Investing in biotech startups offers unique opportunities to be part of supporting life changing ideas, from pioneering therapies to revolutionary diagnostics. In this article, we'll take a look at how to invest in biotech startups, some challenges and risks, and a few notable biotech startups.
Investing in biotech startups offers a high potential for returns since it’s a rapidly growing industry, benefiting from advances in technology.
Biotech companies that successfully develop and commercialize new therapies can generate significant returns for investors. This is because the demand for new and effective treatments for diseases is high, and patients are willing to pay a premium for them. The biotech industry is expected to grow significantly in the coming years, driven by advances in genomics, stem cell research, and regenerative medicine. This presents a significant opportunity for investors to participate in the growth of this industry and benefit from its expansion.
Advances in technology such as gene editing, AI, and digital health are also making it easier for biotech companies to develop new therapies and medical devices, which can improve their chances of success.
There are many challenges facing companies in the biotech industry, such long development timelines, high capital requirements, and advances in technology. However, Vibe Bio is striving to make it easier for investors to overcome those challenges.
Vibe Bio’s diligence software program has made great strides in evaluating early stage biotech companies' drug research and development to accurately predict their chances of going to market. Startup investors who are willing to take on the risk can play a vital role in helping these companies to develop and commercialize new therapies that can improve the lives of patients.
Overall, biotech startups offer investors the opportunity to invest in a high-growth industry with a high potential for returns.
Investing in early-stage biotech startups comes with its own challenges, risks and rewards. In this section, we’ll take a look at the process of investing in early-stage biotech startups, and the most important things to consider to make an informed investment decision.
Before putting any money down, be clear about your investment objectives and risk tolerance. Are you looking for long-term growth, short-term gains, or diversification in your investment portfolio? Investing in early stage startups is a long-term game, and it’s very suited to those who are also excited to help founders out wherever they can with their experience and knowledge of startups.
Thorough due diligence is crucial when investing in any type of early-stage startup.
A few key areas to consider:
The diligence of a product varies depending on the type of company you’re investing in. Evaluate how the product can grow, its monetization potential, the existence or importance of intellectual property, etc.
Make sure to ask the founder questions about how the company fits into the competitive landscape, and how they perceive the current and future size of the market. Related to this, you also want to understand the company’s go-to market plans and plans for growing/expanding.
Remember that when you’re giving money to a startup, you are forming a business relationship. You need to trust the leaders and team of the company and take into account their past experiences, skill, and integrity. If you don’t trust or believe in the team, you’re better off not investing in the company even if the company appears to be a good investment opportunity.
Financial diligence in the early stage might just be a projected financial model (vs true financials). When evaluating, you can expect the startup's predictions for the company's future to be optimistic, but it’s also important to consider whether they’re realistic. Ask about use of funds - what are the founders planning on doing with the money and how will they use it to reach the next milestone?
What terms are you investing on? What valuation? What information rights do you have? Startup investing is risky, so you want to understand the underlying ownership structure and potentially who else is involved (early investors, co-founders, other angel investors, and VCs). Pay special attention to any restrictions on debt and special rights of the preferred shares.
If you’re not a VC or a limited partner in a VC fund, there are three ways to invest in biotech startups:
You can invest as a solo angel investor as long as you have good deal flow, which can take quite some time to build up unless you’re heavily involved in the industry and have a network already. You also need to have quite a bit of capital to start off with, which many people don’t. On top of that, you need to be an accredited investor. The requirements for being an accredited investor are pretty hefty:
This makes angel investing difficult to access unless you’re already quite wealthy.
While angel investing alone may not be accessible to everyone, setting up an investment club through PIN’s platform is open to everyone, even unaccredited investors, and it’s one of the best ways to get started if you already have several friends or a small community who’d like to invest in biotech startups with you.
PIN handles all the legal, tax, and administrative requirements of investing, allowing leaders to focus on facilitating investments. The platform also leverages the power of community by sourcing 60% of deals from the community itself. Communities on PIN boast an impressive 95%+ win-rate for deals they wish to invest in.
Most importantly, it’s risk-free, if a club doesn't reach its intended target or doesn't align with the organization's goals, PIN ensures that everyone's money is returned in full.
Angel syndicates are a bit different to an investment club, and you still need to qualify as an accredited investor. The benefits of joining a syndicate include access to a larger network of startups and investment possibilities. Syndicates also provide a means to distribute risks, as any losses incurred from unsuccessful investments are shared collectively by the subsidiary members.
There’s many different syndicates out there, but overall you’ll have less control over what startups to invest in since investments largely depend on the syndicate lead. Some syndicates are by invite only, and others are open for anyone to apply.
At PIN, we believe that early-stage investment opportunities and equity ownership shouldn't be limited to institutions or accredited investors. We recognize that the barriers to entry have remained high for decades, hindering the participation of many potential investors.
It's time for a change - a system that breaks down these barriers and provides broader access to capital for non-traditional investment communities.
Our vision is to create a model that empowers everyday people to invest in startups together. Unlike a syndicate, community members can be accredited or unaccredited. So leaders can expand the network they raise money from. And unlike equity crowdfunding platforms, PIN unlocks exclusive opportunities to invest alongside top VC firms. All while we handle the tedious legal, tax, and admin work.