University-based startup founders know quite well the difficulty of attracting executive talent to their companies at the stage prior to raising capital that can be used to support operations. Some startups are fortunate enough to have won STTR, SBIR or other types of grants, but these awards come with allowability and eligibility criteria which vary by the type of granting agency and which limit the use of such funds.

The costs of building the business itself, therefore, must come initially from seed investments in the Friends, Family and Founders round, and eventually, from angel investors. Although angel investors may be some of the earliest investors in your startup, their due diligence processes can be as thorough as that of Venture Capital groups. Angel investors may have dozens, or even hundreds, of items on their due diligence checklist. Some of the most important categories on this list will be the market opportunity and the structure and quality of the team.

Market: You may have a reasonably good idea of what products exist in the market but your investor will want high clarity around what specific unaddressed clinical problem your product solves, whether that solution is one that a great number of buyers will want to pay for, and whether you can build such a product in a fashion which allows you to generate an attractive margin.

Team: Investors follow the adage of “Bet on the jockey, not the horse”. This means they are looking for exceptional management teams with decent ideas rather than exceptional ideas with decent teams. They know that an exceptional team will be able to pivot when necessary and otherwise build upon a decent idea to deliver a great investment opportunity.

These factors point to the need of having a seasoned entrepreneurial executive on the team as early as possible. Without having the capital to pay an attractive salary, you are relying on the ability to attract this talent strictly with equity compensation. Such executives are out there, but they are few and far between. When considering the infant maturity stage of our southern Arizona Lifesciences ecosystem, this challenge becomes significantly greater.