Getting funding for a biotech company is not as hard as it seems. It’s true that the biotechnology sector carries vast innovative potential but is often limited by finance and other restricting factors that have affected its overall output.
So the challenge is how to get funding for biotech companies in a world of artificial intelligence, fast computing solutions, software hype, and other technology trends.
What is a biotech company?
Biotech companies are innovative firms that create medical and agricultural products from both biological resources and living organisms. These companies are called bio-firms because of their unique processes and end-product which are derived from living organisms and molecular science. Aside from drugs, these companies also produce other commercial products such as biofuel, and genetic modification processes.
In recent times biotech startups have been on the rise alongside other high-tech startup companies as an off-shoot of innovative technology.
That is in addition to increasing global healthcare and MedTech challenges such as the COVID-19 global pandemic. These all contributed to the need for rapid development in the sector. Leading the industry are Pfizer, and Johnson and Johnson, the largest companies in the biotech industry.
How is BioTech different from a pharmaceutical company?
Both biotech and pharmaceutical companies are sectors in the same industry but with few distinctive features. While they both produce medical products their major difference lies in the source of their materials.
Biotech companies get their product base from living organisms and molecular biology, but pharmaceuticals, on the other hand, derive their medicines from artificial and chemical agents.
Why is the biotech sector unique?
- Enormous scale of funding needs: Biotech companies expend so much money on research and development activities to be able to develop a drug or product for the market. So much that they generally rely on external sources for heavy capital investments to be able to operate.
- Long periods of extensive research: Biotech companies conduct long-term research activities sometimes spanning up to decades just to create a new drug or medical technology. Due to the extensive nature of life science researches, it takes long periods to complete a drug and get it fully market-ready.
- Uncertain outcomes: There is so much risk and uncertainty associated with firms in this industry. A company can spend so much time and capital developing a drug that may never work out and hence, denied entrance into the market. Investing in biotech companies takes a lot of analysis and calculative risk-taking on the part of the investor especially when placing a bet on earlier stage of product development.
5 Easy ways to get funding for a BioTech company are
Here are the 5 best ways to get funding for your BioTech startup.
1. Early-stage funding from VC firms and angel investors
According to Crunchbase data, $65.0 billion was raised by BioTech startups globally, in 2021 alone. While worldwide biotech and healthcare investment stood at a lofty $120.9 billion.
Leading this surge of investment in the sector include VC firms like GL ventures, Northpond ventures, Temasek holdings, Lily Asia ventures, Novo Holdings, Orbimed, and RA capital management. These venture capital firms funded mostly series A, B, grant, debt, and convertible note financing.
Venture capital firms and angel investors remain one of the best financing options for tech startups because of the huge capital financing they sink into promising companies. In February 2021, Cantessa pharmaceuticals raised $250 million series A funding round and went on to complete a $380 million IPO in June that same year.
The best part is that they do not require collateral or monthly repayment plans to fund a startup.
However, the downside of this type of funding is the high-profit expectation of returns placed on investment and in a very short time too. VC firms expect to start reaping their returns anything between 6months and 1 year. Whereas biotechs use a lot of time in their R&D process. This can slow down profitability drastically.
2. Startup accelerators and incubator programs
Business accelerator and incubator programs are anchored by investment firms that provide seed funding, business mentorship, networking opportunities, and technical support for startup companies. There are certain accelerators focused on raising biotech and MedTech startups. They also provide early-stage and seed capital investment for high-growth potential startups.
- Expert support from industry professionals
- Provision of Laboratory spaces and other technical equipment
- Seed-Capital investment
- Access to business mentorship, free founder communities and professional networks
- No collateral required to access funding
- Forfeiture of less than 50% equity stake
- Loss of absolute control over the company
3. Research grants from charity organizations and government
In a bid to boost innovative medicines and improve health care practices, there are so many financing initiatives that BiotTch companies can benefit from. For example, there are funds set by charitable bodies like the World Health Organization (WHO) and governments to sponsor medical advancement, the development of new health technologies, and environmental products creation at all growth stages.
The best part is that BioTech startups get to keep 100% of their equity when funded by the government or nonprofits.
- Access to scientific research grants
- Product development support
- Intellectual property (IP) protection
- Access to research spaces and technical equipment
- The process of getting this type of funding is tedious and it may take a long time to get funded.
4. Academic institutional grants
Institutional investors such as academic institutions provide incubation centers for innovative scientific and technological research. Low-budget biotech startup owners can leverage academic resources and even get access to seed funding to build the early stages of their business.
The world of academia is always trying to create newer technologies and stay ahead of trends, hence, novel discoveries and intensive research is always welcomed with great enthusiasm.
- Seed grant for research and product development
- Academic institutions do not usually take equity stakes
- Provision of low-budget staffing
- Other technological resources such as product testing and design labs
- Technical support and advice
- Financing capital is less than that of other institutions
- Might have to share IP rights and patents with parent institution.
5. Crowdfunding campaigns
Crowdfunding is now an increasingly familiar financing option for any kind of startup or project. Early-stage biotech startups can raise money using a different model (called equity crowdfunding), in which investors get a share of the company’s equity instead of just paying for a product.
In 2015, a French neurological company called Eyebrain raised £1.3 million through the crowdfunding site, Anaxago. Crowdfunding platforms like Capital cell and Medstartr are equity crowdfunding platforms created to shorten BioTechs’ and MedTechs’ funding journey in half.
Although the finance from crowdfunding is small in comparison with VC firms and angels yet, it works very fast and provides a great way to get seed funding. Though in recent times, there has been a lot of skepticism about the practicality of Crowdfunding for biotech firms given the long operational duration and generally high-risk nature.
To wrap it up…
Just like every other tech company biotechs have so many financing choices to choose from. The right funding option depends on the company in question, what percentage of control are they willing to lose? Do they need funding for short-term or long-term use? How big is the funding needed? Do they need infrastructure support or not? Industrial advice or not?
These and many more will determine the best way individual biotech startups should source for funds.