This year has been tough for many start-ups, with access to investment at a 5-year low. This has hurt resource-hungry start-ups, such as biotech SMEs, which need to invest in research for at least a decade, if not more, before they can start to deliver returns.
So, if you’re a biotech start-up midway through your research cycle with no possibility of going to market today, how can you survive the investment downturn? In this article, we look at some options that you might want to consider, from thought leadership for executives to government funding, that might extend a start-up’s funding runway.
1. Accessing government funding
Over the last decade, most science-driven start-ups have treated the private sector as their go-to investor. In fact, securing investment from prestigious VC funds, usually out of San Francisco, has embedded itself into the psyche of founders as the only way to raise funding for your start-up.
The result is that many founders have become dismissive of other sources of funding. In a tight investment market, this needs to change.
In the case of deeptech start-ups, including biotech, there are significant, albeit hidden, sources of government funding. For example, in 2024, the UK Government awarded £100 million to a range of biotech projects across the country. But applying for this type of funding requires some dedicated thinking. It is not easy.
VC funds are usually principally, if not solely, interested in the long-term profit potential of the business. They want to make lots of bets on small start-ups, hoping that one of them will become a massive multi-billion-dollar business. If your start-up doesn’t have that raw potential, then usually it rules you out for VC funding.
That’s not necessarily the case when it comes to government funding. Governments are much more interested in the public-use case for your technology as well as its potential to attract other similar biotech start-ups, businesses, and researchers to the country.
The upshot? Don’t simply try to repurpose a VC pitch for government-based funding. Instead, you need to reconstruct your narrative to account for the role that your start-up could play in transforming public services, galvanising the country’s business and research ecosystem, as well as providing a political ‘win’ to the government.
2. Leveraging thought leadership
While one route might be to go after alternative sources of investment, another option might be to give your start-up a competitive edge when going for more traditional sources of funding, such as VC.
One underleveraged, but effective, way to make your start-up more attractive to investors is to invest in executive thought leadership. In simple terms, this involves raising the profiles of your executive team members, principally your CEO, by highlighting their expertise and credentials.
This activity might be centred on a single executive, such as the founder, or the wider team, such as the CEO, CFO, and CTO. The ultimate result of a successful executive thought leadership campaign will be a well-known, well-recognised, and well-respected executive team.
Why is this effective? Principally because investors say that the thing that truly makes or breaks an investment for them is the quality of the team. In fact, nearly half of VCs say that they prioritise the quality of the start-up’s team over everything else. That’s a compelling statistic.
Furthermore, there is strong evidence to show that start-ups with visible, well-known leadership team members recruit better talent, raise more investment on more attractive terms, and even grow faster.
3. Signing partnership with big pharma
One final route to bolster your finances is to sign a partnership with a pharma giant earlier than you might have expected (or wanted).
Most biotech start-ups wait until their products are fully developed before talking with big pharmaceutical companies. That’s understandable. Big pharma companies are sophisticated businesses, and they drive a hard bargain. If you’re bringing a fully formed, finalised product to them, it will strengthen your negotiating power.
But if you’re running out of capital, and you see little hope in drawing on alternative sources of funding or making your business more attractive, then perhaps you need to bite the bullet – and have that conversation sooner rather than later.
There are many deals that you might consider striking with a pharma giant, but they all, very roughly, take the following form: they provide you with funding or alternative resources (such as lab space, software access, or even scientists) in exchange for a financial stake in your future products. This might mean an equity stake or just a percentage of sales in the future.
Given the scale of the largest pharma companies, it can be very difficult to navigate their internal bureaucracy to find the right person to speak with. Usually, the best route is to find a contact who has previously worked at the business to point you in the right direction.
But if you can’t find an individual to guide you through the organisation, then the best route is to find an org chart on the company’s website, so that you can identify the individual who oversees engaging with SMEs and start-ups in your territory.
You should resist the temptation to go too high within the business, such as emailing the CEO directly, as these people are generally time-poor, focussed on other responsibilities, and may simply ignore your email. It is better to go to someone much further down the business chain who has the time to refer you to the right person, if it’s not them.
The next 12 months will continue to be difficult for all start-ups, but especially biotech businesses. In this environment, hopefully some of these tips will help you navigate the environment more successfully.
