Financing Your Company – Part 1: Raising Money, Capital Needs, and Funding Sources

Abstract

Once a company is formally established, the next step is that of raising capital – and certainly plenty of it. Raising money for a start-up company may be the single most arduous, and time-consuming activity undertaken during one’s career. It may be tempting but erroneous to compare financing of a biotechnology company with those of non-life science companies such as Internet, software, or IT businesses. Financial requirements for companies in those industries are vastly different in the amount of capital required, the number of financing rounds needed, and the development time required before a product can be sold. An Internet-based company can very likely advance a product to commercialization with only a seed capital round. Whereas, for a biotechnology company, depending on the type of product, potentially three to five large funding rounds or more may be needed before a product reaches the market, and one of these funding events could be through an initial public offering (IPO), a partnership, or acquisition.

The decisions made regarding company financing impact its future growth opportunities, so it is important to understand the myriad of issues involved with financing choices. Proper financial planning is of such critical importance to the success of a biotech business that I have devoted two chapters to various topics on this subject. Even then, there is more to discuss about the funding and financing of a biotech company than can be covered in a single book. In this chapter, we discuss how much money is needed, how long it takes to find it, and where to go to seek funding. If a company carefully manages their product’s development and consistently meets key development milestones in a timely manner, they will greatly improve their chances of securing the capital needed. Being properly prepared and learning some key aspects about funding will make this challenging job more rewarding. In the following section, I would like to share with you several notions that are important to understand before raising capital.