The coming year looks like it could be a good one for biotechnology startups. In recent years, biotech has had reasonably good access to capital as interest has increased in development of new medicines for cancer and “orphan” diseases. While access to investor funds may not be easy in 2016, few expect a return to the depths of the 2009 recession.
Biotechnology startups have reasons for optimism in 2016.
The biotech market fundamentals remain strong. Several companies have either gone public or have been party to mergers or acquisitions, thus shrinking the universe of biotech companies. This augurs well for those who start up biotech firms, as does 2015’s track record of high funding per new startup. If you anticipate raising venture capital for your biotechnology startup in 2016, here are four tips to help.
1. Understand Investors
You must understand biotech investors so you know how to approach them. If a VC firm doesn’t typically fund diagnostic companies, don’t waste your time pitching your company to them. If you’re in the early funding rounds, don’t spend time pursuing investors that are primarily interested in late-stage funding.
Look at firms with portfolios that resemble the deal you want. Ensure that any venture capitalist you approach has been actively funding within the past few years. They may be in a holding pattern or being highly selective. Make sure potential partners you reach out to have supported deals similar to the one you are looking for.
2. Obtain Good Legal Advice
You won’t get far with venture capital firms if you don’t have solid corporate fundamentals. The corporate structure should make sense, and you should have significantly important intellectual property.
Some law firms will work with you at a discount during your seed money phase, then recoup their fees after the first major round of fundraising is complete. The same is true for attorneys who you need to review your licensing framework. Invest in the expertise you need to get you where you want to go.
Don’t skimp on legal advice. This investment pays off.
3. Balance Passion with Business Acuity
Do venture capitalist investors want to invest in startups that are full of passion, or that have an solid business plan? The answer is, “Both.” A biotech startup need to have powerful evidence that patients’ lives can be improved. It should be operating according to solid business fundamentals and not appear as if the goal is to get rich quick by by flipping it in the near future as an exit strategy. The best returns for startups in biotech tend to come to companies that develop innovative new products with a broad scope of demand.
4. Don’t View an IPO as an Endpoint
When a company goes public, stock skyrockets, and the net worth of the founders suddenly skyrockets (assuming that those are the results): what’s not to like? An IPO is not the culmination of a process; it’s really just the beginning, as the word “initial” would suggest. A company should have completed several, solid clinical trials before considering an IPO. It’s a given that institutional investors aren’t interested in sinking money into the early stages of startup development. Neither are they interested in backing a unproven company in an IPO.
Biotech startups are expected to see a healthy 2016. If your biotech company is looking at a funding round in the year ahead, we encourage you to contact us. As specialty recruiters, we know how to find the key employees who can help you take your biotechnology startup beyond expectations.