Determining Valuation for Early and Latter Development-Stage Biotechnology Companies –

All biotech entrepreneurs at some point must address the question “how much is your company worth?” The answer determines the slice of equity for yourself, employees, and current and future shareholders.  As a result, most BioEntrepreneurs tend to overvalue their company at the start-up and early development stages.  However, overvaluing your company is counterproductive and detrimental to attracting institutional and venture capital during these critical stages.  Although there are standard valuation methods for determining the value of growing companies with product revenue, how do start-up and preclinical stage biotechnology companies without product revenue value their organization? (more…)

Developing a biotechnology product has been likened to building an airplane while it taxis down the runway. You feverishly work to complete product development while the runway (your existing cash, your ability to raise capital and your time) is ever shortening.

Biotechnology product development, at some point, is constrained by time and limited capital. In addition to time and resource constraints, there are “unknown-unknowns”. The unknown-unknowns are things that you did not know, that you did not know, that you did not know. Because biotechnology is the melding of science and business, it creates a business of uncertainty. Biotechnology research begins with promising yet unproven science, although this promise provides the phenomenal opportunity for life-changing medicines. However, because of this uncertainty, product development rarely proceeds in a straightforward manner. This brings us to the first tenet of biotechnology product development – Always make allowances for product development pathway detours.

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What is a Value Proposition?  It is NOT how the science or technology works.  Moreover, it is NOT the neat things the science or technology can do.  It is how your product fulfills the acute needs of the customer; it is the way your product solves a problem for its customers—the more acute the customer’s need, the greater the market will be for your product.  Believe it or not, there are great innovative product ideas that have no customers!

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