Exonate is a small research business based in Cambridge and Nottingham, developing eye drops for the treatment of diseases at the back of the eye.

When researching diseases caused by the growth of new blood vessels for his PhD, the company’s founding scientist, Professor David Bates, discovered that to make a new blood vessel grow – for example to heal a cut – your body switches on a protein called VEGF – vascular endothelial growth factor – which it then subtly changes to stop the growth of new blood vessels.

It’s this discovery that enabled Exonate to form a company and begin development of a revolutionary treatment that uses the body’s own way of dealing with new blood vessels in order to treat diseases.

The Business Finance Guide met with Dr Catherine Beech – a determined business woman, sparkling with enthusiasm and extremely confident in the science – at Exonate’s headquarters in Cambridge Innovation Centre.

Starting with a blinding problem

When developing the business plan, Exonate’s vision to profoundly improve the lives of those suffering from vision loss focused on issues related to the current treatment for diseases at the back of the eye. These include Diabetic Macular Oedema, which affects about half of all diabetes suffers, and wet Age-Related Macular Degeneration, which affects more than 170 million people worldwide and is the leading cause of blindness in the developed world.  Both of these diseases, although caused in the body by very different mechanisms, create new blood vessels at the back of the eye which can cause people to lose their sight.

The current treatment for these diseases are expensive, effective in less than 40% of patients, and injected directly into the eye monthly – something that is unpleasant for doctor and patient alike.

Exonate has developed formulations that are administered as eye drops; offering improved quality of life for patients at a much lower administrative cost, and stopping the need for eye injections which are a huge burden.

A lean business model

Funding a medical research business is different from funding other types of business.

To develop a drug usually takes more than ten years, and typically a business that is set up with one particular drug or treatment in mind is unlikely to make any money at all whilst in the development stage. Exonate needed to find a way of funding the business, knowing that the revenue and therefore the real value in the company would be generated down the line when their products are approved and available to treat patients.

Debt finance is only available to businesses with assets. As Catherine says succinctly, “You can’t really do debt financing unless you own something. My business model was to not really own anything, and to keep the business very lean.”

The structure of the company was always to remain lean and to try to utilise the funds in the best possible way to deliver value to shareholders. Exonate’s headquarters are in the Innovation Centre in Cambridge, and their laboratory facilities located in the University of Nottingham, from which they rented all their equipment. With no assets to their name, Exonate did not have the choice of debt financing.

Early days for Exonate

When the founders established Exonate, they needed to find a way to fund it that would allow them to do the early experiments to demonstrate that they could get a drug to permeate to the back of the eye – something that other drug companies had previously failed to do.

Initially they approached the University of Nottingham. Exonate offered the University the option to take some shares in the company, and asked them if they would fund the company in the first instance. So, the University became a shareholder.

Catherine Beech then used this to go out and speak to business angels who had in the past invested in bio-tech companies. In the first round of funding Exonate was looking for investment of £250,000, but was over-subscribed and ended up raising £500,000.

According to Catherine, “My advice to entrepreneurs is that if the money is there – take it. Money is hard to raise. And you may feel today that you can turn down money, but in a month or two you may need it.”

The age range of business angels meant that they all knew someone that was losing their sight from some disease or another. The choice of an eye drop over an injection made the investment case easy to understand, and Exonate had some good early data that showed that the product would be viable.

Approaching investors

When Exonate first approached investors, they were very open and honest that they would do their utmost to make the company a success. But they also made it clear that the early investors were in essence betting on science, and there was a very real possibility that the science might not work.

In Catherine Beech’s words, “I tried to select people that were interested in the whole idea of being the first people with an eye drop. They needed to view the investment like betting on a horse – it might win, but it might lose.”

Catherine was looking for more than money. She wanted people on board who had grown companies and were generous enough to share their networks.

For some people this was too much risk – and they decided not to go ahead. But for others, they believed in what Exonate was trying to do. Even though the science was at a very early stage they realised that Exonate had the potential to make a difference to people’s lives and to create a profitable company in the long-term.

To date, Exonate has raised about £2.5 million as equity funding. They did the first round in 2014, second round in 2015, and third round in 2016. The last round was about £1.5 million, raised from high net worth individuals – mostly people that Catherine already knew. To achieve this, she met face to face with investors, explained about the disease, Exonate’s approach, and how passionate the business is about revolutionising the treatment of the disease.

They also applied for a seeding drug discovery award from the Wellcome Trust, which is structured in an entirely different way. It’s a convertible loan which will be converted into equity either at the next big round, or at an exit.

All the investments that Exonate has received have been used to move the science forward. But when running any business there are other functions that you need to do. Exonate particularly needed to begin to do marketing, and eventually want to partner with a large pharmaceutical company. Catherine explains, “My belief is that you need to be talking to a pharmaceutical company for at least 2-3 years before they will do a partnership with you. So, we needed to be out there, talking to people and letting them know that this new technology is on the way.”

The pitch to angel investors

Looking back at the way the company started, Catherine Beech reflects, “I don’t think I would do anything differently”.

An experienced business owner in this specialist sector, and an investor herself, Catherine and her leadership team had the advantage of experience. Catherine also ensures that at every stage, she brings on investors with networks and experience that can be used to grow the business – “I was looking for much, much more than money”.

Catherine’s advice to all budding entrepreneurs is that if you make your investor proposal too long-winded it will go to the bottom of the pile. Create a very succinct slide deck, send it, and then wait no more than 2 or 3 days before following up with a phone call and offering to meet them. Catherine’s advice is to offer to meet for an informal coffee, with no perceived obligation to invest.

At each such meeting, Exonate talked the potential investor through the proposal, and then said that they could share more if the investor wanted to know more. They set up a virtual ‘data room’ with all their contracts and finances, and asked them to sign a non-disclosure agreement before giving them access.

Catherine reflects: “Some took it. Some went through all the finances and came back with questions. Some dug down into it. But some didn’t, and invested anyway, because they believed in the presentation, the people, and the idea.

We had a team in the office that followed things up. As it was the summer, we had a huge whiteboard in the office and marked on it when everybody would be away or on holiday. In some cases we even got them to give us power of attorney so we could move forward in their absence.

“Once someone says they will invest in you, it becomes a process, and you must follow it. We have a quarterly newsletter for investors, and try to engage with them so they see it as their company as much as our company. This type of investment is a personal, and more risky part of an investor’s portfolio. I also try to have a meeting and a coffee with every investor at least a couple of times a year.

“If you take money from an angel, this is their personal money that they have gone out and worked for. You owe it to them to engage with them, to communicate with them, and to do your best with their investment. It is not the same as taking money from a Venture Capitalist.”

Raising money is always hard work. You have to focus on it, and to chase. You have to find a reason to talk to people. Engage with shareholders and people that you want to fund you.

The role of the Angel CoFund

Launched in November 2011, the Angel CoFund makes initial investments of between £100k and £1m, alongside syndicates of business angels in order to support high potential businesses and give them the capital they need to develop and propel growth.

The fund invests across the UK and will consider proposals for businesses at all stages of development and in most sectors, provided they qualify as an SME. The critical criterion in securing investment from the CoFund is the presence of a strong group or syndicate of private angel investors who are looking to make a good commercial investment.

Exonate was able to secure funding from the British Business Bank’s Angel CoFund in their second stage of funding. Catherine explains, “I’ve known about the Angel CoFund for a number of years. It was an easy process working with them. One of the issues was the calibre of angel they need to co-invest with. We are specialist, and the CoFund needed us to find an angel that knew and understood biotechnology, that had grown a bio-tech company previously, but had not invested in my company before.”

Exonate have used their bank of investors to create a global advisory board comprising experts from all over the world with experience of researching diseases of the back of the eye. “We use advisers all of the time. Not just for the science, but also for legal and financial matters. Advisers are invaluable as we move the business forward.” 

Looking to the future

“Our future looks positive. The science is working well. We’ve been able to demonstrate in animals that we can get our drug to the back of the eye. We really are at the cutting edge of this form of science – and that in itself is an achievement. If you think about the anatomy of the eye, they are designed to keep things out – eyelashes, dust, eyebrows tears. We’ve been able to get the drug to the retina, which has attracted the interest of the pharmaceutical industry, with one large pharmaceutical company showing interest in partnering already. That’s one option. It wasn’t in our original plan as we thought we would partner later.”

Another option open to Exonate – rather than an industry partnership – is to achieve another round of funding, this time for a much larger sum, £3-£5 million. They need this for a pre-clinical development programme, firstly to prove that the drug will be safe for humans, and then to go into human trials to prove that the drug works. These are incredibly expensive initiatives to run.

The angels that have already invested have a right to follow on (invest more), and some are wealthy enough that they will do that. Exonate would also like to get a Venture Capitalist involved so that they can use the network of that VC to help them become even more successful.

“I’m confident that on the back of our science we will be able to achieve this – and the very fact that the pharma industry is interested is a validation of our science, which will give investors the confidence and trust in what we are doing.”

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