Raising Money In Today's Difficult Climate: Considerations For Biotechs

By David Diamond

The stock market is way down, and venture capitalists (VCs) are cutting back dramatically on investments to conserve their cash. Trends indicate that family offices are doing the same.

So where are biotech companies getting their money from and what should they do in the face of our current economic climate?

Reevaluate Expenses

Whether you are a public or private company, now is a good time to reevaluate your expenses and burn-rate. For CEOs at public companies, now may be the moment to take look at the long run and reduce your cash salary where possible; you can make it up by receiving stock in exchange for salary reductions. Your board would appreciate it. Other potential considerations for weathering the current capital shortage: think about trimming your general and administrative expenses (G&A) wherever possible, or try outsourcing your R&D to third parties, hopefully at lower rates. Try also to lower your monthly rent by either moving or re-negotiating your leases.

For management at public companies that have a year or less runway as far as working capital is concerned, I recommend that you raise capital and forget about dilution, as the stock market could get much worse later. Concentrate on the long run!

Consider Government Grants and Other Funding

Whether you are a public or private company, a fruitful path is to try to get government grants. There are hundreds of millions of dollars available from the U.S. government. Just go out and look for it. You might be able to find a program that applies to your business needs. The government is still in the process of dispersing COVID funds to companies, and many companies remain unaware of these programs. Connect with your accounting advisor to discuss which options are available to you.

Another option is to look at Big Pharma in the U.S. and in other countries around the world. There is a potential that some of these companies might be interested in funding your trials. I have seen this work many times as a viable funding opportunity.

Going Public is Still an Option

If you are a private company and want to go public, the window has not shut completely. There are still private companies that are going public but at reduced valuations and with reduced amounts of capital raised. Often, these companies are raising money publicly due to an inability to raise money privately.

Final Thoughts

Considering the current climate, VCs are still investing in private companies but are now asking for a greater part of the company and negotiating stricter terms for their money – a reflection of supply and demand.

I have been involved in the life science area since the late 1980s and have seen the “booms and busts.” Where we are today: “This too shall pass.” Hang in there, and be smart.