RainDance Technologies is just five months removed from raising $20 million from a group of investors. So there’s no way the company would turn back around and tap the debt market for more cash, right?
“As you often hear venture CEOs, or [venture capitalists] say, you take money when you don’t need it—not when you need it,” says its CEO, Roopom Banerjee.
Indeed, that’s just what the Billerica, MA-based company just did. RainDance is announcing today that it has raised up to $35 million in debt financing from Houston, TX-based investment firm Capital Royalty.
Yet given its pockets were just stuffed with cash in April, when it scored a $20 million Series E round and added diagnostics giant Myriad Genetics (NASDAQ: MYGN) as a shareholder as part of the deal to boot, what gives? Banerjee says that his company, which provides tools used by research institutions and diagnostics companies, is growing ahead of its own schedule—it doubled its revenue from 2012 to 2013, and ended up passing its 2013 revenue target of $20 million by the summer. Thus, RainDance decided that it was in a good spot to go back and raise more cash to fuel its growth while its top-line is trending upward.
“We wanted a path to comfortably get to profitability as a company,” Banerjee says. “We now have completely shored up our financing and balance sheet.”
RainDance looked at the idea of either a debt equity raise, but saw that the mezzanine debt market was attractive— Cambridge, MA-based Good Start Genetics, another closeby startup, for instance, had just raised $28 million from Capital Royalty, according to Banerjee.
“[Good Start and] several others have been tapping the mezzanine debt market because of just historically attractive terms,” he says. “We were just blown away by the low cost of capital, the availability of capital, and the almost equity-like headset of some of these mezzanine debt players.”
Banerjee means that he’s seeing such investors offer non-dilutive debt instruments with a longer-term view—with “long time horizons” for payback in mind. As a result, RainDance, which has already raised around $100 million in equity financing, decided it would get better bang for its buck with a debt raise. Banerjee didn’t specify the interest rate RainDance is getting, or when the company will have to start making debt payments. But by signing up for the loan, RainDance won’t have to dilute its shareholder base, and believes it has the revenue “predictability” to pay Capital Royalty back down the road, he says.
RainDance plans to use the cash in a few different ways. It will double its sales force in the U.S. from five to 10 people, build out its commercial infrastructure, and expand its manufacturing and supply chain to support its growth. It also says it wants to begin selling new applications for its system, such as a capability to detect diseases directly from RNA, and to pursue strategic partnerships “from a position of strength,” rather than being beholden to the cash a potential partner can offer in a business arrangement, according to Banerjee.
“We are increasingly seeing more customers come to buy, rather than our [representatives] having to sell, and that’s a really compelling dynamic,” he says.
RainDance has been capitalizing on growing demand by research institutions for clinical genomics. The startup provides tools used by research labs and diagnostics companies that are supposed to make their tests easier and cheaper to run.
RainDance’s core technology, for instance, separates patients’ blood or urine samples, and breaks them down into millions of individual micro-droplets that each contain a DNA sample. Each droplet is then merged with another containing a reagent, forming millions of microscopic test tubes for researchers to use to perform their own diagnostic tests. One of RainDance’s selling points is that this system can potentially be used by researchers to detect certain cancers with blood, or other fluid tests, rather than performing invasive, expensive procedures like tissue biopsies.
The company, which started up in 2004, is backed by Myriad, Mohr Davidow Ventures, Quaker BioVentures, Alloy Ventures, Acadia Woods Partners, and Sectoral Asset Management.