Practical Valuation & Funding Tips for Biotech Startups
MassBio members and Back Bay Life Science Advisors recently participated in a dynamic discussion around biotech valuation and funding to dissect value placed on early-stage biotech companies and identify opportunities, threats and tips to secure funding in this complicated, but optimistic, landscape.
Led by industry experts, MassBio’s Entrepreneur's University: Valuation & Funding, offered academia, hospital and early-stage venture and corporate development perspective.
Members of the Back Bay Life Science Advisors team joined the discussion, with insight gathered from many years of advising biopharma companies through every stage of development, across billions of dollars of valuation and funding activity.
Experts offered early-stage companies practical advice, including:
Define a near-term inflection point that will increase value and the ability to raise the appropriate amount to achieve that goal (with the caveat: plan on six months of selling, general and administrative expenses runway to your most conservative costs. Everything takes longer than expected).
Brag about all your accomplishments to date but define what your company has achieved and what is still “to be determined.” Ultimately, this will help define similar stage companies for funding and valuation comparisons.
Conduct a full valuation analysis, which will be fraught with near and longer term assumptions, but the process is important to show investors an understanding of the total market size, realistic market share within that market, and the costs and time to get there. Ultimately, this should fall within the range of comparable company’s value at similar stages of development.
Look for similar stage companies in similar markets or industry sectors to help to cross-check your valuation. Inevitably, a similar company has paved the way for you. Although “rules of thumb” were strongly cautioned against, the general consensus was that it’s very challenging to define value in a very early stage company. For a nascent company, a reasonable valuation is likely to be $1-2M.
Find investors that fit your company, a precept we live by at Back Bay Life Science Advisors. There are many different types of investors: many are interested in early stage companies with clear social missions. These investors may be more challenging to find so networking is key.
The MassBio panel also covered key activities to increase near-term odds of funding:
Although every industry is unique, the most significant value inflection for an early stage pharma/biotech company is to reduce risk by taking the time to define and demonstrate your key value proposition in the most feasible near-term way possible. We often recommend steps, including using stage funding from comparable companies, learnings from investor discussions to date, team analysis of the value proposition, and using novel benchtop models, such as preclinical in vitro and in vivo models, and user preference testing.
Defining a clear path to technical de-risking your value proposition requires building the optimal team. If possible, use resources supplied by local academic institutions and start-up communities but also remember to be scrappy and look for experienced and efficient experts looking for a lean start-up experience. A range of experience and perspectives will provide useful internal checks for nest steps and moving forward quickly.
It’s an exciting time to be a young biotech company. There’s a whole new world of opportunity for funding and productive partnerships as biotech and pharma attracts a wider swath of interested parties from an array of public and private arenas, including academia, European and U.S. small public-private companies, and privately funded foundations. Back Bay Life Science Advisors will delve more deeply into the new partnering landscape in future blog posts.
In the meantime, these valuation and funding insights can ready young companies for the road ahead and create a pathway to find long-term success – which benefits the entire industry.