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Meet a VC: Steve Elms

Steven A. Elms, Managing Partner, Aisling Capital

Mr. Elms joined Aisling in July of 2000 and currently serves as one of the Managing Partners. Previously, he was a Principal in the Life Sciences Investment Banking Group of Hambrecht & Quist. During his five years at H&Q, Mr. Elms was involved in over 60 financing and M&A transactions, helping clients raise in excess of $3.3 billion in capital. Prior to H&Q, Mr. Elms traded mortgage-backed securities at Donaldson, Lufkin & Jenrette. His previous healthcare sector experience includes over two years as a pharmaceutical sales representative for Marion Laboratories and two years as a consultant for The Wilkerson Group.

Mr. Elms currently serves as a director of ADMA Biologics, EarLens and is Chairman of LOXO Oncology. Previously he served as a director of numerous private and public biopharmaceutical and medical device companies.

Mr. Elms received his M.B.A. from the Kellogg Graduate School of Management at Northwestern University and his B.A. in Human Biology from Stanford University.

How did you get your start in the venture capital community?

I started out my Wall Street career as an investment banker at a firm that catered to up-and-coming tech and biotech companies. I really enjoyed working with the smaller entrepreneurial drug development companies and from 1995 - 2000 I was involved in several M&A transactions and helped raise a lot of capital for our clients. But things changed when we were bought by Chase in 1999, and the focus as a firm shifted from working with these innovative young startups to pitching very large and established pharmaceutical companies. I missed the startup-level interactions, so when Soros and Perseus were looking for managers to raise a fund for clinical stage companies I decided to make the jump to full-time venture capital. I started working at Aisling Capital 17 years ago because of the opportunity to stay involved with the growth and development of innovative, entrepreneurial biotech companies. Back then biotech VCs were mostly scientists and I was bringing this knowledge base of financial strategy and business discipline, as well as an understanding of clinical trials — all things that can really benefit clinical stage biotech companies.

What’s a day in your life as a VC like?

I’m usually up early to review emails and catch up on biotech industry news. I drop my boys off for school then hit the office usually around 8:00am. I often have overseas calls to our European portfolio companies followed by engaging with the team here on current and potential deals. The rest of the day consists of meeting and evaluating new companies, speaking with current limited partners and potential limited partners, and I spend a lot of time doing diligence — calling physicians to ask about their interest and researching the competition. One of the most exciting parts of being a biotech VC is this wonderful omniscience of seeing drugs in development years before the public or physicians do. Being part of bringing those kinds of therapeutic benefits to humankind is exciting. The feeling that we’re doing great work, important work, this is what gets all of us up in the morning.

How many companies have you invested in and what is your overall investment?

I think a lot of people would be surprised by how many companies we see that have interesting technology, but not enough clinical proof yet for Aisling to invest. We meet with somewhere around 750 - 1000 public and private companies a year, and there are so many interesting companies and approaches that we have to be super disciplined. We are a late stage investor and evaluate the funnel once a year, checking for how many companies we met, how many we met more than once, and the ratio of investments. For us to want to work with a company it has to fit our strategy, possess a strong syndicate of investors and be able to meet our financial goals — even if an IPO isn’t an option. So there are a variety of risks we have to get off the table before Aisling can even invest, and very few companies meet all those criteria. So that said, in the 17 years since we started Aisling, we’ve only invested in around 100 companies, with an overall investment total of just over $1.8 billion. We try to keep it focused because of the need to create alpha, plus we don’t want to have a portfolio that is difficult to manage.

What stage do you focus on and how much capital do you look to deploy for each portfolio addition?

We look to invest in clinical stage opportunities, typically after a successful phase I clinical trial is complete. So we’re looking for a product in phase II or III. We may invest in earlier stage oncology or orphan disease companies if the preclinical rationale makes sense, or we might invest in later-stage companies generating revenue with proven products — more like growth equity. They can be public or private, because for us it’s about where they are in their development cycle. Given the size of our current fund, we often open with something in the neighborhood of $5 million or $8 million with the option to scale up and increase our exposure in later rounds. It’s important to us to keep capital in reserve so we can help our companies navigate unanticipated challenges as they arise.

What matters to you most when evaluating a company as a potential fit for your firm and how does that relate to the ambitious companies that you have worked with in the past?

There are three things that really matter to me when I’m evaluating a company:

  1. Management. You need a team with more than just scientific prowess. A good management team is strategic about the business as well.
  2. Stage of development. We’re looking for opportunities to accelerate drugs in clinical development that have the potential to help people and get to the market efficiently and safely to generate an attractive return for our investors.
  3. Diligence outcome. This includes medical and market diligence as well as financial diligence. It is important to understand how the management team manages their cash, and when an additional investment might be required.

What advice do you offer to a first time founder?

First and foremost, recognize that you can’t do it all yourself. You need to surround yourself with good people who are smart and willing to challenge conventional wisdom. Second, aggressively raise capital when it is available, but make sure you have a sound financial strategy. Third, always be transparent to your investors through good and bad news. They will understand that sometimes things don’t go perfectly according to plan, but will not tolerate a lie. Fourth, build a culture of goals and accountability company-wide, and tie compensation to tangible goals.

What is the one common denominator that stands out to you across all great investments your firm has made during its history?

We endeavor for every investment we make at Aisling Capital to be different. Each company is different and every opportunity is different. No companies are a straight line north; they all have good and bad years. Sometimes you need to change management or make other tough decisions, and sometimes you wind up finding the next category king.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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