Eddie Blair, CEO, GeneFirst, a biotech in the business of modernising molecular diagnostics, spoke to me about his funding strategy and how he is addressing the challenges. He is using 3 routes to funding, but still faces a mountain to climb to overcome the difficulties involved. I think there is a way we at Biotech and Money can help Eddie, and all biotech’s, close the funding gap.
Understanding the challenges of raising capital
There are a multitude of factors that all combine to make it very difficult for early stage biotech to raise capital.
I think in general they come down to three things: timelines, competition and quantity.
For generalist investors, timelines are too long and biotech is too risky, and for specialist investors exits are hard at the moment so there is no cycle of money. The challenge for an early stage biotech CEO is to identifiy new sources of funds – and then to compete for it.
Eddie Blair at GeneFirst is looking at 3 routes to obtaining funds. Here’s an excerpt from the interview I conducted with Eddie:
B&M: Let’s talk about finance. How do you see yourselves addressing the need to obtain funds?
Eddie: There are 3 routes: Firstly, angel funds or networks can give us equity investment – we’d like between 0.5-1.5m on a valuation of 5m.
Secondly, we are looking at non dilutive project finance, around which special purpose vehicles are built. This can be quite substantial investment, with pay back over a long time – this requires a different type of valuation than equity based. It’s attractive because there is no dilution.
The third way is also non dilutive, which is grants. The technology strategy board, which is hugely important to life sciences, has a number of themes such as stratified medicines, biomedical catalyst, technology led innovation and these are competitions that give grants. We’ve managed to obtain 3 grants through the biomedical catalyst, and they can pay from 150K up to 2.4m, so they can be good sources for substantial finance. It does require an SME to contribute between 25-40% of the value. It matches your funding to get more bang for the buck
The other obvious route to funds is through partnerships – and this probably is one of the most critical strategies for biotech’s to meet their funding challenge. Partnerships deserve several separate posts on their own – you can see a few I’ve written here.
‘Going after grants should represent a hugely important part of any early stage biotech’s strategy’ [Source @biotechandmoney] [click to tweet]
So, how do we address the funding challenge?
Of course, there is no easy answer to this. I think’s Eddie’s experience shows that at least in the UK, going after grants represents a hugely important part of any biotech’s strategy. Other biotech CEO’s I’ve spoken to point to the need for corporate venture capital to play a larger role, as well as a need to attract more high net worth’s into the sector.
Personally, I think the industry needs to do more to educate the generalist investors. This is something we at Biotech and Money are hugely concerned with.
On the market, either everyone piles into you or no one’s interested, there’s no in-between. You’re either in favour or out of favour depending on a number of things, but mostly it’s just general market sentiment.
That shouldn’t be the case - investors should be backing companies on their merits: is that a good company; have they demonstrated market potential; have they got a management team that’s got all of the credentials to deliver, etc.
This is where I believe education comes in. I don’t think you can achieve the above unless investors are properly educated - otherwise people will just invest on trends.
If you’d like to know what else Eddie had to say, including his view on partnerships, Download the full transcript here.
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