Funding your Biotech Startup: Practical Advice from Venture Capital Investors
Biotech startups are working on critical products and solutions that have the potential to address some of the biggest problems facing our world, from disease and climate change, to hunger and sustainability. Startups need resources and capital to propel their important work forward.
While the current funding environment is favorable (2021 was a record breaking year for venture capitalist investments in biopharma, totaling more than $24 billion according to Evaluate), raising money is still a difficult task. Furthermore, the majority of biotech CFOs expect to increase R&D spending this year according to the 2021 BDO Life Sciences CFO Outlook Survey, making raising funds all the more important.
We chatted with experienced VC partners from Canaan, Menlo Ventures, and IndieBio at SOSV to get their insider perspective on the top things they look for when backing early-stage biotech startups. Read on to learn what they value in CEOs and founding teams, how they size up market opportunities, and what they look for in R&D programs.
It starts with the team
Venture capitalists fund early-stage startups based on the confidence they have in the company’s people, science, and ability to execute. Teams should be made up of people with exceptional abilities in their own right — and whose skill sets complement one another. This demonstrates to VCs that your startup has the tenacity and flexibility to meet early-stage milestones. Below are tips on how to connect with the right people for your team — and why doing so will give you an edge when seeking funding.
Take an honest look at your team’s strengths and weaknesses — including your own
It’s important to be honest about the areas in which you excel — and about the ones in which you don’t. Doing so will provide clarity on whom you will need to hire to fill potential gaps. A team made up of individuals with complementary skills will have improved collaboration, efficiency, and productivity — which are all key qualities VCs consider when making a determination on your startup.
Explore your extended network
Some of the best people for your team may already be those you know well, but it’s also possible you’ve not met them yet. Bottom line, the more individuals you connect with, the greater your chances of identifying someone who is an ideal fit for your team. Reaching out to your extended network is a good way to ensure you’re being thorough and discerning in your search.
Focus on trust
VCs want to feel confident in their investment. They are drawn to startups that establish smart goals and are reliable in meeting those milestones. Bringing together people who relentlessly pursue their goals will show potential investors your startup can be trusted.
Led by a talented founder
In addition to innovative technology, reliability, and a drive to succeed, a biotech startup’s founder will naturally play a significant role in securing funding. Below are some insights on which characteristics and skills set a founder apart in the eyes of a VC.
The ability to recruit an exceptional team
The ability to attract and assemble a dynamic, skilled team is not only beneficial for the practical reasons outlined in the previous section, but it also demonstrates that people believe in you, your leadership, and your vision for success.
Conviction in your vision
In order to get potential investors to buy in on your startup idea, it’s essential to show them how much you believe in your approach yourself. With so many different teams working on solving the same problems, this excitement about your mission will differentiate you from the competition.
Clear, concise communication skills
Being able to articulate how your startup’s mission, teams, and technology differentiate you from the competition is a vital step in capturing the attention of a VC and securing funding. It’s important that your pitch meets your audience where they are at and efficiently conveys your key points.
Who knows how to engage investors
Even founders supported by great teams and ideas can have trouble getting in touch with investors, much less convincing them to write a check to fund their startup. There are several key strategies to keep in mind to make the most of your outreach to investors and increase your chances for success.
Identify which investors are inherently interested in your technology’s value
When identifying a list of potential investors, remember that they are people too, and they each have their own unique interests. For this reason, it’s important that your technology is not only exceptional but aligned to the passions of the investor you’re contacting. Ultimately, this will be a long-term personal relationship, and therefore, it is important to get it right from the very start.
Leverage mutual connections and beyond
As mentioned, a mutual connection can help match you with a like-minded investor. In addition, a warm introduction can also provide credibility and capture the attention of a potential investor, as cold outreach often tends to get lost in the mix.
Understand this is a long term relationship
Investment in a biotech startup is much more than a financial decision. It’s a long term personal relationship where both parties commit to helping each other succeed, no matter the circumstances.
With a robust R&D and operational roadmap
Have a clearly-defined idea of your vision as a startup — and ensure you are able to communicate that to potential investors. Keep the following requirements in mind in regards to your R&D and operations when seeking funding.
A clear problem statement
Some startups set out to solve problems that have been around for generations; others are working on problems few people even know exist. To this end, it’s imperative to clearly define what you are trying to solve, and why this matters to the world.
Unique insight from your previous experience
Biotech startups are built on years of previous experience and education, so it’s important to lean into those credentials when convincing investors to fund your idea. Starting a company based on unique insight from your past experience is sure to get investors interested.
Think digital early
Being forward thinking will help you in many aspects of building a company, but especially when thinking about how to centralize and standardize your R&D data. Digital solutions will pay dividends for years to come, so it’s best to implement them early.
Based on the 5 P’s of biopharma success
Raising venture capital funding can seem daunting, but Greg Yap, Partner, Menlo Ventures, has a simple framework for success. Maintaining excellence in the following five pillars will help any biotech startup to impress potential investors.
Program: Is the lead program clearly articulable and making good progress towards the clinic?
Platform: How differentiated is the platform technology?
Portfolio: Will the platform create a successful portfolio of lead candidates?
Partnership: Can the portfolio be advanced to the clinic faster through external partnerships?
People: Is the team being built with the right people to reach the next level?
Genuine passion and curiosity are paramount
You can’t buy passion and curiosity, but they are incredibly important for pushing through the challenges of building a company and raising funding. Investors will value your commitment to your company’s success.
Be open to chance & enjoy the ride
New opportunities often present themselves when you least expect it. Starting a biotech company and securing venture capital investment is a grind, but it can be incredibly rewarding. It’s important to step back from time to time to reflect and celebrate all the little wins that lead to large accomplishments.
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