Tips for BIOTECH Venture or project startup Phase

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   For entrepreneurs, corporate spin offs, institutes or scientists, we assess the concept Science (evaluate rationale), and aid quality, innovation, strategy. We support operations, QA / QC, project management or oversight, lab setup, troubleshooting, and help improve yield or purity (for scaling).

  perfecting your concept/invention.  Add credibility by JHU PhD life science expert vouching for your concept and business plan as vetted; get help for proof of concept experiment design 

 from pre-start up (seed) to development, expansion and growth. We help create the roadmap and strategies for growth. We work with you to identify strengths, weaknesses, opportunities, and threats (SWOT analysis)*, and help tailor a plan to achieve your goals.  

  especially funding, budget, strategy, core productivity (scale, purity) and niche demand.

We emphasize that the science be solid, the rationale strong, proof of concept be done, and labs and projects be selected or set up and run properly, under QA, QC standards, protocols.

 --- "For success, all elements: science, business, strategy, productivity, markets and sales--- must be analyzed, matched and balanced.   In the business itself, likewise  all elements must be balanced.    Few companies do this right."--  RS

 See also our seed and startup funding page 

See the classical SWOT and BCG matrix, as applied to Boston Consulting Group itself

To get a better overview of this process, read also our Home Page and Entrepreneur page.

  a)  D   highly Disruptive, 

  b)  F   mostly-Free of regulations and trials,  

  c)  P   likely highly-Profitable (margins 50%+) and

  d) S   highly scalable without large labor nor much debt

 --- then  you are likely limited to conventional "Round” offerings and rare "early structures".*

* If those 4 features exist, some limited alternatives, not based on selling stock, may be available for part of early needs .

 We may be interested in helping such a Start Up, preferably at pre-seed or Seed stage.

Very few, less than 6% of start ups, enjoy those 4 DFPS unique advantages (we shorten to DFPS), which (because of high margin potential) may be able to early exploit small "royalties on future sales in exchange for  advances of current resources (money, instruments, lab)).

  (Like getting an advance at a new job... to buy a needed car to get to work).

  of "equity rounds": (3)

Start up of the conventional organization, lab(s), further development, and finalizing of marketing, may be combined, or add separate development and expansion finance "offering"  (of equity) stages (rounds).

For a moderate to good-profit margin business, there exist about 4 different species of financing, most being equity stock and convertible debt (and warrants or options) securities offerings (regulated) (1): 

a) Angels (lower funds), 

b) Venture Funds which screen and present proposales via "pitch decks" to VC's (venture capital groups) which select proposals to deploy funds from sources consisting of institutions, large capacity companies or individuals, and 

c) investment bankers (who may acquire funds from wealthy individuals and some companies).

Investment bankers break up your issued stock into tranches  and charge a fee deducted from the funds they raise.

d) Biotech Incubator investment (often a bit cheaper but smaller than above series a, b, c equity  offerings) and may alternately consider exchanges of value (bartering) 

note(1):

or debt (convertible bonds)... All regulated "securities except  some royalties and 9 month debt. See bottom of Entrepreneurs

   The usual approach for start up financing, is the above  "venture fund" equity offering round or larger  Series A, B offerings. This significant funding can bring from from about $2 million to around $50 million, recent average about $18 million. (an investment banker and lawyer get around 15-18% of funds raised usually at seed stage). 

   To do a Series-A start up, the company must already be started  or have "traction" with an existing "valuation", based mostly on the only assets it has:  your IP assigned, any cash and facilities put into the company, and nearing some sales.  Projections/future prospects must be strong, better yet contract(s) for orders or commitments, or agreement to License if performance met...  signed. 

  First, read and understand some realities and importance of having: some "inside track", corporate connections, etc. OR having such a great and proprietary (secret) high potential

proven (proof of concept done)--- that the Venture Fund cannot resist.

   Here is where the Entrepreneur must read at StartUp.com what appear some mostly-correct and sobering realities: that access to funds is rare, that concepts are often indirectly stolen, that pure bare good ideas are common, that VC's usually will NOT sign NDA's, that standard NDA's are weak with loopholes and difficult to enforce (even more so if a trade secret without a patent).

    StartUp.com midway in that article gives some alternative steps to possibly securing some protection, by the manner of getting the Funder to request to see your proposal, presented as valuable:   See above article at about the 60% position down the web page, with headings "They asked for it", "You prefaced it",  "it represents obvious value".  We would add stamping it with "proprietary on every page.

   Only about 10% of seed stage companies reach Series-A.  That requires a formal "valuation" using CPA's, lawyers, and investment bankers.  It typically demands a company"team" exist, (that team expecting about 10% to 17% of shares for their skills and risk taken, some negotiating part pay for equity (sweat equity)).

   The huge caveat and burden on the scientist-entrepreneur, is eventually having to trade most ownership for the large funds needed to do Series A and B, to not have to struggle or be delayed by lack of money.  Such final "equity" total (sum of rounds) runs around 40% to 73% for investors, plus the 15% for the team, leaving about 8% (to 40% max) for the founder. (2)  To "win" against a tough competitor, to be first... may take such big capital. (Capital is a competitive advantage, another "barrier to entry"against those who can't raise it).

  But, further down the Quora page, Eastman and Everhard both suggest a lesser total of 40% to 50% of stock surrendered for all stages. 

   With angels and Venture Funds, the "milestones" to receive "tranches" of the "commitment" per stage--- can be onerous as well.  You need a top scientist with business knowledge on your side to help limit some need for a larger team, becoming a team member from early stage consultant.

(2) Quora:"Max reasonable: pre-seed + seed + a + b + c = (1- 0.25)^5 = 76.3% for investors and then say 15% for the non-founding team members..."(credit Gil Silberman, lawyer)

   Your good lawyer should explain the further risks of offering equity, such as regulations, fiduciary duty and eventual loss of most control.  Some of this may be avoided by "Classes of shares" of which a few first investors and founder(s) hope or expect to also own such special "Class-A" or preferred stock (pretty tricky, with higher voting rights).

   So, an entrepreneur scientist with a big disruptive innovation or invention is often a 'babe in the woods" for this once in a lifetime high-potential event. Your leverage depends on the potential and profitability of the discovery, whether it has some proof, and whether conversely there is little need for a heavy management and marketing organization. Something innovative, in high demand and competitive enough.. may almost "sell itself", once it starts rolling.

For a high-margin DFPS business, "standard industry rates" for licensing to customers in biotech can be very wrong or misleading. Higher profitability (margins) should demand higher licensing fees (royalties) from resellers, and can support later royalty payout to early resource providers.

    If the standard license rate is about 3% to 6% of sales, then a process or product that enables four times the profit--- clearly deserves at least twice such "standard" royalty for that segment (such is latter stage royalty paid by large users of the process or resellers of product). 

As for alternative (royalty, short debt for advances) seed financing for a DFPS-type business, don't expect the VC Funds, angels or their lawyers to suggest alternatives to themselves; 

Nor expect an easy sell of trying to keep (not assign)  trade secret IP at relatively early stage,

since that is the main "asset" they point to toward "securitizing" funds and as basis for "valuation".

  ...including potential advances on royalties (on revenues), for small biotech companies (with caveats; to be advised by a professional), and we discuss what Funders usually want, especially regarding proof of concept and PhD expert review or endorsement (confirmation (not guarantee)). 

Note [3]:  Rare  DFP S (Disruptive, Free of Trials/Regs, very High Profit, Scalable---

startup-financing alternatives may be considered "contractual", but only be engaged with somewhat "sophisticated" persons or companies as defined by the SEC, (with legal counsel), as a precaution agasint the possibility of even a royalty agreement being deemed a security. 

As in out Entrepreneurs page, there are many precautions to take, prudently assuming a "royalty contract" (not based on profits nor equity) might (if unikely) be deemed a security.

(Why?  Assume a chance that some over-zealous ingnorant bureacrat may over-reach.)

Precautions (advised by your lawyer) include full disclosure of risks, not accepting more than 10% of the royalty buyer's wealth, the buyer being a sophisticated investor, being at or near accredited (if an individual) and having such royalty recipient sign off on risk and projections disclosures--  disclosing risk that sales may be delayed or even not occur due to unforeseen events,oversights, or failure of projections or changed competition.

   Have a lawyer review  Risk Disclosures, even for royalty exchange or short term debt.

A goal possibility might be a lead royalty buyer and follow-on contracts with other sources in exchange for advances for equipment, space, lab, techs or supplies.

The "royalty" here is upon future sales by the Start up as it matures, hopefully having sales within 2-3 years. (unusual for life science or biotech)

The StartUp’s future sales may include royalties paid to such startup from licensed resellers under license for the product or method owned or produced by the Startup.

That is:  These are two completely different types of royalties:

a)  one, financing by a small percent on future sales for advance ofresources, 

b)  the other later on from future sales under license through a Licensee reseller or manufacturer of your product by your process 

NOTE:  Such a royalty could become valuable or not, but like shares, may not have a ready market until and unless it becomes valuable, but entitles NO company ownership, and is only as valuable as sales are large (like dividends granted by mature companies).