Diligence Yourself First.

The life sciences edition of Investor due diligence

This edition of Cardiff Insights is essentially a re-stack of Ilya Strebulaev’s investor due diligence checklist, sharpened for biotech, medtech, and diagnostics CEOs.

Ilya Strebulaev published a comprehensive list of 70+ questions smart investors ask founders before writing a check. His core advice is exactly right: identify your red flags before investors do, because they will find them anyway.

I have sat on the other side of the table for 30+ years and have been involved in many closed life sciences transactions. Strebulaev’s framework holds up. But in biotech, medtech, and diagnostics, several of these questions land with very different gravity than they do in SaaS or consumer. If you are a life sciences CEO preparing to raise, here is where the standard checklist needs to be sharpened.

1. “Founder-product-market fit” is really founder-science-regulator fit.

In SaaS, founder fit is judged by product instinct and customer empathy. In drug development, the bar is whether FDA, CMS, payers, and key opinion leaders take the founder seriously. Can you defend a Type C meeting on your endpoint package? Can you walk an analyst through your CMC strategy without flinching? Can a KOL on your SAB stake their reputation on your hypothesis? If the answer is no, the science does not matter, because the capital will not show up, or it will face headwinds.

2. “Market size” is a clinical and reimbursement question, not an Excel exercise.

Strebulaev rightly notes that investors care about how you got to TAM, not just the number. In our sector, the answer is built from prevalence data, addressable patient populations, line of therapy, payer coverage, and reimbursement codes. A $20B “indication TAM” assuming a $150K list price is fiction unless ICER, NICE, and CMS will tolerate it. Build your market from the bottom up using SEER, claims data, NHANES, and primary KOL input. Cite your sources or do not bother running the slide.

3. The exit math has changed. So has DPI.

Strebulaev notes VCs care about DPI (cash returned to LPs) more than ever. He is right, and life sciences is the canary. Biotech IPOs collapsed in 2022 and have not recovered to peak windows. M&A has been the realistic exit for most of the cycle, and big pharma’s BD priorities have narrowed: late-stage de-risked assets in obesity, oncology, immunology, rare disease, and CNS. If your pitch leans on a 2028 IPO, expect skepticism. Know who actually bought what in your space over the last 24 to 36 months. If you are outside the active buy lanes, the path narrows fast.

4. Regulatory risk is no longer a section in the deck. It is the deck.

FDA is in transition. CDER and CBER leadership has turned over, agency staffing has been reduced, and review predictability has wobbled. Investors are pricing this in, hard. If you cannot articulate how shifting FDA dynamics affect your timeline, endpoints, label, and post-marketing commitments, you have not done your homework. The founders who say “we will figure that out post-IND” are telling sophisticated investors they do not know the actual game.

5. “How much more money will the company need?” This is where most founders lie to themselves.

A typical Phase 2 to Phase 3 program in oncology or cardiometabolic conditions runs $100M to $300M. Cell and gene therapy programs run more. Asset-heavy is an understatement in this sector. If you raise a Series A on a “$30M will get us to data” pitch and the data slips, you are at the mercy of insiders, and the down round will be punishing. Build your financing model with two failure scenarios baked in: enrollment delay and one negative subgroup signal. If your bridge math does not hold up under those, smart investors will spot it in week one of confirmatory diligence, and the term sheet will reprice or evaporate.

The bottom line.

Strebulaev’s list is essentially a stress test. The founders who pass walk into the room having already survived it. In life sciences, the stress test is harsher because the science is harder, the regulatory pathway is longer, the capital needs are larger, and the exit window is narrower than the LP class wants to admit.

The CEOs I have sat down with and discussed term sheets share one trait. They own their red flags before the slide deck opens. Not for the sake of humility. Because they understand that a smart investor’s first job is to find the cracks, and a founder’s first job is to either repair them or explain them.

If you want investors to write the check, do the diligence on yourself first. Then bring the answers.

Original article: Ilya Strebulaev, “Diligence yourself before investors do.”

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Disclosure

David H. Crean, PhD, MBA is Founder and Managing Partner of Cardiff Advisory LLC, a life sciences M&A and strategic advisory firm operating in partnership with BA Securities, LLC (FINRA/SIPC). He is currently at work on his forthcoming book, Dual Fluency: How Life Sciences Leaders Master the Language of Science and Capital, from which the ideas in this essay are drawn. Subscribe to follow more pieces in this series as the manuscript moves toward publication.

Cardiff Advisory LLC is an M&A investment banking, strategic advisory and valuation firm focused on the Life Sciences and Healthcare sectors. This article is provided for informational purposes only and does not constitute an offer, invitation, or recommendation to buy, sell, subscribe for or issue any securities.

The principals of Cardiff Advisory LLC are registered representatives of BA Securities, LLC Member FINRA SIPC, located at Four Tower Bridge, 200 Barr Harbor Drive, Suite 400 W. Conshohocken, PA 19428. Cardiff Advisory LLC and BA Securities, LLC are unaffiliated entities. All investment banking services and securities are offered through BA Securities, LLC, Member FINRA SIPC.

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