23/11/2012

Kit Hunter Gordon on the Sirigen exit, one of this year's stand-out deals

UK Business Angels Association

23 November 2012

Life sciences isn't going to be top of every angel investor's list of preferred sectors. If there is one thing that is guaranteed about young life sciences companies is that they will be cash-hungry, and for long periods. Scientists, equipment and laboratories don't come cheap, and revenues aren't generated quickly. Their P&Ls will be in negative territory with monotonous regularity. Even at sale, the company may still be loss-making.

But the rewards can be great. The sale in August of Sirigen to Becton Dickinson represented a 2.5-4x return for a throng of angel investors; although the actual amount paid is undisclosed, the cash return is reported to have been sizeable.

As a managing partner of Seraphim Capital, Kit Hunter Gordon took a lead investor role in Sirigen – whose technology promises to disrupt the medical diagnostic industry – in what was a second round fundraising in April 2008. After two tranches of funding in that year, further rounds followed in 2010 and 2011.

By 2012, investors included Seraphim, Oxford Capital Partners, NESTA, IQ Capital, British Smaller Companies VCT2, as well as angel investors, some of whom were coming in alongside their Seraphim and OCP investments and others from London Business Angels. In all, there were more than 30 British and American angels involved.

So by the time the first whiff of a deal emerged early in 2012, there was quite a throng of interested parties. The discussions were led by Sirigen chairman David Evans, with Hunter Gordon representing the investing institutions, with the angels being kept informed by their various representatives.

Becton Dickinson (BD) was a logical purchaser – it was Sirigen's largest customer. A $15bn-market cap global medical technology corporation based in New Jersey, BD wanted to secure exclusive control of the technology before it became more widely available in the market. It was an opportunity play.

There can be quite a gap between the needs and expectations of a British angel investor and that of a quoted US corporation, as Hunter Gordon observes.

“Trying to satisfy everyone's wishes is quite hard to do in a fast-moving environment where clauses are being negotiated,” he says. “I was asked to delay the deal for three weeks in order to protect the EIS relief of one investor. While it turned out to be easy to delay for that period – as the lawyers were good at that – it did illustrate to me how angels can sometimes forget the bigger picture. I can understand an angel's perspective – I am one myself. This was a meaningful amount and the difference between the gain made under EIS or not was going to be dramatic. But if a giant corporation wants to sign the deal on a particular day, then that is the day we complete!”

That said, Hunter Gordon is very much in favour of angels and early-stage VCs co-investing. “I don't think anyone minds having more firepower. As an angel, you have to work out whether you want EIS relief, which the early stage VC can't have, or whether you want preference shares and anti-dilution clauses and all that stuff. But generally, being alongside early-stage VCs is a good place to be.”

Hunter Gordon admits to some sadness about the timing of the exit. “We sold far too soon,” he says. “Sirigen had demonstrated that their technology worked. The proof of the pudding was there.”

The company's development was originally planned around three phases: first, to break into the research arena; then, into diagnostics; and eventually into the massive point-of-care market. “The company would have been worth hundreds of millions if we had got it to the point-of-care stage, although we would have had to invest many more millions into it,” Hunter Gordon acknowledges.

“We did have another round of funding on the table. That was important in our negotiations. And had there been an easily available market offering us a substantial amount of funding on attractive terms, it might have been a different decision. In the absence of that market, the decision made itself. Now the product is out in the market and beginning to roar away with the marketing power of a big corporation behind it. We have made a very good return. So everyone is happy. But part of me is sad that we didn't see it through to the last stage.”