Early-stage funding is out there for those who deserve it

The early stage funding is out there, but would-be biotech companies need to demonstrate quality to get the cash, according to the people who hold the seed-funding purse strings.

And biotech entrepreneurs need to consider carefully whether their intellectual property merits starting up a company to maximise the returns or whether they should license the technology to someone able to make better use of it.

Potential investors are also increasingly interested in funding companies with a balanced portfolio and pipeline, rather than the one-trick ponies.

"Raising money is always difficult -- that's a given -- but good projects are always able to attract money," said Ross Dobinson, managing director of technology development company TSL Group, and of pooled development fund Origin Capital, which recently funded two bioscience companies and is negotiating with a third.

Andy Gearing, whose company BioComm works in the technology licensing space helping to broker deals between researchers or small companies and larger biotech and pharma companies, says he is seeing a lot of licensing activity.

"We've seen people come in with an idea for a company who revert to a licensing deal as it is more commercially viable," he said.

According to Harry Karelis of listed investment company Biotech Capital, four or five pre-seed funds are open for business, so there is a fair amount of start-up money available for companies.

"But I don't see 80 to 100 pre-seed deals out there that are really high quality," he said.

Instead, the pre-seed funds are working to develop worthy opportunities, according to Leigh Farrell, who manages the GBS Venture Partners $30 million Genesis pre-seed fund.

"A lot of our business comes from talking with tech transfer groups and coming up with an opportunity," he said.

"You don't have to start companies, you can fund a project and sell it in a trade sale down the line. Not everything is going to be a platform that will lead to multiple products."

Add to that the opportunities for government support through BIF grants and R&D Start grants, which are soon to be offered under the same program to be known as Commercial Ready. These grants typically require matching funds from investors, although those funds may be contingent on the grants being awarded.

"The Commercial Ready program is a very good resource for start up companies," said Gearing.

An additional avenue for early stage companies that are unable to attract venture capital funding is the public market, although this is a brave step for early stage companies to take. Karelis says that the ASX is not averse to high risk ventures, and a quick look at some of the recent biotech company listings confirms this.

Among the requirements of venture capital pre-seed funds and other early stage investors is a need for clean intellectual property, realistic valuations and good management. Companies that fail to attract funding should look at their assets to see where their problems lie.

"It's always easy to complain that you're being treated unfairly, but you have to look at why you're being treated that way," said Dobinson.

"Often people are trying to develop things in isolation, when they should be looking at synergies with other groups to get critical mass ... people need to take a more pragmatic approach."

Another impediment is giving a company too high a valuation at an early stage of development, Dobinson said.

Gearing says it is important for companies to be flexible about funding opportunities, and not just rely on venture capital investors.

"You can't just focus on one source of funding into the company -- you need to juggle a whole spectrum of sources, including partnerships and collaborations, licensing deals and so on," he said.