Pros & Cons - Biotechnology - Returns v/s Effort

Lack of team is the number one company killer, inadequate cash is the second.- John Shoch

Let us think like a Venture Capitalist (VC) for a moment. In a way, a Venture Capitalist and a entrepreneur are risk takers. One provides financing and other in his/her entrepreneurial spirit, provides 100% dedication to the venture. For a biotechnology startup, what kind of returns can we expect?

VC will always conduct "due diligence" on a target company, its proprietary science, its industry, and its management. In general, there are three kinds of risks that VCs try to minimize: technology, management, and market. The questions they consider range from "Does this company's product(s) achieve a technological breakthrough?" to "Are these the right people to execute the business plan?" to "How big is the potential market for this product, and is the market growing?"

For Biotech industry, waiting period, before a VC can get any return on his/her investment, is generally in the range of 8 to 10 years. This is a long period of time, hence the demand for ROI (Return on Investment) is in the range of 50%. The bottom line is VCs need to see a very large end value in a biotech investment before they consider investing.

So here is the take away of today's discussion, when you compare Returns v/s Effort. You can easily expect the effort to be 10 years and returns should be at least 50%. Do we have the patience and persistence to do what it takes?

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