Without seed funding, it is seemingly impossible to commercialize a breakthrough scientific discovery. Given the complexities of navigating the venture capital markets, it is no surprise that many scientific co-founders commonly find themselves agreeing to sub-optimal financing terms that are unscrupulously obstructive. Biotech entrepreneurs can avoid unnecessary dilution, preserve operational control, and minimize financing costs by aligning their product strategy with deliberate go-to-market, growth, and exit plans. This can be achieved by crafting a product narrative which articulates multiple value inflection points that concurrently garner financial sponsor commitment and demonstrate a clear path to a liquidity event.

Part 1: Craft a product narrative

In order to craft a compelling pitch to an investor, a clear story depicting the current and future state of your product is critical to aligning with the investment lifecycle. The development of a target product profile (TPP) is a necessary step as a framework to ensure that the pre-clinical development program supports the intended clinical trial design and therapeutic use.  The TPP will define the positioning of the novel therapy in the context of the disease state, patient segment, and competitive set.

Furthermore, given the research-intensive nature of many biotech start-up operating models, the development of an R&D roadmap that supports the discovery and preclinical research phases of the drug development process is crucial in exhibiting a risk adjusted pathway to commercial viability.

Part 2: Identify value inflection points

As the company’s product achieves key milestones within the drug development process, the financial value of its intellectual property is likely to increase as it becomes a compelling acquisition target. As these milestones are accomplished, it is important to evaluate the product’s commercialization progress to help estimate the relative magnitude of change in valuation it experiences at each development phase. A key component to the valuation at each stage is an assessment of risk for each development phase that incorporates strategic and regulatory risk factors.  One of the main reasons valuations increase through development is the reduction of the risk to the next stage gate.  Alongside each milestone, an anticipated exit event should be identified to clearly communicate to the financial sponsor when their principal might be returned. As demonstrable progress towards financial returns is gleaned through pre-defined research development progress and subsequent valuation triggers, scientific advancement is translated into improved financial sponsor buy-in.

Part 3: Prioritize project investments

After articulating the critical value inflection points in the drug development process that will significantly increase the firm’s valuation (and thus their ability to secure follow-on financing), deconstructing each milestone into a series of fundable projects will enable potential investors to visualize where financial capital will be allocated as well as the operational impact it will help foment. This can be done by presenting multiple project cost estimates composed of capital and operating expense (CapEx and OpEx) outlays. When generating project cost estimates, utilizing various cost benchmarking databases, tracking expenditures on similar historical drug development projects and consulting with knowledge strategic advisors, like Radyus Research (https://radyusresearch.com/), can help to provide a structured methodology for creating credible cost estimates that garner investor confidence.

Conclusion: Align your drug development progress with what seed investors need to see

As a biotech entrepreneur, you understand that deep technical domain knowledge and innovative research methodologies are your greatest contributions to the commercial success of your new therapeutic product. This precisely explains the importance of sharing a well-designed product narrative to any investor consortium – it permits greater prioritization of research activities that are mostly likely to propel project delivery, milestone completion and ultimately, business value. Moreover, intimate knowledge of project cost estimates and valuation catalysts allow scientific co-founders to negotiate more intelligently with their financial sponsors to warrant inclusion of founder-friendly clauses into term sheets. Together these benefits pave a clear roadmap for founders looking to maximize productivity between research and financing activities as well as preserving operational control of their newfound ventures.

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