Dr. James Coates
More posts from Dr. James Coates
Founders in the biotech industry are no strangers to challenges. Success is impossible to come by without substantial investment, time and technical expertise. Although life science startups managed to come out relatively unscathed last year, the enduring economic climate is turning fundraising into a never-ending marathon. Inflationary market dynamics and ongoing fiscal tightening continue to pose significant risks to capital commitments. A successful raise in 2021 feels like ancient history.
As a venture capitalist specializing in early-stage life science companies, I work with startups that have the potential to revolutionize the world against biothreats, pandemics and more. Every day I see new biotechnology that inspires my team and our investors to put capital to work. Many of these startups were well capitalized last year but are now facing difficulties as they look to raise.
To ensure survival, it’s essential to explore alternative funding methods rather than relying solely on classic fundraising. This is especially true for biotech startups, where investment needs are higher and success timelines can be much longer.
If you’re an entrepreneur in the biotech industry, it could be time to make practical pivots to ensure your company can thrive. Here are five strategies that could help your biotech startup navigate a cooling fundraising environment:
1. Set lower fundraising goals
During an economic downturn, trying to raise a large sum might not be feasible, and the time and resources you invest in fundraising could be better used on key business initiatives. By raising less, you can prioritize your survival, conserve your most valuable resource (time) and keep your focus on meeting near-term inflection points. With a smaller pool of investors, you can also maintain a stronger influence over your company’s strategy.
2. Target experienced investors
When raising, it’s crucial to focus on building relationships with investors who share your vision and can offer more than just capital. Investors who have experience in your industry can provide valuable guidance and connections that can help you navigate challenges and take advantage of opportunities — this type of investor is valuable in a downturn since they can advise you on technology-specific strategies.
3. Seek partnerships
Strategic partnerships or collaborations with other companies in your industry are also options to consider in lieu of larger rounds. Partnerships can provide access to new resources, expertise and markets that can help you grow and weather the storm.
4. Now is the time for grants
During an economic downturn, competition for limited resources is heightened. With many scrambling now for nondilutive awards, it’s crucial to consider applying for grants sooner rather than later to help secure a stable financial foundation and increase your overall chances of survival. Grant writing can be time consuming, but it’s an essential step in securing external validation and government funding.
Federal agencies have money to spend. The National Institute of Health (NIH) alone sets aside over $1.2 billion annually exclusively for small businesses. The NIH even provides budget-limit waivers for startups working in high-priority commercial health areas.
When applying for grants, it’s crucial to be clear about your goals and go-to-market strategies. This will help you focus your efforts on key initiatives that align with your long-term vision. Also, the peer-reviewed validation from grants can boost future fundraising efforts, as it shows investors that your innovation has been vetted by external specialists.
5. Put science before product
As a biotech startup, you may be eager to drive product development alongside proving the underlying science of your innovation. However, this can be cost intensive, and it may not be optimal or even feasible during an economic downturn. Instead, it’s crucial to de-risk the scientific underpinning of your technology before product development. This will help you limit near-term cash burn, mitigate technical risk concerns at your next raise, increase credibility with existing partners and investors, and allow you to better time the transition from R&D to product launch. Furthermore, it can enable new external partnerships and potentially even revenue through licensing while you consider strategies for product development.
By focusing on the science, you can also identify areas where you may be able to pivot to address immediate market needs. For example, if your technology was originally developed for a specific application but has broader implications, you may be able to pivot to meet the needs of the current market. This can also help you identify potential grant opportunities that can help you fund your research and development.
An extension of putting science first means prioritizing expenses and optimizing cash flow. This means your company’s spending habits. Identify areas where you can cut costs without compromising on quality or progress. It may also mean reassessing your staffing needs. By being proactive, you can extend your runway and increase your chances of weathering the economic storm. This can also help you better position your company for future growth and fundraising opportunities.
Ultimately, the key to surviving this economic climate is to remain agile and adaptable. By pivoting your strategy strategically and focusing on de-risking your scientific underpinnings, you can position your startup for long-term success. Surviving during difficult times requires patience, persistence and creativity, and by staying true to your vision and remaining flexible, you can emerge stronger on the other side.
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