Life science and healthcare companies have many avenues available to raise capital at various stages, each with its own benefits and considerations. Savvy founders and startup leaders should understand which asset class can offer the best opportunity to advance and support their company’s success. Across all sectors - therapeutics, diagnostics, tools, medical devices and digital health - the approach you take today to create your syndicate of investors will impact all future funding rounds.
Here's what you should know about five types of private market investors: incubators, venture capital, corporates, family offices and SPACs.
Incubators (sometimes called accelerators) can be great resources at the earliest stages of a company’s development. There are hundreds of life science and healthcare incubators in the U.S., and they each offer a distinct approach to capital formation and resource management.
Most include research and lab space for relatively low or no cost—and some provide seed funding to operate. While the level of funding varies and may be nominal, it is often enough for those seeking proof of concept or early-stage, pre-clinical efforts.
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Life sciences companies often need significant amounts of capital to reach scientific and operational milestones, particularly in the clinical growth stages. Venture capital (VC) investments can help and continue to trend upward for companies at all stages of development.
Venture firms bring a wealth of resources to the table outside of just capital needs. Life science and healthcare VCs have likely experienced the challenges and successes of multiple operations in the pre-clinical, clinical and commercial stages. For this reason, they can help founders and managers navigate pitfalls and capitalize on scientific and market opportunities.
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"The COVID-19 pandemic accelerated deal activity and confirmed investor interest in life science and healthcare companies. VC firms aren’t solely providers of equity capital. They are instrumental in bringing expertise, networks and resources that allow companies to be successful—ultimately, working to improving our daily lives."
Skip Kelly
Managing Director and Relationship Executive, Venture Capital Coverage Group, J.P. Morgan
The world of life science and healthcare has become much more active with large corporations setting up dedicated initiatives to directly invest in smaller private companies. The number, size and pace of investment has accelerated in recent years and looks to only increase.
Corporate partnerships and licensing of new therapies can also be a strategic step for life sciences companies to seek both non-dilutive financing and validation. Increasingly, these R&D partnerships have been signed in earlier phases, even before a treatment is in preclinical trials.
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It’s estimated that family offices worldwide have trillions of dollars in assets under management. While the percentage of their capital devoted to alternative assets—such as directly investing in life sciences opportunities—is small, it still presents a sizable capital base that could help a life sciences firm.
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Going public via SPAC can be a way for private life sciences companies to raise capital.
A SPAC is a publicly listed shell company that raises cash via an IPO and has a set amount of time (usually 24 months) to invest it. This happens by merging with a private company and taking it public through acquisition. A SPAC is “sponsored” by a group of high-profile individuals, sponsors, corporates or family offices that typically have a strong operating or financial track record.
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When looking for the best funding source to support your organization, consider your firm’s needs, where it is in its growth cycle, and where you expect it to go in the future.
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