Traction And Sales Pipeline in Early Stage Biotech

Sebastien Latapie is a Principal at Avant Bio with over a decade of experience in healthcare, technology, and venture capital. He specializes in life science enabling technologies, managing all aspects of the investment process from sourcing and due diligence to deal negotiation and portfolio support. His background includes strategic consulting for Fortune 500 healthcare companies and biochemistry research. He holds an MBA from Columbia and an MSc from McGill University.

Click here for a quick one page summary of this session.

Please note this is a lightly edited transcript that may contain errors.

Alina: Use of Funds is a monthly series and we're really focused on sector specific fundraising questions. This season is focused on biotech and life sciences and we're diving into questions around traction, commercialization, risk mitigation, et cetera. And so today is our inaugural session. and we're really, really pleased to have Sebastian Latapie with us. And I'll let Sebastian introduce himself, but just really quickly, my name is Alina Serebryany. I'm also joined by Max Schilling and we are both from Weave and Pitch where we actually specialize in helping startups in the life sciences, health tech, climate and AI navigate their fundraising journey. So I'll just kick off by having you introduce yourself, Sebastian because I'm very excited for the topic today around both traction and sales milestones. And how do you actually navigate communicating those, in early stage life sciences and biotech companies.

Sebastien: Yeah, absolutely. Great. Well, yeah, thanks for having me. And, and great to be part of the launch of this series, I think there’s a ton of value in terms of what you're trying to accomplish with this. So, just very briefly, my background started in biochemistry at McGill. So I studied up in Montreal. I moved to the business side of things and worked in consulting for four years, where I focused on the intersection of innovation and strategy, really helping our clients find ways to be more innovative, and that meant a lot of different things to a lot of different clients. But it was through that work that I got exposed to the world of venture and entrepreneurship. So, I went down to New York to do my MBA. And after that I joined, so this in 2019, I joined first time fund Dynamic Capital where we really focused on the life science industrials and invested in 13 portfolio companies, 12 that are still active. And since then we’ve launched a new fund called Avant Bio. So we're an early growth and growth stage fund really focused on investing in all the enabling technologies for life sciences and providers as well as healthcare systems. And so I have a kind of a broad mandate of investing in all these enabling technologies. So over the last five years I've seen thousands of pitches, met with thousands of entrepreneurs, and yeah, super rewarding role.

Alina: Awesome. Well, I'm super excited because we come across a lot of challenges and issues and questions when it comes to how companies think about traction and their sales pipeline in the early stages. So I wanna just dive straight in. I'm curious if we're talking about traction in particular, do you tend to have a specific methodology for evaluating traction? Is it stage by stage or are there specific themes that you look for within the companies, especially let's say at the seed and Series A stages?

Sebastien: Yeah. I think there's definitely a lot of different things. So we have the mandate to invest anywhere from seed all the way to pre IPO. So we do see pitches across that range, but I'd say it definitely is stage dependent and different stage companies will be at different kind of bars that we want to see from a traction perspective. And when I break it down, I think at the earliest stage, so at the pre-seed stage, really what we're trying to understand is that there's a unique technology usually is what we see. So something that is meaningfully different from what else is out there. Usually. It's really tech differentiated. They validate some of that technology, de-risk, some of it. But they have some sort of interesting platform, interesting technology that is orders of magnitude better than the alternative out there, allowing them to do something that others can't. So that usually will be kind of. Pre-stage, what we kind of wanna see based on, can I, what we've probably done in the past.

Alina: So, sorry. Yeah. To, sorry to interrupt, but when you say, okay, they have some sort of technological mode or something unique about them, is there a specific signal or metric that you're looking for to communicate that? So is that like, okay, patents or is that, are there specific components that you wanna see to actually really make that case?

Sebastien: Yeah. Again, I, it depends maybe a little bit on where the startup is playing. I think patents can be important in certain areas. If we're looking at maybe a hardware component or some specific technology to have that defensible moat, there are places where it's more of a trade secret, and that's really what is differentiating there. I think when it comes to life sciences though is when they're able to compare the technology to a broader kind of landscape of what else is out there, and they have clear metrics that demonstrate the superiority of the platform or their technology there is a slight trap to that. Oftentimes we'll see something is significantly cheaper. And usually that kinda raises a red flag for me. Is that really the only value proposition that you're providing? Being cheaper. Because that's not always defensible once you get to market from a commercialization standpoint. So that's maybe early to think about when you're at the pre-seed stage, but definitely things that we're looking at at least at that stage.

When we move to more of the seed stage companies, usually this is a time point where traction for us is important. We wanna see them engaging with different customers, having maybe that early traction with a range of different customers and. By that timeframe, when they're raising the seed round or, or going out there, usually they have a unique insight. So they move from kind of just the technology and having interesting performance that may be better than others to really it's really more about they've identified a clear pain point that they're solving for. And so through those conversations, through those discussions, what they can show me is that they've developed that unique insight and they've narrowed it down to a true value proposition. That they think they can start scaling out. And so that seed investment oftentimes will be to help them do that, to help scaling, scaling that insight and kind of targeting that customer group that they feel is most relevant to them.

Alina: Can you speak again to, like, how does that look in terms of when that's quantified in some way or another? You can talk about it relative to hardware enabling life sciences versus software versus, you know, even therapeutics. But I'm just curious.

Sebastien: Yeah. I think it's when we see different kind of business models for, for the different types of companies that we're, we're working with. If it's like, for example, a, a software platform, usually they may have been offering a range of different solutions or different pieces, and they were going in one direction, but based on the conversations they had with some of their early customers, they've narrowed it down or put in some additional features that made sense for that customer. And it translated to another group they were speaking to. And so it's something where they've taken in that feedback from the different customers, incorporated it, and maybe narrowed the scope of things that they wanted to do. And found that it resonated maybe with another group that they were speaking with as well. So I’ve seen that in the software.

I've seen that also on the hardware side where they had a different, maybe sectors of the industry they were going after, but realized if they developed one piece it would fit better with them. And kind of pushed on, pushed on that. Maybe at the series A stage, the next level from a traction perspective for us is that's usually when we wanna start seeing that repeatability of the sale. So you found that insight, you have that unique insight. You developed that with a pre-seed and with the seed funding, you start creating this repeatable process. And so when I'm speaking to you, what I wanna see from a traction perspective, at least it's important to us on the commercial side, is have you developed a methodology that's showing that you have a repeatable process? Have you found that customer archetype that you're actually gonna go after and now you understand how to start scaling that what becomes something that maybe used to take six weeks to get to a sale is now taking three weeks to get to a sale and you're starting to be able to, to iterate that process more rapidly. And so that'll come through both in terms of the kind of sales pipeline and also kind of revenue. I'd say for like revenue thresholds, it again varies a lot by the type of company that we're working with and the markets that they're going after. If you're a company that has a lot of velocity and is maybe a little bit early in the revenue, but going after a really big market. That could be compelling if you're maybe going after a somewhat smaller market. There may be a bit of higher expectation in terms of what that revenue threshold is for a series A stage company. But those are kind of the things that we’re thinking of at the series A in terms of how do you show traction.

Alina: Absolutely. And you mentioned velocity, are there specific indicators of velocity that you often see that make you think, okay, I understand how this was quantified.

Sebastien: Yeah. I think maybe I can illustrate with an example of a company we ended up investing in. So it's a software platform in the digital pathology space. And so I think they were at a Series A stage and they had early revenue in terms of their traction when raising their Series A. And they did kind of three things really well in terms of highlighting their traction. And [their example] kind of aligns with their evolution from different stages. So first, what is that technological differentiation? What is that unique insight that you have and what is that repeatability piece? So from a technology standpoint, this was something that they, they were able to move data files or image files really easily and seamlessly between different groups. And through that they were able to find a wedge in the market with pathologists. And so the traction that they had was, they started in the education market and ended up reaching over 50,000 pathologists with this platform. And it was essentially kind of a free for pathologist platform. So the business model wasn't there yet, but they had shown the uniqueness of their technology and really found that wedge with pathologists. Once they started doing that, they started moving to more of a sales model where they're targeting more the providers themselves. And so it was good to see that. They could translate that wedge that they had to selling to these providers and these hospital systems.

And they showed kind of repeatability through that in terms of they did it with one system and then were able to go into another system. So that gave me confidence. They're gonna be able to do this with all the different hospital groups that are out there. And more specifically on the velocity piece was. The founders really showed that they were learning, they kept learning. And maybe the first big contract that they got took over a year to negotiate and get to. But as they started kind of productizing their platform and repeating those sales, it came down to about three months. And so that's the velocity component in terms of being able to accelerate that. They did that all with really limited resources as well, which was a nice plus in terms of what got us excited.

Alina: Absolutely. I definitely wanna go into more questions about sales cycles in general and how we look at those. But just before we wrap up thinking about traction, I wanna ask, are there specific red flags or errors that you see when founders are trying to communicate their traction? Often, you know, especially in the early stages, a lot of founders worry about needing to showcase traction and maybe not having what they think investors expect. How do you think about that?

Sebastien: Yeah. I think at the end of the day the most important part is really, especially if you're at the earlier stage, you're building a relationship with the founder. And so trust becomes the most important component. And so things that I see sometimes that are maybe red flags to me are I think they're trying to over communicate or over promise or embellish a few things that maybe aren't there. And so those things can be just by omission or errors or not seeing things the right way, but one that I see a lot is maybe not clearly understanding how you're tying your early traction in some of your sales to the overall opportunity in terms of a TAM. And so you kind of have a maybe too naive approach to TAM in terms of it's a huge market if we get 5% of it, this is how much, how we become a billion plus company or whatnot, versus really showing you that you understand. What is that customer segment that you're going after? The bottoms up approach to growing that and tying it together to the overall opportunity. And just being very honest about that and then seeing how different ways that can grow. I think that shows me that you really understand that problem set that you're going after and that value proposition that you're delivering.

The other red flag that we see sometimes is just misrepresentation of revenue. So I know revenue can be something that people wanna see and they're pushing for it, but when we see things like, cumulative revenue. So it looks like it's going up into the right, but when you dig into it, you realize, oh, it's just being stacked and maybe it's a bit flatter. That's a fly that makes me think they're not being really forward in terms of what they're showing. Or sometimes we'll see grant revenue being part of that revenue bucket. It's awesome that you're getting grant revenue, and I think it definitely de-risks some of the fundability of the company. But don't put it in the revenue bucket because that's not a, it's not part of the business model down the road. So. Those are the kind of things that we see from time to time as well that are things to avoid and kind of raise a question mark for me in terms of the trust between the founder and who they're gonna be raising from.

Alina: Actually, speaking of that, you know, when we work with a lot of either life sciences or big tech companies, grants are a major component of their early funding, but sometimes their entire traction is just made up of the grants that they've gotten. How do you think about that?

Sebastien: Yeah, I mean, I think that's okay. I think the grant part is good to have, I think it's again something that allows you to de-risk some of the company growth. I think the part that's important is that grant funding is going towards a specific program or part of the business that's gonna translate to the actual customer side of things. We've seen a few companies that maybe take grants that are too far not related to the actual core value that they're trying to bring. And so maybe it's building out a little component for a different indication or something that's not exactly relevant for what they say they're gonna do. And so it's money coming in, but it's not necessarily going to the right thing or de-risking or addressing some of the risks that you're trying to minimize, essentially. And so it's coming in, but it's not driving the company forward. Those are the times where it gets a little concerning. Otherwise, I think that it's okay to show that you're a good grant writer and getting some of those needs to translate back to how do you do that with customer essentially.

Alina: Okay. Switching to the customer side, especially around the sales pipeline. I think some of the companies you work with in technologies that enable the life sciences often are selling into pharma or potentially hospitals or providers. And obviously those are often long sales cycles. How have you seen companies navigate those first contracts or pilots and what's the best way to communicate that?

Sebastien: Yeah, at the end of the day, it's tough. These early, early ones are really hard. And so I'm always impressed when groups are able to get those in place and get those positioned. There's no easy hack to it.

At the end of the day, it comes down to are you really solving a problem for your customer? And are you really nailing that value proposition for them? An example of this is with a company that was raising a Series A recently and they're in the delivery space. So their whole platform was around a novel delivery mechanism. And they're selling to biotechs and pharma as an alternative to what's out there today, so primarily AAV and Lentivirus. And so this is kind of a novel delivery approach, and so there's obviously skepticism from some of their potential customers in terms of does this actually work? And through their initial work, they really identified that if it works was one question. But the other question people had is how does this actually scale if it does work? And like, can they deliver this or not? And so something that they did that was very clever was, they really focused on being just this delivery part. They didn't wanna be the scale up or the manufacturer. And so they reached out to all these different CDMOs who they could potentially tech transfer and identified the three best ones based on speaking to over 25. And had a process in place to be able to make that tech transfer possible once they got to that stage with their different customers. So that reduced the barrier to adoption for these groups. And it allowed them to sign up to 20, I think it was 25, different pilots in terms of people who were willing to test this out now. And so just understanding the problem that they were trying to solve for their customer, that it wasn't just, oh, this is a novel delivery that's gonna allow me to get my payload to where it wants to go, but also that next step. And really listening to that, I think was a big unlock for them there. So that was impressive in terms of how they approached that. But it comes back to solving that problem for the customer.

Alina: Yeah, absolutely. And once, let's say individuals do get those initial pilots, how do they actually successfully build on that? Because, you know, sometimes we see that you got the pilot and then it kind of stagnates and there's a little bit of a challenge communicating that further conviction. Depending on what it is, we see that in manufacturing before you've actually been able to scale up your manufacturing facility but more broadly we see that in lots of different verticals.

Sebastien: Yeah, for sure. And, in particular, when pharma is your customer, they wanna try out new technologies and so I’ve seen some cases where it's death by pilot where you're signing all these different pilots. But there may not quite be that conviction there from the other side. And so they (startups) are excited to sign this pilot, and then the customer does some of the work. Maybe that work takes a bit longer 'cause it's not a top priority. But it feels good from your side as an entrepreneur because you're like, oh, we're gonna be getting some data. We have this partnership or whatnot, but it maybe doesn't quite translate to actual conviction from the customer side. And so the best companies and startups that I've seen in terms of what they're able to do is realize that quickly. And I think I've seen two models that show me that they're onto something here. One is really knowing that for some of these different groups and these different types of customers, especially if it's a big pharma, you have to be able to sell to multiple stakeholders. And so you have to be able to translate that value proposition to these different stakeholders. There's a part where you need to be able to sell the science, so usually that's the technology part. And usually that's the easier part for entrepreneurs to do who are coming to the space because of their background usually is in that space. So they're excited to talk about that.

The next step is maybe you have to have that relationship with the champion as well. So the person who's gonna actually be running this pilot and this project within the organization, and you gotta be thinking about what's the value proposition for them? What does it do for them? Does it allow them to get their promotion or move into a new part of the organization or drive something else forward?

And the third is probably trying to have that relationship with maybe the key decision maker from a from a financial standpoint. So who's approving those budgets? And so as a founder, a CEO especially, you have to be able to talk all those different languages. So that's one that I've seen that usually helps you drive those projects forward and really go from pilot to the next stage.

The other big approach I've seen that indicates success is you're able to negotiate early on the type of contract that you wanna have. So I saw this again with a formulation company. They had a platform that allows you to develop these different formulations. They were raising a seed essentially and what they had been able to do through their platform was negotiate not only the evaluation of the technology, but if we hit certain milestones, we'll be able to move into phase two and we'll have different milestones in terms of payments. All the way down through commercialization. So they had negotiated all these different points and the CEO, she said that they gave in on quite a few different points, but for them what was important was to get all that (long term structure) in place. And so it kind of creates a blueprint for them when they go to their next customer or the next group they want to speak to, to say we already negotiated these kinds of things. This is our deal structure. And it goes to show kind of that they're really able to capture some of that value. So they have that baseline that they can improve upon as the technology gets more validated. But usually a really good sign in terms of what they can do.

Alina: Yeah, absolutely. Charting a path forward post pilot makes continued traction a lot easier. I wanna ask more broadly about showcasing a sales pipeline. We find often that there are a lot of different opinions about weighted and unweighted sales pipelines. People weigh them differently. What do you actually look for? What are important indicators? What are your expectations?

Sebastien: Yeah. This is probably gonna be most relevant I would say, for Series A stage companies again but we see a lot of different things. Some people don't have anything. Usually that's a little concerning. Some people maybe have slides on PowerPoint, which maybe isn't optimal, but then you have all degrees of evolution and we've seen some really good things in just a simple excel. Just some really good things that are more CRM related in terms of their platforms. But the most important thing we're trying to get to when we're doing this diligence, and this is usually deeper in diligence when we're with these companies, is we're trying to understand that repeatability piece in terms of are they, is this something that can kind of, they can put fuel on to accelerate and grow? And do they understand what those different stages actually mean. Usually we do like to see a weighted pipeline. We do like to see different weights associated based on probabilities that they've seen from the conversations that they’ve had. It allows us to also understand their underlying assumptions for the types of customers that they're speaking to in terms of where they have to go. And the really good ones are constantly evolving this, this weighted pipeline essentially. And I've seen that a few times where they had a really clear understanding of how things are evolving, when they're gonna evolve, how they've adjusted that percentage in terms of what it meant when it was at that stage.And that was really, really valuable in terms of seeing how they were thinking and they were really commercially minded overall.

The flip side of that, in terms of red flags that we see is for example slides where you have some logos, if I ask you about a logo, you should be able to tell me what it's about or what the project was and the scale of the project. And there's been a few instances where I know the logo, so I go speak to the person at the company if they're aware of this and they say, “we tried their sample once and that was it.” Maybe don't put that on your slide or in your funnel. And we see things as well where it is like too many steps, so it makes it look like things are progressing through the funnel and accelerating, but the reality is they're not properly weighted or it's not a true representation. The other side of that is a stale funnel. Sometimes we'll ask about something and hear, oh this was a group we spoke to a year ago. Nice to have, but maybe not relevant anymore for where you are. So those are kind of the different things that we like to see in the funnel. But at the end of the day, it's really to understand your commercial mindset and, and how well you actually know and are speaking to your customers.

Alina: Wow. We have fled through a lot here, both on the traction and the sales pipeline side, and I just want to thank you, Sebastian, for all of these wonderful examples. I know there are so many subsegments under life sciences and biotech that it's very situation dependent, but I just want to ask, do you have any closing thoughts?

Sebastien: I mean, I think the overall piece is it's a really challenging job. It requires a lot of grind to be a CEO and founder. The best ones are always looking to learn and always trying to learn from what they're doing. And that translates super well into the product that they're offering and the value proposition that they're delivering and being able to nail that piece. So I think perseverance and grit is a really strong characteristic of founders and that really carries a lot of weight, especially at the early stage.

Alina: Awesome. And can people get in touch with you in any way or how can they learn more?

Sebastien: Yeah, for sure. We're, our website is avant.bio. Feel free to reach out to me at sebastien@avantbio.com. Find me on LinkedIn. I try to be as responsive as possible, so happy to connect with anyone.

Alina: Awesome. Well, thank you so much. As I said before, if you weren't here, this is our inaugural event of Use of Funds. We're going to have these on a monthly basis. If you wanna sign up more you can either go to our website, weavepitch.com or lu.ma/useoffunds where we'll share upcoming events and recordings of the events that we put on. So thank you so much. Thank you for your time, Sebastian, and thank you to everyone who is attending.

Sebastien: Thank you, Alina. Thank you, Max.