Fits & Startups: Investment Capital for Early-stage Biotech Companies

Funding Tips

Randy Scott, an entrepreneur with a background in brand management at Procter & Gamble and marketing for LensCrafters and Nine West, offers five tips for biotech entrepreneurs looking for startup financing.

1) Pick the right investors
Entrepreneurs often make the mistake of taking the first money that becomes available or of choosing investors who agree to take the least amount of equity in the business. Since very few biotechs survive on one round of financing, Scott advises entrepreneurs to look for patient investors with enough resources to provide funds at more than one stage. It will be hard to raise money from new investors "if the original investor isn't continuing to be committed to the deal."

2) Consider venture debt
Square 1 Bank, Silicon Valley Bank and Comerica Bank are among the few banks in the country that provide financial services to entrepreneurs and venture capitalists. "They can put together financing packages that will reduce your need to raise as much equity capital, which means you don't have to give away as much of the company," says Scott, who saved NovaMin shareholders about $1.5 million by securing debt financing from Square 1 Bank.

3) Communicate bad news and good news
Investors "are trying to do a job too, which is to invest their investors' money. They have to make decisions all the time about how bullish or bearish to be about the individual companies in their portfolio, and it's important that they know what the status is in a real candid way. I never got punished, if you will, for delivering bad news."

4) Anticipate future funding
Scott originally thought he could get by with around $2 million to $4 million but ultimately needed well over $10 million. "Start raising money or planning and acting based almost on a worst-case scenario as opposed to a best-case scenario." It's much easier to postpone an investment round than it is to pull one out of thin air.

5) Eyes wide open
Plan for negative events — slower-than-expected sales, for example — and be honest about how they may play out. "Taking a slightly negative view is much less likely to hurt you than taking a slightly overly optimistic view of things."