Graphic of magnifying glass searching for funding for biotech startups

Top Sources of Funding for Biotech Startups in 2022

The transition from academic idea to business startup can be quite a jump. One of the most typical stumbling blocks is securing the necessary funding to start your biotech startup. Without it, you won’t have the resources to get your idea off the ground. Fortunately, there are many different sources from which you can gain funding, so let’s delve a little deeper into the world of biotech start-ups.

How Does a Biotech Startup Get Started?

Unless you happen to be sitting on a large pile of cash, the first main objective of a startup is to secure investment! And to do this, you must have a desirable proposition in place. To have a decent shot at getting the cash you need, you must first get these three things in place:
  • Intellectual property (IP)
  • Proof of principle
  • An experienced team
Although you stand your best chance with all three in place, investors may still take a look if you only have two. For example, if you have your IP in place and have plenty of proof of principle available but haven’t yet assembled your team, you could still have a chance.

How Do You Know If Your Biotech Startup is Ready for Investment Funding?

You will be ready for funding when you have a business plan and sellable idea setup. Firstly, get your IP organized. IP essentially means a filed patent for your idea. Biotech is a fast-moving world, so locking your idea down before anyone else does is essential.

Proof of principle shows that you have run the necessary tests and have the data to back up your idea and that it has the viability of success.

Lastly, investors are going to want to see who’s going to be working on the project. Therefore, assembling a team of qualified individuals who are ready to start is worthwhile.

What Unique Challenges Do Biotech Startups Face?

Biotechnology startups face some interesting challenges. While this sphere of the industry is incredibly innovative, it can be tough to be innovative enough to attract investment. Is your idea truly unique, or has it already been done before slightly differently?

Material shortages are also a global problem. Laboratory staples and other equipment are in short supply, and the prices are high. You may find that you can’t source the items you need to get started.
Talent is also in short supply. Even if you get the equipment together, you may be unable to find qualified people to use it.

Lastly, to garner interest from the big players, you need to meet their standards or work in an area they favor. Large pharmaceutical companies are looking for that innovation we mentioned earlier, so it needs to be top-notch.

What Mistakes do Biopharma Startups Make When Seeking Investors?

Starting any business is full of pitfalls, and biomedical startups are no exception. The biggest mistakes made are:
  • Inexperienced management. Top biotech startups hire the right people for the job. Startup management requires a specific skill set, so hire people who have it.
  • Timing. Biotech moves at a dizzying pace, so you may find you launch too late. Watch the market and time your launch right.
  • Bad science: Your test data needs to be solid and it must prove that your idea is innovative, bigger, and better than anything already on the market. Otherwise, what's the point?
  • Playing it safe. In an unpredictable field, you'll struggle to survive if you're not prepared to take calculated risks during difficult times.

How Do You Find the Right Investor for Your Biotech Startup?

Not all investors are alike, and not all will be the right fit for you. Therefore, your investment strategy must be sound. There are several steps you can take to secure the best investor for your needs:

  • Ensure the investor aligns with your culture and brand. For example, if you’re big on sustainability, choose an investment option that matches your views.
  • Identify investors that have the right connections and networks for your field of work.
  • Look at what your rivals have done. Whoever invested in them will already be interested in that particular area or subject.
  • Shortlist investors that frequently invest in biotech startups.
  • Don't discount the big players just because they're large-scale investors. They could very much be interested!

What Should You Expect From the Relationship With an Investor?

Ultimately apart from the investment itself, you shouldn’t expect too much from an investor. They’re not there to do the work – that’s your job. Their role is purely to provide the money so you can produce results.

However, that doesn’t mean you can’t ask for help when needed. While the investor may not actually directly help you themselves, they can likely recommend someone who can from their network of connections. Or, although rare, you may just get lucky and land yourself an investor who wants to be hands-on and help.

How Do You Make Your Biotech Startup Stand Out From the Rest?

We’ve said it before, and we’ll say it again, innovation is key here! If you’re not doing something special, something different, or something fantastic, then you’re not going to stand out.

You may have a great idea, but, likely, someone has already thought of it. If that’s the case, how can you better that? Investors want the diamond in the rough, so find a way to shine.

What are the Most Common Sources of Funding for Biotech Startups?

The most common funding methods for biotech startups in 2021 tended to be startup loans, venture capital, private investments, and university funds, and 2022 appears to be continuing this trend. While these are the top ways to gain funding, other methods are available. Let’s look at them in more detail.

Startup Loans

Banks offer startups loans, which can be a relatively straightforward way to get the money you need – as long as your credit rating is good. You will also need to put down some collateral as a guarantee to show you’re good for the money if things go sideways.

Pros:

  • A quick and simple way to get the investment
  • Many banks offer startup loans, so there's a lot of choice on the market
Cons:
  • The interest rates can be high, usually between 12-15%
  • If your business fails, you could lose everything

Venture Capital

Venture capitalists give the required investment in exchange for equity in the company. However, you need to be considered high-growth for them to consider you because the stakes are high if your biotech startup goes bust.

Pros:

  • A good way to get funding without having to put up your own collateral
  • A venture capitalist will take a keen interest in your business so is likely to offer a lot of advice and support

Cons:

  • You have to give up a proportion of ownership or control to the investor
  • While advice can be good, it can also be unwelcome, especially if the investor wants to take your business in a direction you don't want to

University Funds

Many startup biotech companies originated from research conducted at universities. If this is the case for you, then you could have a chance to get funding from the university in question.

Pros:

  • The university may also give you access to their labs and equipment
  • You have access to expert support and knowledge

Cons:

  • The university must have a research facility in order to offer funding
  • You may have to locate your startup on the university site

Friends and Family

This option should always be approached with caution. If you have wealthy friends or family, they may be willing to raise the necessary funds for your startup. However, this should be conducted properly. A contract should be drawn up, and a lawyer must be involved. This minimizes the risk of feuds and problems occurring, which could compromise the personal relationship.

Pros:

  • Investment can be secured with low or little interest
  • It’s a good solution if you need investment fast
Cons:
  • The potential to cause family rifts and feuds is high, particularly if things don’t work out
  • You may be obligated to give up some ownership of the company

Private Investment from Biotech Experts

Biotech experts offer a unique benefit, they deeply understand the biotech sphere. This means they’re more likely to take a chance on you if you don’t yet have the solid research to back your idea up. This makes them a great option if you need money for research and development.

Pros:

  • A good option for early-stage startups needing pre-seed money
  • You have access to true field experts and their knowledge
Cons:
  • It can be quite difficult to seek out the right expert with the willingness to invest
  • You may find they want a lot of involvement in your company

Government Assistance

Right now, the government is keen to promote and encourage biotech startups. This means there’s a load of resources out there that you could benefit from. The support could be in the form of a grant or a very low-interest loan. Check your state to see what’s available.

Pros:

  • Grants are the best type of funding since they don’t require paying back
  • The cheapest way to secure funding
Cons:
  • Competition is fierce, and funds are limited, so your idea needs to be exceptional to stand a chance
  • You may not get the full amount required to fund your startup

Partnering With Others

Large pharmaceutical companies are beginning to rely on start-up biotech companies for their research and development. Therefore, you stand a good chance of receiving investment if your idea has shown merit.

Pros:

  • Approaching large pharmaceutical companies is easy and expected
  • You may also receive extra funding to purchase equipment
Cons:
  • The end goal for this investment is an acquisition
  • You may not get all the investment upfront. It's typically released in stages as the startup becomes more viable.

Unconventional Funding Sources

If you’re still struggling to secure investment, then it can help to think outside the box. There are many ways to raise capital aside from the traditional routes. For example, crowdfunding has become extremely popular in recent times, and you can also look at debt financing and other revenue-generating activities. You may also find investment opportunities with patient advocacy groups and family offices. It’s always worth a shot to ask!

Are There Restrictions on How the Money can be Used?

With the exception of the startup loan, almost all other investment types will want a say in how the money is spent. When you acquire the funds, you will need to start providing regular reports on spending and results. If things aren’t going the right way, you’ll be asked to make changes.

Before you sign on the dotted line, ensure you are happy with the contract and the level of control the investor has over your business. If they want too much involvement, it may be better to look elsewhere.

How to Know When a Professional is Needed

Navigating funding options can be a minefield of confusion. Often, it takes an expert eye to look through contracts to spot anything amiss or unfavorable. When you get to the funding request stage, you need a financial expert such as EvolveCFO by your side to offer advice and help you make good decisions.

How to Hire a Professional Financial Advisor

The coolest biotech companies get all their financial help virtually. At EvolveCFO, we specialize in helping startups get the funding they need and structure their finances properly. Our qualified accountants will take care of all the financials while you concentrate on making your biotech startup a success. Best part? You only pay for the services you need.

Contact EvolveCFO today. We’re super interested in hearing about your amazing biotech startup idea!