When it comes to finding and investing in biotech startups, you have two main options. First, you can look to raise financing from venture capitalists or wealthy individual investors. While this approach has the potential to yield incredible results, there are several major downsides to this capital raising strategy for early stage startups. The first major downside is that early stage, “ICO” companies typically have limited access to venture capital due to lack of financing from traditional banks and investment groups. Additionally, most venture capital firms demand a significant upfront investment as part of their investment process, which can limit your runway and overall funding success.
Another option to raise venture capital for biotech startups is to seek out strategic alliances or acquisitions of larger financial technology firms. This capital raising strategy has the potential to be very attractive, but carries its own set of risks. For starters, many financial technology firms are already large companies that may be unwilling to risk their reputation on a startup with limited upside. Additionally, acquiring another company’s lines of credit can take up to ten years before seeing significant returns. However, if your business plan and sales projections are well aligned with those of a larger company, this alternative can provide a quick influx of cash to get your business on track.
Software Platforms vs. Payment Platforms Many fintech startups raise money through private investment or through acquisitions, but some businesses choose to raise money in another way. One common method is through software platforms. A software platform is an online application that allows a user to enter and manage a wide variety of financial services. Depending on the value of the application, a business can offer different types of features to draw users into their offering. For instance, a real-time customer payment solution can work much like an online bank, where customers can deposit, transfer, or withdrawal money without having to leave their desk.
San Francisco startup accelerator Y Combinator is one of the most prominent investors in the fintech space. Recently, they made an acquisition of Lending Tree, a leader in online lending. In addition to providing seed funding for startups, Y Combinator offers full capital and seed investments as well as convertible debentures. As a part of the deal, Lending Tree will be integrated into Y Combinator’s portfolio of products and services. This integration is expected to accelerate growth in the fast-growing industry.
Two other private funding sources have also stepped forward to provide new sources of start up capital for startups in the banking and insurance industry. The California State University at Northridge and New York University recently announced a plan to bring entrepreneurship programs to the two schools. In June, Harvard University announced plans to create an innovation lab to focus on technologies related to financial service. These announcements are a clear sign that the financial services industry is increasingly seeing the value of supporting startups. In fact, many banks have already started to take notice of the value that these new providers can bring to their businesses.
Coinbase and Nasdaq are both membership portals for the biotech industry. The Coinbase organization, which offers money and check payment processing capabilities, along with its wallet and check deposit service, allows users to make micropayment transactions using their personal computers. Likewise, Nasdaq is a global marketplace where financial technology companies can list their securities. The addition of these two powerful platforms will allow more startups to increase their market share and explore new markets.
However, one must remember that relying upon these two business models is not enough. Companies must also develop their own unique and compelling selling points, or customers will fail to continue buying their products. Most financial technology companies will likely begin by offering special software to businesses that are looking to manage their finances better. But beyond this initial offering, it will become increasingly difficult for startups to differentiate themselves from existing players in the market. Only when a company is able to successfully tap into unique selling points that are unique to its business model and that have strong support from their existing competitors will they be able to sustain and grow their startup.