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Other sources of funding, beyond seed money from grants, are very likely going to be needed for most startups. The time from initial funding until your company starts generating revenue is a vulnerable time in a new business, sometimes called the “valley of death” because some companies run out of money in this period. Money is needed to develop the product, obtain approvals, and market it. There may be unexpected expenses for which you need cash rapidly. To avoid a financial shortfall, identify and become familiar with potential sources of funding ahead of time, including creative and rapidly available sources.
Funding Source Options Beyond Government Seed Money
There are several basic options for funding after seed money:
- High Net Worth Investors (Angel Investor) – Individuals (other than friends and family) who provide capital to a business start-up (must have two years with at least $200,000 earned income or net worth over $1 million to qualify as an accredited investor), usually early in development, in exchange for preferred shares or partial ownership of the company. Investments may be one-time or ongoing, depending on need.
- Venture Capital – Funds provided to a start-up that investors think has long-term growth potential. The investments are made in return for significant ownership of the business. Before investing, they want to see metrics indicating that there will be a high rate of return, such as a strong market or high predicted consumer needs, and product competitiveness, superiority, and innovation.
- Accelerator – A group or individual that connects startups with mentors, resources, funding, and training for a limited period to advance a startup’s growth. Advantages include connections, advice, and acceleration of time to market. Disadvantages include a loss of control in decision-making and that they typically get equity in your company.
- Start-up loan – Banks are more likely to lend money to companies with solid business plans, financial projections, and expense sheets. The Small Business Administration guarantees loans for some small businesses having trouble securing bank loans.
- Foundation grants – These include organizations that raise money to help cure or discover treatment for specific diseases or groups of people if your product potentially benefits their cause.
- University or other institution internal investment funds – If you are employed by a university or similar institution, there may be internal investment funds available in exchange for equity in your business.
- Friends and family – If they want some equity in the company, think carefully about mixing business and personal relationships, since divergent goals may cause conflict and tensions later and may make investing less attractive to others.
To Make Your Business Attractive to Investors:
- Find out what milestones are most important to your potential investors and show progress in those. Achieve milestones that reduce their risk or will bring in money.
- Avoid family or other non-accredited investors who may need to get their money back for personal reasons when it might hurt your business. Investors see this as a weak point.
- Make sure you have clear ownership of your intellectual property (IP) by using patented technology, rather than relying on trade secrets to protect your IP. Avoid anything that might result in a challenge from someone who views your invention as an infringement on their intellectual property
Look for courses on how to be an “investor-ready” entrepreneur.
Involve your investors in your financial plan.
Regarding taking a meeting in pharma, it helps to get to know something about who you will be meeting before you go in. One way is to attend their virtual bio partner meetings.
A good way to meet investors is to attend investor meetings where they talk with people in your industry to look for investment opportunities. Network as much as you can. Be prepared with a brief pitch (elevator pitch) about your research/business/product and have lots of business cards available.