How to Fundraise if you’re a Start-up

19th April 2016 (Last Updated July 18th, 2018 10:22)

CTA explains some of the best ways to fundraise if you’re a small start-up

How to Fundraise if you’re a Start-up

Picture this scenario: You're a small start-up, about to embark on your first trial and your team has been hauled up in a conference room all day brainstorming ways to raise money. If that describes your company, this is probably not an uncommon scenario. Raising funds in an arguably cash depleted industry is no mean feat at the best of times.

However, over the years, start-ups have been able to secure major deals from venture capitals proving small companies can more than punch above their weight. Examples include medical device companies, Tryton Medical and GlySure which in 2013 each secured deals worth $24million and $13.6million respectively for their medical device trials. When taking a closer look at the reasons behind their successes, experts pointed to the fact that both companies were able to demonstrate not only solid clinical data, but the economic value of their investigational product.

So if you're a small company embarking on your first trial, what are the core tenets to successful fundraising? CTA provides three tips to consider:

Acknowledge the Pitfalls

When attempting to get investors onboard, a large part of the challenge comes in getting them to buy in to your product. Despite all the positive data you may have gathered in the preclinical stage, animal data does not equate to human data. What's more, with long timelines a given, the high risk nature of clinical trials is often a deterrent for prospective investors, so acknowledging that is key. Therefore, sponsors must be able to convince stakeholders of the financial merits of the product you are trying to develop. In a recent interview with CTA, Jan Mous, CEO, Pharmida identified immuno-oncology as the field with the most promise. With new drugs in this field showing vast improvements in the treatment of certain cancers, Mous says there are numerous benefits for both researchers and investors. Furthermore, he advised if your drug (or device) can demonstrate you have something innovative to offer (along with positive preclinical results), the chances of garnering support from investors are high.

How to Launch

For small businesses of any kind, getting off the ground can often be the largest stumbling block. Raising funds for a start-up is a three stage process. The initial stage, which experts call the 'friends and family' round is where you receive preliminary funding to help setup your company. What is critical at this stage is to have a well thought out budget that lays out to your investors what exactly they are buying into. Additionally, companies must map out to early stakeholders how they intend to secure financing in the following rounds of investment. The next two rounds involve investments from bigger players, such as venture groups and large pharma companies that find the first stage too dangerous to invest. Once all the necessary funds are secured, you should be ready to move ahead with regulatory submissions and so forth.

Demonstrate clear reporting

This is where it's important to understand who your users will be. Validate your product to investors by demonstrating clear and exceptional reporting. Remember, the earlier you can show human data, the better as investors will be looking to glean whether phase 1 will be successful. Also, show that you have thorough contingency plans in place in the event things go wrong. When it comes to pitching investors, saying you have the best investigational product is not enough. You have to show stakeholders (patients, doctors, hospitals and financial backers) that there's a huge impact potential for your drug or device.

 

 

References

Robin Mansukhani, CEO, Alzeca Biosciences, 'A Start-up Perspective on Fundraising' (Presentation)
Damian Garde, 'JPM: For med tech startups, fundraising hinges on proving value' - http://bit.ly/1MFWy9s
Iain Sanderson, 'Medical Device Start-Ups and the funding challenge' - http://www.iansandison.co.uk/blog.php
William Stewart, Jeanette Stewart, and Lindsay Nelson, 'First Steps in Creating a Pharma Start-up' - http://bit.ly/1MFWM0i