Funding a New Biotechnology Firm - Assignment Example

?Funding a New Biotechnology Firm The prospect of starting a biotechnology venture by the entrepreneurs is an exciting undertaking. The trends have changed in the recent past with this industry becoming a fast growing one. This is echoed by Ernst & young (2005) who contend in their report that the biotechnology sector experienced a growth of 17 percent from 2003 to 2004. This shows a change in the priorities in the investors to even invest in the biotechnology sectors. Ang (2006) argues that the development in biotechnology sectors in Europe and Asia-pacific region is due mainly to government support, improved infrastructure and improved regulatory regimes. This is thus a revelation that biotechnology sector has succeeded and receives entrepreneurial financing. This paper will analyze the different categories of funding that the biotechnology sector can attain and recommend the appropriate one. It is to this end that it will try to be analytical and sceptical of some of the funding strategies. The venture capitalist is one of the ways in which the entrepreneurs can attain funding. According to Ozer &Karabulut (2006) venture capitalist are high investment companies that have the interest of buying shares in particular ventures. The aforementioned authors also notes that this will mean a partial ownership with the initiative of taking caution before investing in any particular enterprise. The entrepreneur in this perspective has to ensure that his/her idea is innovative such that it provides something different; that is able to provide a return on investment. Ozer &Karabulut (2006) observes that venture capitalist is more concerned with fast growing sector such as technology. In this perspective, biotechnology is viable as it involves innovation of ideas that are to become very marketable. However, Gruber (2009) notes that for this to be applicable the entrepreneur must ensure that there are good timing in entering the market and also are in a market that is likely to grow. Debt financing is another way that entrepreneurs can attain funds for start ups. Debt financing is defined by Bragg (2011) as the process of borrowing money externally in the hope to return back accompanied by interest rates. The debt financer may be a bank or an individual member. Bragg notes that this may be advantageous as the entrepreneurs are able to maintain ownership of the enterprise. He contends that tax deduction is another merit for using this approach. However, the demerit includes repayment of the principal amount accompanied by interest. The gain is that the entrepreneurs are able to acquire additional funds and develop from start up. Angel investors are yet another way within which one can acquire financing. This according to Hill & Power (2002) is acquiring venture capital from individual investors. It is more appropriate for start up business that has yet to get revenues or sales. The individual investors may be willing to invest if conditions of relinquishing control are accepted. They also may want to invest if they have prior knowledge of success in that particular field, which in these regard is the biotechnology enterprise. In his article, DeBaise (2009) observes that angel investors are wealthy individuals who may want ownership in the enterprise. In 2007 angel investors invested around $26 billion, which amounts to around 57,120 ventures that breaks down to $450,000. This is according to the research carried out by venture research at the University of New Hampshire in the year 2007. This, it contends, leads to a powerful resource for new entrepreneurs (DeBaise 2009). Self funding is another way through which the entrepreneurs can acquire funds. This is where they can decide to raise the required amount through contributions from own funds (Megginson 2004). Examples of ventures that started in this way include Dell Company that had its founder Michael Dell start with his own savings. To a large extent, this is very encouraging as the advantage is that the entrepreneurs are able to maintain control of the enterprise. This however depends on the agreement the entrepreneurs have and if any of them feels like leaving, then they may be refunded their amount plus the additional interest. The exit is the point of agreement by entrepreneurs to dissolve the enterprise. Another scholar, Verma (1997) notes that despite many having the anticipation of starting a business from their pockets, 99.9 % will struggle alone and this has benefits (i.e. financial and emotional). The coming up of entrepreneurs on this venture of biotechnology seems an appropriate idea and hence a collection of funds from them may imply a start for a profitable venture. Institutional investor according to Miller, Vandome & McBrewster (2010) is an entity or a company that has a large amount of money to invest in. The entity has prior knowledge of the markets and the risk involved in that particular market. The institutions have also limited investments hence take a lot of precautions when awarding money to start up business. The decision to start any business is exciting and encouraging to the growth of the economy of any country. However, many entrepreneurs blow up their dreams of starting up businesses due to lack of finances to develop their ideas. It is with this view that the above paper has offered the various ways the entrepreneurs can solicit for funds. The prospects of acquiring funds from any of the proposed funds strategy are exciting but what is required is caution in whatever choice one takes. Recommending any particular funds strategy may deem inconsiderate but making a preference is rather fair so as the entrepreneurs can be able to contemplate what they want. This is to be backed by evidence that indeed that particular funding strategy has been successful. To these end I recommend the venture capitalist approach because according to Ang (2006) the biotech ventures are associated with creating complicated products that often take a long time to develop. Ang contends also that due to the nature of high risk involved that is accompanied with the lack of experience other methods of financing such as angel investors and banks become difficult. This is affirmed by Ang (2006) who states that biotechnology companies can be able to acquire funding through venture capitalist firms. He further argues that the United States is ranked top as a biotechnology leader with many investors in that particular venture and the highest funding strategy at an 80 percent is venture capital. This stands out then as the most appropriate funding strategy due to the nature of venture. Biotechnology venture is known to be a high risk venture thus requiring alot of capital and investors who have the knowledge of the market. Venture capital in this perspective appears to be the solution for the entrepreneurs. Reference List Ang, S H 2006, Country-Of-Origin Effect of VC Investment in Biotechnology Companies. Journal of Commercial Biotechnology (2006) 13, 12–19. Bragg, M 2011, Obtaining Debt Financing, London, Wiley Publishers DeBaise, C 2009, Complete Small Business Guidebook, The Wall Street Journal. Ernst & Young 2005, Beyond Borders, Annual Global Biotechnology Report Gruber, C 2009, Biotech Funding Trends: Insights from Entrepreneurs and Investors, London, Wiley-VCH Hill, B & Power, D 2002, Attracting Capital from Angels: How Their Money--And Their Experience--Can Help You Build a Successful Company, New York, John Wiley and Sons Megginson, W 2004, Toward a Global Model of Venture Capital? Journal of Applied Corporate Finance. 2004, Vol. 16, issue 1, pp. 89-107. Miller, P Vandome, F & McBrewster, J 2010, Institutional Investor, London, VDM Verlag Dr. Mueller Ozer, P & Karabulut, T 2006, Venture Capital Practices: A Turkish Perspective, Istanbul, Istanbul Commerce University Siah Hwee Ang,2006,country of origin effect of venture capital investment in biotechnology companies Auckland,university of Auckland Verma, J 1997, Venture Capital Financing in India, New Delhi, Response Books. Read More