6 strategies for successful biotech funding
The biotech industry is booming. In 2020, venture biotech funding reached $36.6 billion, according to McKinsey & Company. With the way the healthcare sector has responded to the COVID-19 pandemic, working to find new solutions to prevent the spread of the virus, it’s understandable that investments are on the rise.
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After a slight dip at the beginning of the pandemic, funding in biotech ultimately skyrocketed. In the same McKinsey article, they found that U.S. and European firms’ average share price increased at more than two times the rate of the S&P 500, while Chinese biotechs saw six times that rate.
It’s a good time for biotech companies to seek extra funding and capitalize on this increased interest from biotech investors through precise strategies, such as venture capital, applying for grants from government or corporate organizations, or working with research universities.
RELATED READING: Biotech vs. pharma: Differences and similarities
1. Identify the Right Kind of Biotech Funding
In the biotech industry, costs for research and development alone are sky-high. Even to create a preclinical working prototype or to begin drug development, you need access to raw materials, labs, machinery, and highly trained and experienced employees. Plus, once you get to the clinical trials stage, you’ll need funding for that as well—and all of this happens before your product ever goes to market, which can be a lengthy process due to FDA regulations.
In the beginning, most of your organization’s worth is tied up in intangible assets, like your intellectual property. You’ll need to secure sources of funding upfront to be able to successfully operate, and you’ll need to decide what type of fundraising works best for your company. Determine this by setting a budget and examining the areas in which you’ll need funding. You’ll need this information before you start looking, as it can help you find specific funding sources. For example, if you know you need funding for a medical trial and you're looking at grants and see a corporate grant for a medical device trial, then you apply for that grant.
2. Apply for Government or Corporate Grants
If you’re looking for grants, the good news is you have different options: government, nonprofit, and corporate. You may have to do some research to find out which opportunities are right for your company, but the good news is you made a list of areas that need funding in step one.
Some government grants are offered by the National Institute of Health and the National Science Foundation. Both offer free search pages, which is a plus for a company that’s just starting out. The National Institute of Health funds research in numerous areas related to human health, and the National Science Foundation funds research that’s done at colleges and universities. To look for even more government grant options, check out grants.gov.
There are also corporate and nonprofit grant options as well. For example, Pfizer offers corporate grants in various areas such as COVID-19 therapies and prevention, quality improvement initiatives, and more. Prevent Cancer Foundation, a nonprofit organization, has grants available for oncology research into early cancer detection and prevention. If you need to research other grants, Science offers a comprehensive list of grant opportunities as well as a list of resources and tips on how to apply for grants.
Not all of the available grant resources are free, so keep that in mind when you’re researching.
3. Partner with a Research University
You may also find funding by partnering with a research university that has a biotechnology program. Several biotech companies found success this way, and it also benefits the university. The University of Texas MD Anderson Cancer Center partnered with big pharmaceutical companies like AstraZeneca and Pfizer for the Moon Shots Program, which focuses on 13 different types of cancer and ways to stop them.
If you’re not quite ready to partner on a big pharma scale, consider working with a university that has a biotech startup incubator. For example, the University of Florida’s Sid Martin Biotech Incubator helps startups grow their medical device, therapeutic, diagnostics, biopharma, and other ideas by allowing them access to their lab space, faculty, and other client resources.
4. Reach Out to Biotech Experts
When you’re in your initial stage of development, it could be difficult to recruit an investor—and reaching out to biotech experts could be a good idea because your preliminary proposal may make more sense to someone with knowledge in the field. They’ll have a better idea of the scope of your potential project and could either advise you on ways to secure funding or, if they have the capital to do so, invest in the project themselves.
Even if they don’t offer funding, partnering with these experts could help boost your company’s authority and build stronger connections within the field, according to ICR Westwicke. Having a biotech expert and strong data on your side may give you more credibility in the eyes of a potential investor.
5. Pitch to Venture Capitalists
Venture capitalists generally want to see some hard data on how a potential investment could provide them with a return. This means if you’re still in the early stages of development, they may be harder to convince, but some VCs do feel like the biotech industry has matured and is not as high a risk as it used to be. In fact, McKinsey said venture capital activity in the biotech sector grew by 45 percent in 2020. Still, VCs want to see some history of an established company. According to Investopedia, VCs will not typically fund a startup from the beginning of the business development process because they typically want to work with firms ready to go to market.
It’s best to wait until you’ve reached the stage where you're ready to commercialize your idea to pursue venture capital. Once you're ready to manufacture your product, it could be a good source of immediate funding. Keep in mind, your firm will likely want input into your company’s direction in order to ensure they extract a return on investment.
6. Look for Angel Investors
If you need money sooner than what a venture capitalist can provide, consider reaching out to angel investors. Angel investors typically write smaller checks in the early stages of a company, whereas venture capitalists tend to invest much larger sums once the company has matured. Think of an angel investor as a catalyst for growth and a VC as someone who helps take that growth to new levels.
The Angel Capital Association says these types of investors are sometimes former entrepreneurs themselves, so along with funding, they might be able to offer you some guidance in other areas of your business as well. To find an angel investor, check the ACA’s member directory. Make sure that if you do choose to work with an angel investor they meet the requirements set by the U.S. Securities and Exchange Commission.
Next step: Develop your biotech products with Qualio
With your funding in place, you’ll need a modern quality management system to safely develop your biotech products and communicate necessary information to your stakeholders and investors. Qualio is an eQMS built for biotech startups. From document management to lab investigation, Qualio can help your biotech company launch and scale. Get in touch with us Qualio for a demo and learn how we can help you manage quality processes, suppliers and more.