Venture Capital & Other Funding
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Funding Source Options Beyond Government Seed Money
Startups need funding to continue developing technology after the seed money is exhausted. The time before your company starts generating revenue is a vulnerable time, sometimes called the valley of death because of the potential to run out of money. You need money for approvals, marketing, and unexpected expenses. Identify potential funding sources ahead of time, including rapidly available sources.
Funding options include. . .
- Angel Investors – These individuals who provide capital to business startups must have a high net worth to qualify as accredited investors. They usually invest early in development in exchange for preferred shares or partial ownership of the company.
- Venture Capital (VC) – Funds provided to a startup that investors think has long-term growth potential. The investments are made in return for significant ownership of the business. Investors look for indications that there will be a high rate of return, such as a strong market or product or service competitiveness, superiority, and innovation. Investors want to know strategies that will allow them to make a profit, such as whether you plan to sell the business or sell stock shares to the public (IPO).
- Accelerators – Groups or individuals that connect startups with mentors, resources, funding, and training for a limited period to advance a startup’s growth. Accelerators offer connections, advice, and acceleration of time to market. Disadvantages are that you lose some control in decision-making and that the accelerator typically gets equity in your company.
- Startup Loans – 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 treat specific diseases or groups of people. They may provide funding if your product or service potentially benefits their cause.
- Friends and Family – Think carefully about mixing business and personal relationships since divergent goals may cause conflict and tensions and may make investing less attractive to others.
- University 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.
- Partner with an Existing Company – Many biotech startups partner with established corporations that have an interest in the product being developed. They may buy out the company after the product is successfully developed. This is common practice for pharmaceutical companies.
(Adjogatse, 2022; Excedr, 2022)
Adjogatse E, Hernandez B. How to find investors for your biotech startup. Probacure.com. September 2, 2022.
Excedr. Biotech Funding for Startups: What Are Your Options? Excedr. June 14, 2022.
Make Your Business Attractive to Investors
- Find ways to gain investors’ trust in your ability to succeed and in your management team. Show your ability to inspire others and execute plans.
- Show progress in the milestones that are most important to your potential investors. These are often milestones that reduce risk or 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.
- Seek clear ownership of your intellectual property (IP) through patented technology. Avoid infringing on the intellectual property of others.
(Castrillon, 2019; Morgaine, 2016)
Castrillon C. How To Make Yourself Attractive To Small Business Investors. Forbes. November 10, 2019.
Morgaine B. 11 Foolproof Ways to Attract Investors. Bplans Blog. March 21, 2016.
- Look for courses on how to be an investor-ready entrepreneur.
- Attend meetings where investors talk with people in your industry to look for investment opportunities. Prepare a brief pitch (elevator pitch) and have lots of business cards available.
- Learn everything you can about potential investors before meeting with them.
- If you want to sell your company to pharma or another large business, attend conferences where these companies meet with biotech startups.
- Once you have investors, involve them in your financial plans.
Life Sciences/Biotechnology – Investor Conferences
Life science startups often make vital connections with potential investors, strategic partners, and companies interested in acquiring technology at conferences specifically organized for this purpose.
To learn more, try taking a look at these examples:
Biotech Showcase 2023 – Provides biotechnology and life sciences companies the opportunity to network with potential investors and executives from companies that may be interested in buying a company.
Life Sciences Summit – Connects emerging biotech companies with early-stage investors to find capital and strategic partners.
Redefining Early Stage Investments (RESI) – Conferences to connect startups in the 4 Ds (drugs, devices, diagnostics, and digital health) with early-stage investors.