Raising money is a crucial responsibility for all start-ups active in such a capital-intensive industry like the biopharma space. There are a lot of questions surrounding fundraising, such as where you can receive financing from and what should you to make your company attractive to investors. Read some tips on what to be aware of before fundraising.
Type of Financing
There are three popular approaches to financing within the industry – public financing, debt financing, and private financing.
Public financing can include both grants and government funding – either from regional, national, or international sources. While it can take longer to acquire, its region-specific nature leaves it as an attractive option for many biopharmas. These include the likes of the European Union’s Horizon Europe program, with countries often having their own specific initiative focusing on life sciences innovation.
Another fundraising option is debt financing. While there are high costs associated with starting a life science company, over the years it is becoming cheaper, with debt financing becoming a more viable solution for companies seeking funding. This can be received from institutions such as banks or credit unions, coming with a structured application process. This form of financing also means you won’t be sacrificing any equity within your organization. The process remains rather straightforward and it can also help build business credit which is important for any company. Although this form of funding can also be expensive due to the interest payments staggered throughout the duration of the period. For very young companies, it may also be difficult to secure debt financing. In addition, it must be taken into account that debt financing usually has to be paid back, which can lead to liquidity problems, especially for start-ups.
Private financing – particularly provided by Venture Capitalists (VCs) – is one of the most popular funding approaches within the industry. Outside of this, there are other private financing avenues that you can take such as corporate investors, family offices, and business angels. Although the best option depends on your existing requirements and resources.
All these types of investors have a different motivation and usually a different investment approach. The following table provides a rough, general overview on what you can expect:
|VCs||Corporate Investors||Family Offices||Business Angels|
|Size||> USD 5m||Open||Open||< USD 2m|
|Company type||High risk potential||Strategic fit, innovative||Service component, opportunistic||Seed / early stage|
|Total capital requirement||High||High||Medium||Low|
|Exit||Set 5-10 years||M&A||Long-term partner||Medium term|
What to Do
It is crucial that you have a solid and actionable business plan that you can present to a potential investor. Elements within this include a detailed forecast of your financial statements for roughly five years ahead, an in-depth description of the marketplace for your products, as well as a calculation of the size of your target audience, amongst other areas. These must be backed up by data, alongside any claims about the asset that you are producing, especially if you lack a track record of previous success within the industry. Due to the length of time it can take to perform R&D, it is vital that you bring as much proof of progress to the table as possible. This information includes hard data about the problem that you are solving, the differentiation compared to your competitors, and any progress related to the current asset that you have in development.
Another important point is to network and leverage your existing network. A mutual connection can be all it takes to help you find a like-minded investor interested in your company. This warm introduction can make all the difference compared to a normal cold outreach which may get lost in the midst of other organizations vying for funding. This endorsement can be a key differentiator, adding credibility and trust to your company.
It is also recommended to perform reference checks on any investor. Look at their previous investments to determine if they are a good fit for your business and if they can help your organization progress according to its vision.
How to Find Investors
In the life sciences industry investors may approach you, especially if you present at R&D-oriented conferences. Otherwise, an ideal place to find investors so you can raise capital is through one-on-one business development conferences such as Biotechgate Digital Partnering. On top of this, for a year-round resource, you can use the Biotechgate Investor Database which includes an investor’s interests, their profile, and contact details.