Options for early stage life science funding

Our guide to your early stage funding options is written for growing life science business, principally in the UK. You’ll need to be very strategic about obtaining your capital requirements in what is a high risk sector with the capacity to burn a lot of cash. We consider some of the practical sources of early stage finance, as well as some of the key priorities to help you develop your business.

Grants and awards.

It makes sense to consider as many sources of non-dilutive capital as possible.

National competitions such as the £180m Technology Strategy Board and Medical Research Council Biomedical Catalyst Fund offers funding to innovative small and medium sized enterprises (SMEs) and academics to develop solutions to healthcare challenges. There is a Feasibility, Early Stage and Late Stage tranche of funds and all work on some aspect of co-funding. Failure to secure co-funding may mean that any award made cannot be claimed in practice. The fund is opened and closed periodically to allow applications in each funding “round” to be considered.

The TSB’s “Smart” awards are also designed specifically for the SME. They were previously known as Grant for Research and Development. Three types of grant are available: Proof of market, Proof of concept and Development of prototype. Again, co-funding arrangements exist. Other TSB funds are opened from time to time, such as the “Technology Inspired Innovation” and Collaborative R&D Technology Programmes are also aimed at early concepts. At the time of writing these particular scheme were closed. There are about 17 different schemes run by BIS/TSB and one more of note is the SBRI. This doesn’t offer grants at all but government contracts in response to specific needs. The commitment to healthcare in this area has recently been increased substantially.

Industry Fellowships funded by The Royal Society, the BBSRC and other also provide opportunities for an academic scientist to work on a collaboration project with industry.

The BBSRC orientation is typically more academic than commercial, but not exclusively so. It has a range of funding options including studentships, fellowships, and research grants – as well as Industrial Partnership Awards.

Other government backed grants from UKTI (e.g. the Export Marketing Research Scheme, Passport to Export Programme and Trade Show Access Programme) and NIHR (e.g. Public Health Research Programme)  may also be useful.

Other sources may include the Wellcome Trust Technology Transfer grants (see video) such as the Translational Fund,  “Health Innovation Challenge Fund“, “Strategic Awards in Biomedical Science” and “Seeding Drug Discovery“. The Translational Fund is more of a convertible loan than a grant – but like other BBSRC and TSB funds can strongly validate your technology and prove attractive for follow-on funders.

Other awards such as the Brian Mercer  Feasibility Awards and Awards for Innovation may also be relevant, the Universal Biotech’s “Innovation Grant” and the Biotech Roundtable (OBR’s) “OneStart” competition for bio-entrepreneurs under the age of 35 – to name but a few..

European grant funding should not be ignored and I’ll update the post with more on this in the near future. You should familiarise yourself with collaborative opportunities such as “Framework 7”. The other main item of note is Horizon 2020 / Innovation Union – a financial instrument and Europe 2020 flagship initiative aimed at securing Europe’s global competitiveness. Running from 2014 to 2020 with an €80 billion budget, the EU’s new programme for research and innovation is part of the drive to create new growth and jobs in Europe.

Innovation Vouchers provided by Universities from time to time (and also the TSB) may offer a significant early stage boost for young companies.  Examples include MMU’s £5k “kick-start” vouchers. Manchester University and others offer similar schemes from time to time.

Academic partnerships.

The Innovation Commons initiative is a great example of industry collaboration. The  Innovation Commons initiative recognises that many academic institutions may not have all of the required expertise to either understand or commercialise a significant number of the  projects in it’s pipeline in-house.

Other examples provide support to businesses looking to build skills and capabilities, or cost share the appointment of post-graduate staff such as MMU’s “Knowledge Transfer Programme” and “Knowledge Action Network”. MMU’s Centre for Enterprise also host the Goldman Sachs 10,000 small businesses and other useful growth programs such as the Fast Forward Investment Program (see equity funding).

Charitable partnerships.

Some not-for-profit options may be available. One of the most high profile for example is the Bill and Melinda Gates Foundation which will make significant funds available where projects align with the foundations strategic priorities. Closer to home, disease specific research foundations – such as alzheimersresearchuk or cancerresearchuk – will provide grants for research into relevant research. Nesta is an independent charity with a mission to help people and organisations bring great ideas to life. They do this by providing investments and grants and mobilising research, networks and skills. We’ve not used them directly, so more on this when we get some feedback from others.

Crowdfunding. 

Nesta provide a good starting guide to Crowdfunding and how it can be useful. Projects can offer fairly innovative incentives to potential backers that may or may not include equity in the company.

Equity funding.

Accessing the right angel networks can be problematic but extremely rewarding. Not only do you get the potential for current and downstream funding, but you should be looking to tap into the experience, expertise and connections of successful business people who can mentor and coach you to develop and expand your own business.

Before going down this route, be mindful that some of the later stage clinical trials may require huge sums of VC  funding that can hugely dilute the ordinary share capital of early stage investors. Angel investors may therefore be more likely to want to see a company sale rather than VC funding at this point.

MMU’s Fast Forward Finance Programme can help you access multiple angel networks in a structured and cost effective way – check out our blog on this and watch the video on the site.

The IQ Capital Fund invests in innovative seed and early growth stage high-tech businesses under the Capital For Enterprise Programme or “Enterprise Capital Fund“. This scheme brings angel investment and government money together and is specifically intended to address a long term structural weakness in the provision of risk capital for SMEs in the UK. Other funds are available within the scheme periodically so check out the websites.

Early stage VC funding is an option where a proof of principle is already established and a clear path to proof of concept and/or launch has been articulated. Having said that, public money in regional growth funds is often available in smaller “chunks” as a “pathfinder” investment, such as those offered by Spark Impact who manage the The North West Fund for Biomedical.

An exciting new development is Wellcome’s Syncona Fund. This is a Venture Fund set up at the end of 2012 and allows Wellcome to take a more commercial role in development funding.

Big Pharma VC Funds are also springing up to enable companies to augment their access to innovative technology.

Private VC funding in UK life sciences can be harder to pin down. Many VCs claim that they are active in this space, but a look at their existing portfolio will let you know if they’re really into the sector.

There are many “corporate finance experts” attracted to the prospect of high commissions in the sector that you may need to navigate. Again, check their track records and ask to speak to some of the CEOs they have helped. In practice we recommending working with Epiphany Capital where your needs exceed £500k – but only if you can be very clear on the value your business can create and have developed a management team that has the credibility to deliver it.

It also looks as though MTI and IP Group will be deepen it’s role in the early stage sector too. MTI developed a fund with Manchester University and IP Group has recently launched a £30m venture capital fund in partnership with the European Investment Fund (EIF).

Risk share.

Develop relationships with strategic partners who can support you not only with investment but also in other critical resources that would otherwise consume cash. There are flexible and cost effective ways to build business capabilities, and many deals to be done. For example, there are many companies and institutions with excess lab space, kit, key opinion leaders, etc that can cost effectively help you build validate your business. Check out Trustech and Biocentre for example. Our own business model at Integral Finance was designed to enable you to have access to credible, sector specific financial partnering expertise without taking on the cost of a full time finance director.

Bionow is a membership organisation that provides all kinds of  support for business in the biomedical and life science sectors across Northern England, including partnering introductions and purchasing power. If you want to grow a life science business you really should consider a membership.

There will come a point where your academic credentials alone will not be enough to identify funding opportunities and develop your ideas. Get out there and make the deals you need to build a credible capability and delivery team.

Get trading.

Once you start trading your options widen considerably. If there is the opportunity to utilise your skills – for example by initially creating  a contract research offering – you may well make some very valuable contacts, build some additional capabilities and improve your chances of developing your main product offering in the process. Once you are trading, additional sources of funding such as mezzanine or loan finance may become options.

Tax incentives.

The UK’s tax regime contains a number of measures to support knowledge based businesses. Make sure you’re aware of these and check out our previous blogs on R&D tax credits, SEIS and EIS, and the UK Patent Box schemes. Some pre-work is required to make sure you and your investors fully benefit from these and Integral Finance can help you.

Plan, plan, plan.

Just as you need to develop a business strategy, you will need to develop your resource capabilities and consider your funding needs right the way through to achieving positive trading cash flows. Back to the question on credible delivery, it’s not enough to just have a plan for how much capital you need to get to the next milestone or phase in development. Define what you need to do yourself and what can be provided by others. Understand where your needs align with the interests and resources of others. Find partners that can provide the infrastructure you need in exchange for knowledge, networks, or innovations you have. Look for funding from government initiatives, organizations, foundations, and non-profits that have the same goal, whether it is curing cancer or improving healthcare outcomes. Yes, it takes time to apply and finally receive the money. But non-dilutive capital is always an advantage. Finally, forge partnerships that provide more than money.

Maybe it is as much about your resourcefulness as it is about  financial resources.

 

Comments

  1. Options for early stage life science funding http://t.co/MXDTBbzeix. Our blog ahead of @oxbridgebiotech event in Manchester tonight

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