say the other...
defining feature, we see just high-performing, high-functioning teams. Ultimately, it is people that drive these ideas through to execution. I think it's a common feature of just fantastic companies that they have great, great teams at all levels with strong leadership. And do you feel that, how does that come across? Do you get a sense of that from the...
from the people that you interface with, whether that's general counsel or founders that say to you, we have no weaknesses in the team, we're completely happy, is that how you know? Or do you actually see and feel it a different way? I think you see teams, when teams are high functioning, they share ideas easily. They're normally not particularly hierarchical, although there will be leadership, you know, that it's important to share ideas, share thoughts, and certainly if things are going wrong.
to not have a system whereby you can't escalate that to the right person quickly. So we won't always see that, you know, we interface normally with the C-suite, the general counsel, the CFO, the CEO, the chief technology officer, you know, a group of people. I do think that you can get a sense of... You'll get a sense of progress, won't you? You'll get a sense of progress across the board. You do, and you get a sense of how... plugged in those leaders are to what's happening on the coalface.
and how information is getting reported back to them and how you see them interact as a team. So, you know, often we'll sit in on board meetings. which is really interesting. And the best functioning boards are ones that share ideas well. They follow structure, but they're making sure that they really do understand what's going on in the business. They have a group of different people with different expertise around the table and they're drawing on that.
That can be a very different type of board meeting to one where you've got only one person talking or directing what people will say or when people are invited to speak. We do sometimes see it from the sidelines. But, you know, obviously we're not in there every day. I always have huge admiration, actually, for the leadership teams and these organizations.
It must be, it brings a whole different skill set to bear to be able to take a company from, you know, 10 people through to 100 people and beyond. And to manage that and to make sure culture stays good, lines of communication stay good, all the things that need to happen to build a successful company are on track. It's an admirable skill set. Indeed. Meanwhile, trying to build a product and trying to raise money and do everything else, which brings me to my next point.
raising money you describe yourself as a private investment lawyer now obviously that side of it we can talk very practically actually about the now as we sit here in february 2025 with the market how it is you described it as more challenging than normal at the minute with the market how it is what are you seeing in terms of the traits of the successful.
that are successful now what is it that they are doing differently because i think that's the question that i tend to get most out there in the space at events when i'm out and about in my dms which is i get it raising money is tough but what can i do that is different what is it that investors need now Is it risk aversion? Is it path to profitability? Is it everything earlier, more traction, more commercial contracts, more that like, what is it that.
can make me stick above the rest once I go to raise. Yeah, it's a good question. Maybe sort of to look at what's happening now just with the lens of the last couple of years. This is a trend that happened in biotech as well, but very much so in health tech. So when you look back to 2020. and trailing into 2021, you had a lot of non-specialist money flowing into the healthcare and life sciences sector. Because of the focus on those sectors arising from the pandemic. Absolutely.
I don't think anyone understood. If I said I was a life sciences lawyer in 2018, people just used to look at me blankly. But from 2020 onwards, that changed. I'd say, oh, you know, my firm works for Moderna and I'd get it. So, yeah, things change. I mean, your average person developed an interest in vaccine production.
telemedicine because you know we're all sitting at home and if we need to get our medication or see a doctor we can't go and do that anymore so it really um i think changed the face of of healthcare and life sciences in a very short space of time, but attracted as a result of a lot of non-specialist income, which... It has pros and cons, but I think the downside of it is that a lot of those people exited the market when things got tough in 2022.
And so as a result, we have this sort of overinflated view of private financing in those years and the amount of capital that went into a lot of companies. I saw a stat in this SVB report that almost 50% of those companies that raised financing in those years haven't come back to market yet. This is for health tech specifically.
Now, part of the reason is because the people they raised capital from aren't going to put more money into them. You know, they've decided that actually the sector has longer horizons. It's more risky. It's more complicated than maybe they understood. So one, I think we need to accept there's just less capital floating around than there was in those years.
Although if you look at 2024, what makes me happy is that, you know, aggregate investment numbers for 24 are greater than 2019. So, you know, it's not, yeah, it's not as bad as everyone thinks, but if you're contrasting it to... So it's normal if you remove the boolean bust, it looks normal. That's right. It does. You've kind of, you've still got like, at least between 2019 and where we are now, you've got a nice upward curve.
So we should keep that in mind. But fundraising is tough. Fundraising has always been tough for early stage companies. Funds are sitting on historic levels of capital. In order to access some of that, you do need to sometimes be at a certain stage. So if you're a completely new company, you need to be...
looking for sources of capital that are willing to write checks of the size that you need, which often may be very small. And that gives rise then to a smaller known universe of people who are willing to do that. And then in terms of what the investors are looking at, I think... It's always good for companies to really educate themselves about the specific investors they're approaching and what their themes are at the moment. What are they interested in? And sometimes they will have very...
tightly defined parameters around that. They'll say, oh, well, we don't do the following at all. We don't want to do that. Or we are very interested in the following at the moment. So I think understanding that's important. And then... It becomes a little bit of, I think they're looking for everything all at once. And so I know that there's this conversation around, oh, did we go from... you know, just pure revenue to profitability. And that's the thing that changed. And in all honesty.
Funds are looking for something that's going to give a return to the fund. So you've got to convince them that your company is one that can scale and return a multiple to that investor of the amount invested. Now, how you do that, how your company does that versus how the company sitting next to you does that are going to be different. You've got to think about that. If they're putting in 10 million pounds. How are you returning them a multiple on that investment? And I think.
Maybe not enough companies to think of it. in that way i would agree actually so i actually see this from the communications and marketing side that i find that People want to put everything into a template or a cookie cutter. simple answer of okay all the investors are looking for this or this type of investor is looking for this and this one is looking for this and i'll and i've got my sequoia 10 slide pitch deck that will go problem solution like
And it's funny because from a comms and marketing side, it's the same advice. It's tell your story in whatever order makes the most sense to the person you are telling it to. whether that's an investor, whether that's a whether that's a partner, whether that's a user. it's design if it's a pitch deck okay pitch deck but the pitch deck again is just a visual aid to the story and it's tell the story that can take that person through so that at the end they feel
And it doesn't matter the order. It doesn't matter. And that's what's interesting. Oh, you can put this slide before this slide. It's like, no, no. Get that out of your mind. It's not slides. It's not specific bits of an order. It's tell your story in the way it needs to be told that gives you the most value. Because it will include things that, to your point, other companies won't matter to them to talk about.
the regulatory in this amount of detail but actually if that's your differentiator and that's where your motor is then actually you need to really go into detail on there and then you need four slides on that in this structure rather than You know, some that might have a third of a single slide on it or whatever it is. So, yeah, I totally hear you on that because we definitely see it from a comms and a marketing side. Yeah, I don't know about the consequences, though, in terms of...
in terms of what you see. Yeah, I think a similar thing. You've got to think about these institutional investors. In fact, any investor is getting hit by a high number of requests, lots of pitch decks. Just helping it. Help make the investor understand the company as quickly as possible. So I'd say that in terms of the first outreach, your really long pitch deck.
It might be appropriate for the follow-up meeting, but it's too much. You really need to try and distill that message about why should they be interested in you? What is your value proposition? And really, if you probably can't get that onto one page. you may have lost them, which is not to say that, you know, there won't be opportunities to dig into the detail later.
But you've got to find a way to get your message across quickly. So I want to talk a little bit about... business models that you're seeing and let's talk about health tech now because biotech is a very different type of business But health tech, there are lots of... business models in health tech there are lots of customers in health tech actually
And there are companies that it seems that we're in a phase where companies almost have to have multiple business models going on, or at least they're starting out with multiple business models. But I'm interested in what you've seen about... the business models that are successful, even reaching that. you know acqui hire m&a exit or indeed like dare i say ipo exit if you see any of those in the health tech side
But what are the business models that make sense? I guess the reason I ask is because like, We're about to see so much skinning of generative AI to do something or other in healthcare, which... which seems like it could have substance when we're talking about AI agents and huge agent models that are doing lots of different things. And there can be a depth to it.
But I think the barrier to entry for simply skinning ChatGBT to do something menial is going to be huge. We're going to be doing this ourselves pretty soon. Like clinicians are going to be able to do it themselves. if they can't even already. And so I'm wondering, what are actually the business models that are working that you've seen? What do you see at that larger level where you're reaching an exit? Yeah, because I just think there's a lot of noise.
I think there's two things. One, just to touch on that, let's touch on the AI point and then let's talk about business models. So in health tech, I think it's important to distinguish. The use of AI in a business to improve productivity and efficiency versus the use of AI in a business to assist clinical decision-making. Absolutely. The latter is regulated. The former often isn't.
It makes complete sense to use AI to sift huge data sets and to improve efficiency in whatever your data set might be. You know, is it a patient onboarding system or are you... a clinical development or a diagnostic company or whatever it might be. Effectively, you're using AI to improve productivity and efficiency. I think the latter, you know.
a high watermark in rapid adoption of things which had before then taken a very long time to be adopted. People weren't doing telemedicine consultations. It was really hard to convince someone. to do that rather than go to their GP. clinical use of AI, getting doctors to trust it and getting patients to trust it and the fact that it's regulated.
So, you know, we're still working through that journey. I don't have predictions about where that will go other than to say that historically the healthcare system has been a slow adopter of technology for good reason, right? The stakes are high and it's highly regulated, again, for good reason. The productivity and efficiency part of it makes complete sense. We live in a world where the delivery of healthcare services...
is increasingly expensive. Governments can't afford their healthcare budgets. They need to find solutions to be able to deliver healthcare to a broad range of the populace. at lower cost than we currently experience. So anything that plays into that theme gets a lot of attention. But in terms of business models, again, it comes back to our conversation about What is it that makes your company special? The business model is going to be different for every different company.
And it's probably going to be different in different jurisdictions that you're selling the same product into. I mean, so we hear frequently in the UK that the most important conversation for selling into the NHS... Whereas when companies go to the US and they might then be interfacing directly with practitioners to be the... customer or the person who needs to advocate to buy the product. They're saying, how will this make me more money?
And I hear this again and again. So, you know, different jurisdictions have different provider-payer models. And you've got to work out what's the best model for selling into that jurisdiction. And then layer on top of this, are you a SaaS business? Are you a SaaS plus product business? Are you giving the product for free? Are you leasing the product? Do they pay for the product? You know, so where's the value? And I think... That is iterative for companies. I think there's a bit of sort of
stock it and see, you know, you take it out to market and you see what works. Obviously, there's a lot of peer groups, you know, so you can look at your peers and see how they're doing it. And then to your point about multiple revenue models, I think we see this already in companies that are selling multi-jurisdictionally. They might have different business models in different jurisdictions.
So there's no easy answer to that one. And I think the companies that I see being... thoughtful about it, are mostly looking to hire in people to their teams or they're getting advice. So they're thinking, I'm going to go and hire someone out of maybe a large med device company. who has sold a similar product to me globally or managed a global sales team. And I'm going to get them in.
to help me work out how to do this. So that acceptance that you don't know what you don't know and go and find someone who's done it before. Absolutely. Absolutely. Can I ask you about actually doing the deal of getting investment in? I want to talk to you basically about term sheets and about... Well, you've worked on both sides of the table here. You've worked on investor side, you've worked on investee side, startup side. What are the keys to a good deal?
What are the common pitfalls that you see? where you think, I guess, a bad deal has been done for one or the other? I guess mainly from the view of the startups here. Yeah, I'm interested in your perspective. Yeah. I mean, look, in the UK, we're fortunate because we have the BVCA, which stands for the British Venture Capital Association, who... recently, has always done this actually, but recently revamped the document suite, has gone through a consultation process with both investors.
And law firms have spent a lot of time doing VC work, both on the founder and the investor side. to come up with what we hope is a... Happy middle ground starting point for a set of finance and documents. I didn't know this. That's great. The genesis behind that really is to drive down cost. You know, we just can't. spend a fortune doing these deals, particularly in the earlier stage deals where you just want to get to agreement as quickly as possible.
Those documents don't exist in a lot of continental jurisdictions, although we are seeing a trend to try and use the same set, but made such that they can work in places like. Germany or France or the Netherlands. So I think that trend will continue because I think everyone really ultimately wants the same thing here, right? We want to get the money into the company so the company can use it and we want everyone to have.
fair protection that reflects some sort of middle of the road position. You know, I think the days of... Or at least I find this unhelpful on a deal where people talk about founder-friendly or investor-friendly terms. It kind of puts both people at other sides of the boxing ring when actually we want everyone in the middle. Interesting, yeah, that's a good point. And so, you know, of course terms need to be...
founder friendly, you 100% need your management team properly incentivized. They need a fair deal or they're not going to do what the investor needs them to do to deliver value in the business. So I guess I find advisors who talk in those terms unhelpful. Like I think our job is to bring people together, find a solution that's fair and navigate towards that as quickly as possible.
Keeping in mind, of course, the concerns everyone's going to have, you know, founders going to have concerns around their equity. You know, it is usual in venture capital transactions for some of that equity to be at risk if someone leaves. You know, we want to make sure that. That's not an outsized risk for the founder. Otherwise, again, they're not going to feel they've had a fair deal. They're not going to be incentivized to work in the business.
So one thing that I see go wrong, I think, is that, like trying to deviate too far from the norm. You know, go to advisors who can help that. the parameters for you and say all right well we see a range of options that exist within this bit but try not to go outside of it and there's a couple of reasons for that
One, I think you'll find that you spend an undue amount of money creating a very bespoke arrangement. Two, when you come to your next financing round, people often look at it and just go, what is that? That's not what I expected to see. That is unusual. And consequently, I don't. like the look of that company i'm dumbing that down massively but you know i think it is one of those things where maybe having followed the usual financing path and norms and structures.
for someone to come and look at your company and say, great, that all looks like it's set up properly. It's exactly what I expected to see. And the only conversation now is about valuation. re-upping management. That's great. That's where you want to be. You don't want to be in a world where they're like, I don't even understand how the exit. model works, you know, and I'm going to have to spend a lot of time getting to understand it.
Or on a slightly different point, this is not a fundraising point, but, you know, they go into the data room, the commercial contracts have not been well organized or recorded or, you know, and they find it hard to just quickly. understand whether this is a company that's set up in a way that they want to invest into. Those things, again, it goes to just the number of companies looking for finance. It can sometimes be a low bar.
to put an investor off. So you don't want any of that stuff that you could have fixed or done correctly. to put someone off. You need all of that just to be background noise. so that you can focus on the things you should be valuation technology um incentivization so that's really interesting do you have have you had much to do with spin outs because I know that exactly what you've just talked about seems to be an issue with universities and the terms that are placed.
really early on by universities on people. And there's one in particular that keeps coming up that seems to be if you've even had a thought on their campus, it belongs to them. let alone started a company with anything to do with their equipment.
um or space or even if you're just listening to someone from their university they try and take equity or and quite a lot of it i mean i'm just wondering if you've got an opinion on that because i i wonder if that if that's something that reaches as far as you guys even, or whether the founders actually just lose, lose all motivation before they even raise their second round.
Yeah, it's a really interesting question. So a couple of things. What's interesting, especially working at an international law firm, is like we look to the US and we see... how they do this. I'd say they've just got a more developed way of getting technology out of universities. And one of the, and that's just because this has been going on over there for longer, right? It's not, that's the only reason. They've had more time and more use cases to develop what's become quite a refined system.
And there was certainly a move over there to come up with a standard form document for taking technology out of a university and into a new cove. So to do a similar thing that we've done on the financing documents to try and have a standardised document. so that every academic institution you go to isn't presenting something different on that. The economic terms they ask for might be different, but, you know, that we had at least a good starting point for that out license.
As far as I'm aware, there is a similar project. on foot or underway in the UK. I can't speak for European jurisdictions, I'm not sure, but I certainly know that there have been conversations about trying to do the same thing in the UK. to try and help standardise that process, because it does remain the case that it takes too long and it costs too much to get technology out of an academic setting.
So 100% is an area for improvement in the industry, I think, in the UK that requires a conversation between all of the stakeholders. The technology transfer officers of universities often are one or two people, you know, they've got a huge job. And so it's not to suggest that there's any fault there. I think it's more about coming together as an ecosystem. How do we make sure everyone's properly protected? How do we make sure everyone's properly incentivized to be doing this?
and then compensated if things go well and trying to bring some standardization to that. Is there anything that we've missed that you want to talk about or touch on? We have covered a lot of grounds, to be fair. We have covered a lot. We have covered a lot. You know, I think I would say to companies out there still fundraising, like don't lose hope. Like it has been really tough. but we see some green shoots. Remember it's cyclical.
The equity capital markets in the US are starting to open. You know, we have seen some at least biotech IPOs go out this year. That market will come back again because it does. You know, history tells us that that's cyclical. It will come back. And when it does... It has the following impact on private capital. People invested in those companies get to exit after the lock-up period and hopefully make money. And they get more confident then about reinvesting that money.
and or when they're investing into later stage companies, that if an M&A didn't come up, there's the ability still for them to exit the company. Well-functioning capital markets do have an impact on how venture capital behaves. And so I think, you know, let's see how that landscape continues to improve this year. alternative sources of later stage private capital. This is a big trend. We see more and more private equity houses working out how they get exposure to healthcare and life sciences.
have an impact again on the flow of the early stage private capital. Because then even in the absence of an active public market, if you know that if you grow a company to a certain size, there are pools of capital that can come in and either take out your stake or invest or keep scaling the company. attitude towards investing early becomes more robust. So I think when we see that private investment market soften,
It's always linked to concerns about how am I going to exit this company? How am I going to grow this company? It's not about the... fundamentals of the company per se. Sophie, it's been an absolute pleasure. Thank you. Incredibly practical and useful, this. I feel like I've grilled you. I've got a load of free legal advice here that I'm now just going to beam to 10,000 people that are probably going to listen to this.
It would be remiss of me not to ask you that for those people that have... listened to this and thought i could do with getting some representation here because it is day one i'd like to get my idea protected i'd like someone competent with me on this journey or indeed people listening that are further down the line that like what they hear and want to get in touch with you what's the best way for them to do so
Yeah, well, thank you for asking. You can find my details on the firm's website. So it's Goodwin, which is spelled Goodwin. G-O-O-D-W-I-N. And I'm up there, Sophie McGrath. And you can find my email and my phone number. It's my number there. Perfect. Thank you. And thank you for summing up and for the positive uptick at the end. as you quite rightly put, you know. good businesses will still succeed. There are biotech IPOs, markets are cyclical.
Cut your costs, stay alive, raise when it's a little bit better, maybe. That's probably it. And make sure you check the term sheet. Cool. Sophie, it's been an absolute pleasure. Thank you. Yeah, thank you. Thanks, James.
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