Cutting-Edge Biotech: Early-Stage Funding For Health And Life Sciences

Early-stage funding for health and life sciences starts with exploring the asset classes available to you. Next, you’ll weigh your options and choose the best source of funding and support that can help scale the company.

Aside from monetary backing, entrepreneurs can look for support with know-how and guidance with running operations.

The health and life sciences sector encompasses additional segments like tools, equipment, devices, diagnostics, therapeutics, and digital health. The initial strategies you deploy to get funding will help develop a cohort of investors to rely on further rounds.

That’s how you can ensure the long-term success and scalability of the company.

However, as a startup founder, know that attracting investment is not really challenging for this business vertical.

The Future of the Health and Life Sciences Sector Looks Promising

After the heights of 2020-2021, the health and life sciences segment had a significant slump in 2023. Investment in the sector and financial returns took a major hit. Despite the broader S&P500 index in 2023 rising close to 25%, the SP& Biotech Index XBI saw only a 10% rise.

The different kinds of biotech financing, including debt financing, VC financing, and IPOs, were down in a big way. This situation was particularly surprising since there have been scientific innovations and breakthroughs in both startup and established companies.

For this reason, startups needing funding or exit strategies via M&A deals or IPOs in 2023 faced major challenges. However, the outlook for 2024 looks promising. Experts suggest that the ongoing R&D efforts will likely lead to advancements and results.

Core Areas to Focus On

The core areas of interest include neurodegenerative diseases, cancer, and other lifestyle diseases. Pharma companies are directing efforts to develop innovative devices, leveraging generative AI or artificial intelligence and digital transformation.

As a result of the transformations, the sector will have an estimated 5% increase in profits.

The market will likely see the introduction of more virtual and digital tools to deliver healthcare. Stats indicate that the healthcare industry will be valued at $278B by 2025, which is a stark contrast to the $87B worth in 2015.

The overall market conditions and projections have also encouraged M&A activity. PwC estimates that M&A deals between $225B and $275B will close in 2024 through the different subsectors.

If you’re looking for early-stage funding for health and life sciences, you’ll reach out to venture capitalists, private equity investors, family offices, incubators, and SPACs.

Read ahead for detailed information about these different sources and their key criteria for screening potential candidates. You’ll also learn more about the support you can expect from them besides capital. Ready to dive in?

Factors Influencing Early-Stage Funding for Health and Life Sciences

Startup and early-stage founders can consider sources according to the specific stage where their companies are at. Accordingly, you’ll factor in the capital-raising objectives, the costs you’ll incur to access that capital, and the dilution you’ll cede.

Next, entrepreneurs should discuss their conditions and covenants for extending financing. They should also consider their growth strategies and pathways and the ultimate exit plan they have in place.

The pitch deck will include information about how you intend to use the capital to meet your value inflection milestones. Or your strategies for commercializing the business and the concepts you have developed.

Aside from conventional funding sources, you can also consider equity, licensing, convertible notes or SAFEs, horizontal or vertical partnering. Venture debt grants, earning fee-for-service revenues, and monetizing royalties can also help raise added capital.

Venture Capital (VC) Funding

Venture capitalists are an excellent source of early-stage funding for health and life sciences. As a rule, this sector is capital-intensive since research and development labs and facilities need large investment amounts.

Companies must spend money to reach their scientific and operational goals, particularly in the pre-clinical, clinical, growth, and trial stages. R&D efforts do not necessarily yield results quickly, which is a downside for investors looking for profits. Commercializing and marketing products effectively also need massive funding.

Having diverted money and resources toward developing drugs and equipment can result in companies adding high price tags. As a result, sales can be extremely challenging if the pricing is too high for the average consumer.

Companies may also consider slowing or eliminating the R&D since selling the end products is difficult.

VC funding can ensure that consistent innovation is sustained over the long term. Startups can extract the maximum value from available resources for improved healthcare for the general community. But at affordable costs.

Getting venture capital backing can assure your company of capital injections to spur the upward growth trend.

Companies Can Access More Than Just Capital

Regardless of the stage where they are at, companies can rely on VC support for much more than just money. VCs working primarily in the health and life sciences segment have in-depth experience of potential challenges and success strategies.

VCs can offer invaluable guidance to help you navigate risks and capitalize on the available market opportunities. Founders can gain access to their network of other investors, mentors, industry experts, and partners.

You can also leverage their interest in actively scaling the company by serving on the board. VCs also assist with identifying and recruiting top talent who can be invaluable additions to the existing skill sets.

Considering that VC funds are growing in size, more companies are accessing these public finance markets at earlier stages. The COVID pandemic has accelerated investor interest in the healthcare sector, and this interest continues to be maintained.

As you’re reading about the types of investors for startups you can approach, take a few minutes to check out this video. In it, I have explained all the options available to you.

Incubators & Accelerators

Several incubators and accelerators operate in the US with the core objective of supporting new and upcoming concepts in healthcare. Founders can approach these programs for support long before they need early-stage funding for health and life sciences.

Renowned incubator and accelerator programs offer facilities, labs, workshops, and equipment for transforming ideas into marketable products. These resources can be low-cost or free and may also include seed funding to get the startup off the ground.

The actual amount of capital may not be significant, but it is typically adequate for developing the proof of concept. You can also stretch the funding to early-stage and pre-clinical activities. The added benefits include access to networking opportunities, industry-specific expertise, and mentoring.

Founders can also access training on managing available resources, accessing capital, and building a company structure. Incubators may not have fixed timelines for innovators to develop their product prototypes, but accelerators have comparatively short terms.

Before approaching and applying to incubator and accelerator programs, you’ll research the specific segment they support. Find out about the sub-verticals they target, which may include specific areas like therapeutics, pharmaceuticals, equipment, and services. Others may accept broader segments.

Companies and founders that make it to the incubator or accelerator portfolio also gain visibility and credibility. You can expect more opportunities to access capital in the future or enter into strategic alliances, including partnerships or M&A.

Family Offices

High-income or extremely wealthy people typically have a family office that appropriately manages and invests their funds. An individual family office may manage multiple family assets with a minimum net worth of $100M. Credit Suisse estimates between 6,500 and 10,500 such offices are in operation.

Since these offices have trillions of dollars in assets for investment, founders can reach out to them with compelling pitches. Family offices prefer to back people they are familiar with, which is why the first step is relationship building.

Leverage mutual contact and references to get introductions and meetings with investors. Founders looking for early-stage funding for health and life sciences can consider them viable options. That’s because they tend to invest smaller amounts than institutional investors and venture capitalists.

However, attracting a family office’s attention with a great pitch deck is usually successful. They don’t have fixed timelines for repayment or returns like limited partnership deals.

Founders may be concerned about ceding control through board seats, like in the case of institutional venture capital or private equity funds. In that case, getting investment from a family office is a better alternative. Further, you won’t need to comply with other conditions that could impact the company’s structure.

Reaching out to family offices is a practical option since they typically balance profits with purpose. The health and life sciences sector is going through radical shifts with groundbreaking innovations and changing customer demographics and expectations.

Profit-oriented investors are thus keen on backing startups in fields like medical equipment, devices, diagnostic tools, and telemedicine. Biotechnology, healthcare IT, and AI-driven diagnosis are other areas of interest.

Angel Investors

Similar to family offices, angel investors are high-net-income sources of capital. Unlike family offices, angel investors are individuals interested in backing innovative and viable projects. Angels can operate individually, or they may be a part of a larger network of investors.

Expect to cede some amount of control over the company’s decision-making by way of consent or veto rights. Or a blend of both options. Angels that invest in life sciences and healthcare sectors typically have exceptional expertise in the sphere.

They may have founded and/or exited their own companies or may have a vested interest in backing health projects. Dedication and commitment to community and social upliftment and ESG concepts can also be the driving factors.

Angels investors offering early-stage funding for health and life sciences are incentivized to fund startups because of the sector’s future prospects. The potential for attractive returns and exciting innovations that can transform healthcare by addressing a huge problem are other deciding factors.

Mentoring and assistance with capital and business structure formation are some other benefits for aspiring founders. You can also tap into their knowledge for direction with process management.

Keep in mind that in fundraising, storytelling is everything. In this regard, for a winning pitch deck to help you here, take a look at the template created by Silicon Valley legend Peter Thiel (see it here) that I recently covered. Thiel was the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash.

Remember to unlock the pitch deck template that is being used by founders around the world to raise millions below.

Grants

Applying for government grants is an excellent strategy to acquire capital for your new venture. Several federal agencies offer grants to startups and early-stage companies operating in the life science and biotech verticals. Here’s a quick look at your options:

• AHA Research Grant – The American Heart Association supports innovations that could advance treatments for cerebrovascular and/or cardiovascular diseases. The organization offers one-time grants each year to research programs and is non-governmental and non-profit, the largest in the US.
• ESR Research Seed Grants – Founders engaging in research for innovations or pilot studies that can lead to bigger studies can apply for these grants.
• AABB Foundation – The Association for the Advancement of Blood & Biotherapies offers grants of up to $75,000 to entrepreneurs conducting R&D. Their areas of focus include blood banking, transfusion medicine, or biotherapies. The AABB is a global, not-for-profit organization and will continue accepting proposals all through 2024 up to December 1st.
• America’s Seed Fund – This organization encompasses Small Business Technology Transfer (SBTT) and Small Business Innovation Research (SBIR). Its objectives are to promote the commercialization of healthcare technology in the private sector.
• IDF Research Grant – The Immunity Deficiency Grant awards grants worth $25,000 to $50,000 for a one-year term to US-based applicants. This amount can be higher for particularly viable projects.

Applying for Grants – Things to Know

Grant providers typically don’t require recipients to cede ownership or decision-making in the firm. However, they may have mandatory criteria for accepting proposals, such as the number of employees working in the company. Or the recipient’s ownership and control over the company.

Grant providers may also levy certain restrictions on the company, such as prevention from entering into strategic partnerships. Or from performing certain actions. These restrictions may be applicable for the time when the recipient is using the grant funds.

Before considering this capital source, you’ll navigate the lengthy and competitive application process and dedicate time to writing the application. Researching how the process works ahead of time is advisable.

The Takeaway!

The healthcare sector is poised for rapid innovations and growth in the coming few years. If you’re considering pitching for early-stage funding for health and life sciences for your startup, this is the opportune time.

Investors are open to backing exciting concepts that leverage AI, technology, and digital capabilities with high potential for growth and profitability. Evaluate the available options for capital and formulate an effective pitch deck.

You may find our free library of business templates interesting as well. There, you will find every single template you will need when building and scaling your business completely for free. See it here.