Why read this article
There are a myriad of options available to people looking to commercialise their research. This guide and short video from Pioneer Group is a great explainer on how to navigate the life science funding ecosystem and leverage your existing network. There are also some insightful quotes from investors, which may shed some light on what drives their decision making processes.
A few key takeaways
When commercialisation your research there are a variety of funding streams available, not all of which will be the most appropriate for your innovation.
- Angels, Venture Capital, and Private Equity will all take equity in a company in return for their investment. The equity stakes are very stage specific and will change as your company grows. Besides financing, Angels and VCs (particularly specialists) can provide a valuable network to support your journey.
- Given the capital risks associated with building in biotech, the benefit of non-dilutive grant funding cannot be overlooked. Likewise, partnerships, collaborations, and licensing deals with biopharma are the lifeblood of a sustainable life science ecosystem.
- Every decision needs to be underpinned by the understanding of how you reach your next milestone or value inflection point.
How to Navigate the Life Sciences Funding Landscape
Adapted from the team at Pioneer Group
Understanding how to secure necessary life sciences funding is paramount to the success of early-stage start-ups and businesses. In this comprehensive guide, we share an overview and strategy to navigate the funding landscape.
Understanding Different Funding Options
Angel investors
Angel investors offer crucial seed capital to kickstart innovative start-ups within the sector. In return, they receive ownership equity in the company and, therefore, have a vested interest in the project’s success.
Angel investors may comprise individuals with a professional interest in life sciences or can often be found within your personal network, including family and friends. Their support may involve a one-time injection of seed funding to initiate a project or an ongoing financial commitment to propel a life sciences product to market.
Unlike traditional loans, angel investors in the life sciences funding landscape are not primarily seeking repayment; instead, they invest in promising ideas anticipating rewards only when the venture achieves its full potential.
As with VCs, try to seek out angel investors with an interest in life sciences. They may offer not only financial support but also valuable industry knowledge and connections.
Venture Capital
A form of investment for early-stage, innovative businesses, Venture Capital (VC) generally comes from well-off investors, investment banks, or any other financial institutions seeking to back start-ups or small businesses with great growth potential; VC investments carry higher risk as many startups fail, but offer potential for outsized returns. Particularly within the life sciences, where capital requirements are much larger than on the tech side, a VC will often take a minority stake in a company and a funding round will come together with several funds in a syndicate.
Although it can be provided at different stages of a company’s evolution, VC is becoming an increasingly important source of funds for new labs with limited operating history.
When researching funding options, always look for VCs with a track record in providing life sciences funding to comparable companies in the industry; it’s not just about the money – VCs can also provide backing through technological expertise and/or managerial experience.
Private Equity
Private Equity (PE) and VC are both forms of alternative investments, but they differ in several key aspects. PE typically invests in mature, established companies with stable cash flows compared to VC. PE often acquires majority or complete ownership of companies, making larger investments often in the hundreds of millions or billions of pounds. In contrast, VC usually takes minority stakes with smaller investments ranging from a few hundred thousand to tens of millions.
The risk profile of PE investments is generally lower due to the established nature of target companies. In the context of life sciences, this means that PE may invest in a biotech company when it has reached a later stage of development, often after it has successfully completed early clinical trials or even brought a product to market. At this stage, the biotech has proven its concept and reduced some of the initial risks associated with drug development. This difference in investment stage and risk profile means that PE firms can provide the substantial capital and operational expertise needed to scale up successful biotechs, while VCs play a crucial role in funding the initial high-risk, high-reward phases of biotech innovation.
Grants and awards
Grant funding in the life sciences typically comes from various sources, including government agencies and private foundations to non-profit organisations and industry-specific groups. Grants are awarded to support research, innovation, and advancements that have the potential to benefit public health and expand scientific knowledge. Most grants in the UK are publicly funded by the government’s Department for Business, Energy & Industrial Strategy (BEIS), though there are some opportunities available with EU partners.
Innovate UK is the UK’s main agency for providing grants to small companies. Its flagship grant funding mechanism is Biomedical Catalyst, which enables small and medium-sized businesses to test and develop innovative health and care solutions across life sciences, including therapeutics, medical devices, and digital health.
Keep an eye out for relevant competitions you can enter. For example, Pioneer Group runs a Golden Ticket competition, where winners receive 12 months’ free lab bench workspace for one scientist at a Pioneer Group location and access to specialist R&D scientists, business leaders and entrance into their partner network.
Other funding options
Entering into corporate partnership with other pharmaceutical or biotech companies can also provide funding, access to resources, and expertise, and is therefore an option worth thinking about. These partnerships could come in the form of licensing agreements, collaborations, or equity investments.
Another life sciences funding route you may want to consider is crowdfunding. In the last decade, an increasing number of start-ups are turning to crowdfunding platforms to raise capital, which can be especially effective for projects with a compelling story.
Although early stage biotech companies will often need many millions of pounds before a product can be launched to the market, equity crowdfunding can be (and has been for some) an important and quick source of capital at the start of that journey, when venture capital or other institutional investors may otherwise be less inclined to participate in that stage of funding.
Building Relationships with Investors and Securing Life Sciences Funding
Having a well-thought-out, detailed pitch document is, of course, essential, but to successfully secure funding, you also need to combine this with building strategic relationships with prospective investors.
As mentioned above, try to identify investors whose interests align with your specific field within life sciences (e.g. biotech, pharmaceuticals, medical devices). Tapping into your existing professional network can help here; your mentors, advisors, and other industry contacts may be able to introduce you to potential investors or provide valuable referrals.
Getting a personal introduction or referral through your network may not always be feasible. In this case, you should look at other ways to get yourself and your business in front of your target investors. Industry-specific events, conferences, and seminars are excellent opportunities to establish connections, and many regions now have start-up pitch competitions, where you can showcase your venture to potential investors. Attending (and hopefully winning!) at these events can increase your visibility and credibility.
On the subject of credibility, assembling a team with a proven track record, relevant expertise, and a history of success can also help boost your standing. Investors will want to know that you have a capable and experienced team to drive the business forward. Ideally, you will already have advisors or the equivalent in the form of non-executives with appropriate sector expertise. You can mention their involvement as a form of endorsement.
Likewise, you should mention evidence of any milestones you have achieved, such as successful pre-clinical studies, partnerships with research institutions, or positive feedback you’ve received from other experts in the field.
Funding Tips From Our Partners
“We really want to see a clear pitch that’s not only about the technology, but what the commercial market is for your business and what the root is for a return on our investment.”
“One of the things that investors are looking for that perhaps isn’t obvious from the start is that they need you to be looking at least one round ahead. You don’t just need to think about what your current target investors are looking for, but also what the next investors are looking for, in order to find the right investor.”
“Much as it’s a bit of a cliché, the relationship is like a marriage. Theoretically, you’re going to be working together for the next 10 or 20 years depending on how the business goes. As such, you need to get on with each other, make sure that you’re on the same pathway, have the same vision, and an understanding what you want to get out of the company. Being clear on this helps avoid having conflict later down the line.
“It might feel strange to an entrepreneur that’s looking to raise investment, but ultimately before any investor actually writes a check, they’re looking at ROI and exit strategy, even before they’ve invested. It’s important that you have a clear understanding of where that exit is going to come from, when it’s going to come, and some degree of certainty what the value of that return is going to be for them as well.”
“It’s very important to raise enough money to take your business to the next milestone. If you fail to do that and you have to go back to your investors to ask for more, that additional money is very expensive. So you might in the beginning think you don’t want to raise too much and dilute the company, but it’s actually better always to raise too much money.”
Persistence is key
Don’t forget securing funding for a life science start-up is an incredibly competitive process; not every interaction will result in investment. Be prepared for rejections, and always use any feedback you receive to refine your pitch.
With persistence, a strong value proposition, and a well-prepared strategy, you can increase your chances of building investor relationships and securing the life sciences funding you need.
Adapted from:
How to Navigate the Life Sciences Funding Landscape (Pioneer Group)