Case Study:

The Renovo Story: Venture Capital at the Cutting Edge

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TABLE OF CONTENTS
Table of contents ............................................................................................................................. 2
Introduction ..................................................................................................................................... 3
1 Assess the business opportunity in different areas ...................................................................... 3
2. What are the key issues in assessing the financial value of early stage, biotechnology
companies? ...................................................................................................................................... 5
3. From the VC perspective, what is a fair pre-money valuation for the 8M investment? What
would the post money valuation be and what % equity would you hold? ...................................... 7
4. From the VC perspective, explain why it would be wise to attach any milestones to the
investment. What would they be? ................................................................................................... 8
5. From the founders and the Universitys perspective, what might they dislike in the VC term
sheet? How would they try to negotiate the terms? ........................................................................ 9
Conclusion ...................................................................................................................................... 9
References ..................................................................................................................................... 10

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INTRODUCTION
This case discovers the history of a biotechnology start-up company created in 2000s at the
University of Manchester, UK. The case was devoted to discuss from both the perspective of
venture capitalist along with the perspective of the entrepreneurs. Several problems and
procedures were addressed in this case regarding a technological firms inventions as well as
inauguration. The firm is UK based. From the boarder perspective, the case illustrates the
milestone of venture capital that is backed by the technology start-ups by addressing different
difficulties regarding building a business in the academic institution. When Renovo was dealing
with the venture capitalist firm in UK, it was one of the large first round venture financing for
biotechnology start-up in UK. At the time of case description, Renovo was growing rapidly.

1 ASSESS THE BUSINESS OPPORTUNITY IN DIFFERENT AREAS

Before investing in a company it is logical for an investors to assess the future prospect of the
company from different perspective. Common questions are asked like- is there enough market
opportunity for the new company or is the technology strong enough to make substantial profit
to increase the shareholder wealth or is the management strong enough to control the entire
company so that in future the company can make sustainable growth or is the business plan
convincing enough to implement the business more productively (Kirby, 2003). The case which
is about to analyze discovers the history of a biotechnology start-up company created in 2000s at
the University of Manchester, UK. The case was devoted to discuss from both the perspective of
venture capitalist along with the perspective of the entrepreneurs. Several problems and
procedures were addressed in this case regarding a technological firms inventions as well as
inauguration. The firm is UK based. When Renovo was dealing with the venture capitalist firm
in UK, it was one of the large first round venture financing for biotechnology start-up in UK. But
will this company can make profit in the future is the main focus point for the prospective
investors as well as the venture capitalist around the UK. In the section the future profitability of
the company will be discussed based on market opportunity, management, and technology and
business plan of Renovo.

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Market opportunity of RenovoWhen Renovo was dealing with the venture capitalist firm in
UK, it was one of the large first round venture financing for biotechnology start-up in UK. At the
time of case description, Renovo was growing rapidly. Biotechnology firm is one of the
attracting industries which is not cyclical. As the bio-technology industry is non-cyclonical, it is
unlikely that the company will face the unfortunate volatility of the business cycle. Whatever the
business cycle i.e. recession or booming the demand of bio-technological product will be much
higher than other similar industry. For Renovo the market opportunity is very much optimistic
because day by day the prospective patient in UK as well as worldwide is increasing. In the
following table, market size of Renovo is summarized.

From the public available data of UK industry analysis, it was found that about sixty million
potential patients available who are willing to apply the scar prevention and wound healing
treatment annually. This data support the perdition of Mark who is the key person for Renovo.
From the table 1 data, it is observable that about 2,000,000 potential patient in US and 6,600,000
patients worldwide are willing to apply the invention of Renovo. For trauma, patients who are
willing to apply the technology invented by Renovo are 5.6 million and 18.6 million respectively
in US and global. For cosmetic surgery, patients who are willing to apply the technology
invented by Renovo are .6 million and 1.7 million respectively in US and global. For cosmetic
surgery, patients who are willing to apply the technology invented by Renovo are 11.6 million
and 34 million respectively in US and global. As a result there is a vast opportunity for Renovo
to fulfill the desire of such population. There is huge supply and demand gap among the
worlds population. Renovo has the opportunity to fill this gap with their unique invention
regarding wound healing and scaring.

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Moreover, the market growth of biotech industry is also lucrative. From the prediction of the
industry expert it was found that the in the coming 20 years, number of severe wound and
scaring will dramatically increase because of the increase in elder people and dynamic disease.
Analysis from management and technology and business plan perspective the initiative of
Professor Mark and Professor Sharon to develop a start-up concentrating on scar-free wound
healing medicine was pretty convincing because of the business ideas. The core idea was
developing therapies which can heal wound without any scar. After the medicine developed, it
will be delivered directly to the consumers. The management team was pretty strong and consists
of Professor from University of Manchester, UK. The technology was also advance. As a whole
Renovo seems a profitable organization to invest.

2. WHAT ARE THE KEY ISSUES IN ASSESSING

STAGE, BIOTECHNOLOGY COMPANIES?

THE FINANCIAL VALUE OF EARLY

Every aspect of todays human life is affected by biotech. It dramatically changed the healthcare
system as well as held in many ways to improve the environmental system and also bring several
change in laws and ethical issues. However, while assessing value of the biotechnology firm in
the early stage, several issues rises and drive the value of the firm. Some issues are describing in
the following section based on the analysis by Vinay Ranade (2008).
People management team: as the bio technology company is knowledge driven, the most
important factor while assessing the value of the company is the people behind the firm or
organization. The more experienced people are related to the organization, the more value will be
added to the original organization (Kaushik and Bhatnagar, 2009). This is the only organization
where the experience of failure is valued in serious manner. And this is done because of the risk
return profile of the biotech industry.
Partnership and Alliances collaborations thrives the biotech industry. A small biotech
company can be benefited from the alliance and partnership with other biotech company in terms
of research as development as well as marketing (Bhatnagar, 2009). As the relationships and
alliance increase the company potential from different perspective, it will create extra value for

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the organization. So, consideration of partnership as well as alliance is an important factor while
volition is done on early stage biotech firms.
Intellectual Property Rights intellectual property rights like patents or copyright is an
important issue for a biotech company because it is a knowledge based business and intellectual
property rights will create sole differentiation for a particular firm (Hisrich , 2012). So, at the
time of valuation, this issue will have large impact on company value. On the other hand, issues
like filing of suits for a particular patent will case a huge cost which will case a decline in value
of the company. A valid and suitable patent will create extra value for the company.
Research & Development and technology research and development is the most valuable
factors while calculating the biotech firm value so far. The more technology and ideas are
generated, the more profitable will be the company. Moreover, if the company has different
types of technology and products then it will be easy for the company to create a diverse
portfolio of products and technology.
Financing or funding source fund availability, funding long-term pattern as well as funding
timing influence the value of the company dramatically (Peters, 2002). For example, if the
biotech company has low cash at the time of valuation then it will be problematic for the
company because the value will decline because of the low cash position. Moreover, if the
biotech firm issues equity fund at a lower rate than the company value will decline. The
productive usage of the fund increase the value of biotech firm.
Market Opportunity a biotech firm with great market potential will grow dramatically and
will be able to collect the initial and commercialization fund from various funds like venture
capitalist or angel investors. Moreover, cash flow perdition of a biotech firm with grate market
opportunity will be very much optimistic which will help to increase the company value.

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3. FROM THE VC PERSPECTIVE, WHAT IS A FAIR PRE-MONEY VALUATION FOR

THE 8M INVESTMENT? WHAT WOULD THE POST MONEY VALUATION BE AND
WHAT % EQUITY WOULD YOU HOLD?
In venture capitalist and private equity fund, Pre-money valuation is used commonly. Premoney valuation refers to the valuation that is done before any kinds of external investment done
from the outside of the company (Brannback, 2010). When the external investors like angle
investors or venture capitalist wants to add investment through injecting the money into the
business then there would be two kinds of valuation- before injecting the investment and after
injecting the investment. Simply put, pre-money valuation is the value of the firm before any
kinds of external investment (Hisrich and Peters, 2012). This pre money valuation is widely used
by the VCs to determine their equity into after investing the money. When Renovo was dealing
with the venture capitalist firm in UK, it was one of the large first round venture financing for
biotechnology start-up in UK. At the time of case description, Renovo was growing rapidly
because there were a substantial amount of money was invested for initial research by the
university authority. So from the appendix data we can calculate the approximate pre-money
value of Renovo.

=

From the appendix data of the case we can put the data into this equation
= $237 $40.62 ;
= $ (Approximate)
Now the formula to calculate the Post-money value is given below = +
So, after putting the value we can get the Post Money value of Renovo

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 = $197 + $8 = $205
=

$8
= 4%
$205

4. FROM THE VC PERSPECTIVE, EXPLAIN WHY IT WOULD BE WISE TO ATTACH ANY

MILESTONES TO THE INVESTMENT. WHAT WOULD THEY BE?
Milestone is the subset of company goal. Investing in a startup is very risky because of the
uncertainty of the market. If the company is looking for a plan for companys growth and
fundraising, Milestone will serve the company well to break down the work in terms of future
expectation. Milestone works as a key marker which serves as an indicators of growth within
the firms growth trajectory (Carsrud, 2011). Milestones works as a tools to help the fundraiser
to increase the fund through showing future key marker addressed as the milestones. It also tells
the company investors about the future timeline and agenda so that the investors can manage
substantial amount of money to support the particular works. For example in case of Renovo the
milestone can be as followsMonth three: Introducing Minimum Viable Product (MVP)
Month five: Launching the Private Beta
Month eight: Key Hire of the personnel
Month eleven: Launching Public Beta
Month twelve: increase in 30% increase of consumers
Milestones are really helpful to mitigate the risk of uncertainty by predicting the future growth
of the company (Carsrud and Brannback, 2010). For example, if Renovo prepares the milestone
in the early stage of the business then it will be helpful for the company to reduce any kinds of
uncertainty on the way of fulfilling the milestone. Thus it can be used as a risk handler.

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Moreover if the investors are confident enough about the future plan, then the funding will be
increased so that the cash injection can help further business expansion.
Some key milestone for Renovo are given in the following section
Milestone for Human resource hiring the key people will have great impact on business. the
most important factor while assessing the value of the company is the people behind the firm or
organization. The more experienced people are related to the organization, the more value will be
added to the original organization. So determining the hiring milestone is a great one to add in
case of Renovo.
Product milestone Product launches and version releases

THE FOUNDERS AND THE UNIVERSITYS PERSPECTIVE, WHAT MIGHT

THEY DISLIKE IN THE VC TERM SHEET? HOW WOULD THEY TRY TO NEGOTIATE
THE TERMS?

5. FROM

There are two terms that seems objectionable. The first one is forms of investment and second
one is Coupon payment
Forms of investment terms and Coupon payment terms from the terms sheet, it was
found that the VC will be offered cumulative, redeemable and preferable shares. This forms goes
entirely for the benefit of VCs because their risk is almost low from the perspective of terms. As
the bio-technology industry is non-cyclonical, it is unlikely that the company will face the
unfortunate volatility of the business cycle (Burch, 2014). Moreover, Renovo has a potentiality.
So these terms should be loosen. Same issue is applicable for coupon payment as well.

CONCLUSION
The initiative of Professor Mark and Professor Sharon to develop a start-up concentrating on
scar-free wound healing medicine was pretty convincing because of the business ideas. The core
idea was developing therapies which can heal wound without any scar. After the medicine
developed, it will be delivered directly to the consumers. The management team was pretty
strong and consists of Professor from University of Manchester, UK. The technology was also
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advance. As a whole Renovo seems a profitable organization to invest. It can create buzz if it get
proper support form VCs as well as from.

REFERENCES
Burch, J. (1986). Entrepreneurship. New York: Wiley.
Carsrud, A. and Brannback, M. (2007). Entrepreneurship. Westport, Conn.: Greenwood Press.
Drucker, P. (1985). Innovation and entrepreneurship. New York: Harper & Row.
Hisrich, R. and Peters, M. (2002). Entrepreneurship. Boston: McGraw-Hill/Irwin.
Kaushik, U. and Bhatnagar, S. (2009). Entrepreneurship. Jaipur: Aavishkar Publishers.
Keister, L. (2005). Entrepreneurship. Amsterdam: Elsevier JAI.
Kirby, D. (2003). Entrepreneurship. London: McGraw-Hill Education.
MaRS, (2015). Angel, seed or venture capital investors | Stage of company development.
[online] Available at: http://www.marsdd.com/mars-library/angel-investors-seed-or-venturecapital-investors-that-depends-on-your-stage-of-company-development/

[Accessed

Aug.

2015].
Ronen, J. (1983). Entrepreneurship. Lexington, Mass.: Lexington Books.
Seedcamp.com, (2015). Setting Appropriate Milestones in an Early-Stage Startup. [online]
Available at: http://seedcamp.com/resources/setting-appropriate-milestones-in-an-early-stagestartup/ [Accessed 9 Aug. 2015].

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