FESTELCreating a Better
Future
APITALC
0 © 2010 FESTEL CAPITAL www.festel.com
Financing and Investment Models in Industrial
Biotechnology
Research Methodology and Results for Discussion
© 2010 FESTEL CAPITAL www.festel.com
FESTELCreating a Better
Future
APITALCOECD Workshop on the Outlook on
Industrial Biotechnology Vienna, January 14, 2010
FESTELCreating a Better
Future
APITALC
1 © 2010 FESTEL CAPITAL www.festel.com
Copyright and Disclaimer
Copyright
• All rights for the use of all or parts of the information in this document, including reprinting
the whole document or parts thereof, the storage in databanks and translations remain with
FESTEL CAPITAL
• Individual charts can be reproduced stating FESTEL CAPITAL as source; please contact
FESTEL CAPITAL, should you wish to reproduce larger parts of this document
Disclaimer
• FESTEL CAPITAL has prepared this document to the best of FESTEL CAPITAL„s know-
ledge and belief based on all available information
• FESTEL CAPITAL takes no warranty for the accuracy and completeness of this information
• Before deducting individual conclusions, it is necessary to obtain additional data and
conduct further analyses
• Therefore, all liability for costs or damage resulting from information and conclusions in this
document is excluded
FESTELCreating a Better
Future
APITALC
2 © 2010 FESTEL CAPITAL www.festel.com
Contents
Research Methodology 2
Conclusion and Outlook 4
Goals and Objectives 1
Research Results 3
Drivers/Barriers 3.1
Financing Trends 3.2
Capital Needs 3.3
Market Failures 3.5
Capital Sources 3.4
FESTELCreating a Better
Future
APITALC
3 © 2010 FESTEL CAPITAL www.festel.com
The paper gives an overview of current financing and investment models in industrial biotechnology
• Which characteristics of the industrial biotechnology sector make it an attractive sector for
investors and which discourage investment?
• What are the main drivers and barriers for investments in industrial biotechnology?
• What is the impact of the current financial crisis on the availability of capital and the
investments made?
• What are emerging trends in industrial biotechnology financing and investment area?
• What are the capital requirements for R&D and infrastructure as well as non-classical
financial sources?
• What are industrial biotechnology specific market failures and the consequences?
• Which indicators can be used for measuring trends in financing and investment?
• What is the availability and accuracy, and level of comparability of data related to industrial
biotechnology financing across OECD countries?
Goals and Objectives - Aspects
FESTELCreating a Better
Future
APITALC
4 © 2010 FESTEL CAPITAL www.festel.com
Contents
Research Methodology 2
Conclusion and Outlook 4
Goals and Objectives 1
Research Results 3
Drivers/Barriers 3.1
Financing Trends 3.2
Capital Needs 3.3
Market Failures 3.5
Capital Sources 3.4
FESTELCreating a Better
Future
APITALC
5 © 2010 FESTEL CAPITAL www.festel.com
FESTEL CAPITAL data base Data sources
Additional desk research in October and November 2009 was performed using
typical key words to find relevant information
• Interviews with industrial
companies, research institutions
and investors
• Desk research (company
information, external market
studies, press clippings)
• Open discussions with key
market players
• Excel calculation model with data
between 2003 and 2009
- Sales per segment/sub-
segment
- Capital requirements for R&D
and infrastructure
A structured research approach using the existing FESTEL CAPITAL data base was used to prepare the paper for further discussion
Research Methodology - Approach
Innovations in industrial biotechnology as focus topic of the
Working Group Start-ups within the Chair of Technology and
Innovation Management (Prof. Dr. Roman Boutellier)
Pap
er(s
)
Five market studies with with focus
on special industrial biotech areas
FESTELCreating a Better
Future
APITALC
6 © 2010 FESTEL CAPITAL www.festel.com
Starting point was the existing FESTEL CAPITAL database with relevant data which has been built up from 2003 to 2009
• About 50 interviews with managers and experts from industrial biotech companies as well
as additional interviews with experts from research institutions and the investment area
- Various rounds during the past 6 years
- Semi-structured nature to the interviews
• Periodical desk research using public sources (e.g. business databases) and company
disclosures (e.g. websites and press releases)
• Open discussions with persons from the industry to clarify open questions, which could not
be answered using other sources
More than 150 industrial biotechnology companies were analysed by desk research,
interviewed or FESTEL CAPITAL had an open discussion
Additional desk research in October and November 2009 was performed using typical key
words to find relevant information
Research Methodology - Data Sources
FESTELCreating a Better
Future
APITALC
7 © 2010 FESTEL CAPITAL www.festel.com
Five main regions are analysed to present and discuss the key insights and indicators in the paper
• Europe: EU-27 countries, whereby all of the larger countries are OECD members, and
Switzerland which is also an OECD member
• North America: NAFTA members Canada, Mexico and United States of America which are
all OECD members
• Asia Pacific: Without China and India, but including Australia and Japan
• BRIC countries: Brazil, Russia, India and China
• Rest of the world: All other countries not covered by the other categories
Research Methodology - Regions
FESTELCreating a Better
Future
APITALC
8 © 2010 FESTEL CAPITAL www.festel.com
Contents
Research Methodology 2
Conclusion and Outlook 4
Goals and Objectives 1
Research Results 3
Drivers/Barriers 3.1
Financing Trends 3.2
Capital Needs 3.3
Market Failures 3.5
Capital Sources 3.4
FESTELCreating a Better
Future
APITALC
9 © 2010 FESTEL CAPITAL www.festel.com
Governmental programmes and cleantech as investment category are financial oriented drivers for industrial biotechnology
Governmental programmes
• Financial incentives given by numerous governmental programmes
• Encourage investments in industrial biotechnology where production methods and costs
are currently less competitive to traditional production methods
Cleantech as investment category
• Currently one of the most important investment categories for private equity and venture
capital investors
• Changing consumer behaviour and need for sustainability as attractive trends for investors
Drivers and Barriers - Drivers
FESTELCreating a Better
Future
APITALC
10 © 2010 FESTEL CAPITAL www.festel.com
Investor awareness and acceptance as well as the impact of the financial crisis are financial oriented barriers for industrial biotechnology (1/2)
Awareness and acceptance by investors
• Specific characteristics of industrial biotechnology have advantages, but not yet identified
by investors as an attractive investment field
• Investors still prefer red biotechnology due mainly to the lack of attention given to industrial
biotechnology in the past
• Investors require more knowledge of the industry
- Industrial biotech processes or products usually serve a broader range of applications
- Difficulties in reasonably estimating the scope of market potential and market share
Drivers and Barriers - Barriers
FESTELCreating a Better
Future
APITALC
11 © 2010 FESTEL CAPITAL www.festel.com
Investor awareness and acceptance as well as the impact of the financial crisis are financial oriented barriers for industrial biotechnology (2/2)
Impact of the financial crisis
• Biotech companies highly dependent on well functioning capital markets to finance their
development projects
• Venture capital faced with a capital sourcing problem for their funds resulting in a capital
shortfall and a prioritisation of their investments
• Funding has become increasingly difficult to secure and expensive for biotechnology
companies
• Especially small biotech companies have restricted financial resources at the early stage
and look to secure funding rounds by venture capital
Drivers and Barriers - Barriers
FESTELCreating a Better
Future
APITALC
12 © 2010 FESTEL CAPITAL www.festel.com
Contents
Research Methodology 2
Conclusion and Outlook 4
Goals and Objectives 1
Research Results 3
Drivers/Barriers 3.1
Financing Trends 3.2
Capital Needs 3.3
Market Failures 3.5
Capital Sources 3.4
FESTELCreating a Better
Future
APITALC
13 © 2010 FESTEL CAPITAL www.festel.com
The engagement of financial investors and project oriented financing are emerging financing trends
Engagement of financial investors
• Financial investors increasingly realising “buy-and-build” strategies to achieve appreciation
• Engagements in industrial biotechnology will become more and more important to realise
"buy-and-build" strategies in the chemical industry
Project oriented financing
• Financing structure involves a number of equity investors and a syndicate of banks that
provide loans to the operation
• Enables the involvement of investors in industrial biotech projects who would normally not
invest in these areas
• Becoming more important, especially in the area of renewables, like bioenergy projects
• Scope of these projects very narrow so only special kinds of projects can be financed by
this means and not suitable for industrial biotechnology in general
Financing Trends - Overview
FESTELCreating a Better
Future
APITALC
14 © 2010 FESTEL CAPITAL www.festel.com
Public private partnerships and founding angel activities are emerging financing trends
Public private partnerships
• Government service or private business venture funded and operated through a
partnership of government and one or more private companies
• These partnerships are more and more established in the area of venture capital,
especially for seed and start-up financing of start-up companies
Founding angel activities
• Gap exists between academic research and the commercialisation of the results which
can be best overcome by founding start-up companies to further develop and
commercialise the research results
• Support given to interesting business concepts before the engagements of business
angels and venture capital
• Already being successfully implemented in the UK and the US mainly in the field of
nanotechnology
Financing Trends - Overview
FESTELCreating a Better
Future
APITALC
15 © 2010 FESTEL CAPITAL www.festel.com
Contents
Research Methodology 2
Conclusion and Outlook 4
Goals and Objectives 1
Research Results 3
Drivers/Barriers 3.1
Financing Trends 3.2
Capital Needs 3.3
Market Failures 3.5
Capital Sources 3.4
FESTELCreating a Better
Future
APITALC
16 © 2010 FESTEL CAPITAL www.festel.com
Yearly capital requirements for
R&D per segment
100% = 3,3 billion Euro
Yearly capital requirements for
infrastructure per segment
100% = 6,9 billion Euro
The yearly capital requirements for R&D are about 3,3 billion Euro and for infrastructure 6,9 billion Euro
Capital Needs - Per Segment
Source: FESTEL CAPITAL data base
17%
30%
16%
37%
Base chemicals Specialty chemicals
Consumer chemicals Active pharma ingredients
33%
19%16%
32%
Base chemicals Specialty chemicals
Consumer chemicals Active pharma ingredients
FESTELCreating a Better
Future
APITALC
17 © 2010 FESTEL CAPITAL www.festel.com
0
50100
150200
250300
350400
450
Ano
rgan
ics
Fertiliser
s & g
ases
Org
anic che
micals
Polym
ers & fibr
es
Agr
oche
mical
s
Adh
esives
& sea
lant
s
Paint
s & coa
tings
Food
additiv
es
Oth
er spe
cialty
che
micals
Det
erge
nts
Cos
met
ics
Active
phar
ma
ingr
edient
s
Ca
pit
al re
qu
ire
me
nt
[millio
n E
uro
]
Europe North America Asia Pacific (without China) BRIC countries Rest of the World
Yearly capital requirements for R&D per sub-segment 2007
100% = 3,3 billion Euro
Source: FESTEL CAPITAL data base
The largest capital requirements for R&D are in the area of active pharma ingredients
Capital Needs - Per Sub-segment
FESTELCreating a Better
Future
APITALC
18 © 2010 FESTEL CAPITAL www.festel.com
0
100
200
300
400
500
600
700
Ano
rgan
ics
Fertiliser
s & g
ases
Org
anic che
micals
Polym
ers & fibr
es
Agr
oche
mical
s
Adh
esives
& sea
lant
s
Paint
s & coa
tings
Food
additiv
es
Oth
er spe
cialty
che
micals
Det
erge
nts
Cos
met
ics
Active
phar
ma
ingr
edient
s
Ca
pit
al re
qu
ire
me
nt
[millio
n E
uro
]
Europe North America Asia Pacific (without China) BRIC countries Rest of the World
Yearly capital requirements for infrastructure per sub-segment 2007
100% = 6,9 billion Euro
Source: FESTEL CAPITAL data base
The largest capital requirements for infrastructure are in the area of active pharma ingredients
Capital Needs - Per Sub-segment
FESTELCreating a Better
Future
APITALC
19 © 2010 FESTEL CAPITAL www.festel.com
33%
21%
14%
7%
25%
Europe North America
Asia Pacific (without China) BRIC countries
Rest of the World
32%
21%
14%
7%
26%
Europe North America
Asia Pacific (without China) BRIC countries
Rest of the World
Yearly capital requirements for
R&D per region
100% = 3,3 billion Euro
Yearly capital requirements for
infrastructure per region
100% = 6,9 billion Euro
Europe requires the most capital in both R&D and infrastructure with more than 30%, followed by North America, Asia Pacific and the BRIC countries
Capital Needs - Per Region
FESTELCreating a Better
Future
APITALC
20 © 2010 FESTEL CAPITAL www.festel.com
The capital requirements of existing and new industrial biotech start-ups in Europe will amount to 1.4 billion Euro during the next years
Seed-/Start-up financing of potential start-ups
• Approx. 60 new start-ups in Europe
• Approx. 2 million Euro per start-up
Growth financing of existing start-ups
• Approx. 80 established start-ups in Europe
• Approx. 50% of start-ups need financing
• Approx. 5 million Euro per start-up
Growth financing of existing SMEs
• Approx. 70 established SMEs Europe
• Approx. 50% of start-ups need financing
• Approx. 60 million Euro per SME
120 million
Euro
200 million
Euro
1.050 million
Euro
1.370 million
Euro
Capital need of existing and potential start-ups and SMEs in Europe
Source: Market Study on Financing Strategies in White Biotechnology of FESTEL CAPITAL from April 2005 / Market Study on Financing and Investment Trends in Industrial Biotechnology of FESTEL CAPITAL from February 2009
Capital Needs - Start-ups/SMEs
FESTELCreating a Better
Future
APITALC
21 © 2010 FESTEL CAPITAL www.festel.com
Contents
Research Methodology 2
Conclusion and Outlook 4
Goals and Objectives 1
Research Results 3
Drivers/Barriers 3.1
Financing Trends 3.2
Capital Needs 3.3
Market Failures 3.5
Capital Sources 3.4
FESTELCreating a Better
Future
APITALC
22 © 2010 FESTEL CAPITAL www.festel.com
unclear negativ positiv
Attractiveness of the different financial sources
SME Industry Private
investors
Institutional
investors
Private equity financing
Project financing
Mezzanine financing
Source: Market Study on Financing and Investment Trends in Industrial Biotechnology of FESTEL CAPITAL from February 2009
There are some relevant non-classical financial sources like mezzanine financing, project financing and private equity financing
Capital Sources - Attractiveness
FESTELCreating a Better
Future
APITALC
23 © 2010 FESTEL CAPITAL www.festel.com
medium low high
SME Industry Private
investors
Institutional
investors
Experiences with different financial sources
Private equity financing
Project financing
Mezzanine financing
Source: Market Study on Financing and Investment Trends in Industrial Biotechnology of FESTEL CAPITAL from February 2009
There are only restricted experiences of companies with the non-classical financial sources
Capital Sources - Experiences
FESTELCreating a Better
Future
APITALC
24 © 2010 FESTEL CAPITAL www.festel.com
78%
56%54%
33%
24%
8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Operational
income
Private
investors
Governmental
funds
Debt funding Equity
investors (VC)
Mezzanine
Sh
are
of
inte
rvie
we
d c
om
pa
nie
s
Financial sources
The operational income is the most important financing source for industrial biotech start-ups
Capital Sources - Financial Sources
FESTELCreating a Better
Future
APITALC
25 © 2010 FESTEL CAPITAL www.festel.com
Contents
Research Methodology 2
Conclusion and Outlook 4
Goals and Objectives 1
Research Results 3
Drivers/Barriers 3.1
Financing Trends 3.2
Capital Needs 3.3
Market Failures 3.5
Capital Sources 3.4
FESTELCreating a Better
Future
APITALC
26 © 2010 FESTEL CAPITAL www.festel.com
Lack of investors for start-ups and pilot plants are the most important market failures
Lack of investors for start-ups
• Further development depends on the ability to establish a prospering start-up scene
• Initial funding and financial support during the first growth phase are and will be an
important issue in the future
• Venture capital appears to be a major source of funding, but attracting venture capital will
remain a challenge in the short and medium term
• Still rather unattractive for investors, due to lack of experience and positive key examples
Lack of investors for pilot plants
• More pilot plants needed to show the technical proof-of-concept
• Credit crisis is limiting the availability of debt capital so investors are struggling despite a
suite of government subsidies and financing
• Unavailability of private debt explains the lack of money available
Market Failures - Overview
FESTELCreating a Better
Future
APITALC
27 © 2010 FESTEL CAPITAL www.festel.com
Contents
Research Methodology 2
Conclusion and Outlook 4
Goals and Objectives 1
Research Results 3
Drivers/Barriers 3.1
Financing Trends 3.2
Capital Needs 3.3
Market Failures 3.5
Capital Sources 3.4
FESTELCreating a Better
Future
APITALC
28 © 2010 FESTEL CAPITAL www.festel.com
Base Chemicals
and intermediates
• Chemical companies only very selectively willing to make investments
due to existing petro-based value chains
• Area not attractive for financial investors due to low profitability
Specialty
Chemicals
• Chemical companies able and willing to make investments in selected
specialty chemical segments
• Area could be attractive for financial investors within their existing
engagements (buy-and-build strategy)
Polymers
• Agro and polymer companies able and willing to make investments due
to strong mid-term market demand
• Area not attractive for financial investors due to low profitability
Fine Chemicals
• Agrochemical and pharmaceutical companies able and willing to make
investments due to strong short-term market demand
• Area more attractive for financial investors than the other areas
Biofuels
• Mineral oil companies able and willing to make investments due to strong
mid-term market demand
• Area could be attractive for financial investors due to large growth rates
Sector Outlook Drivers
The largest potential for investments lies in the production of fine chemicals for the pharma and agro industry
Conclusion and Outlook - Markets
FESTELCreating a Better
Future
APITALC
29 © 2010 FESTEL CAPITAL www.festel.com
Capital requirements
Clear and consistent structure necessary
Structure of FC data base (modified CEFIC structure) as starting point
• Capital requirements to develop
industrial biotechnology
- Per segment/sub-segment
- Per region/country
• Rough data are available from FC
Availability of relevant data
Capital spending
• Capital spending by different market
players
- Industry
- Investors
- Governments
• Currently no consistent data available
Suitable key indicators could be capital spending / capital requirements (per segment/sub-segment and region/country as well as capital source)
Conclusion and Outlook - Research
FESTELCreating a Better
Future
APITALC
30 © 2010 FESTEL CAPITAL www.festel.com
The issue list regarding the need for further research and the definition of next steps can help to improve the paper
Conclusion and Outlook - Issue List
Need for further research
• Better understanding of capital requirements and capital spending in the different sectors,
segments and sub-segments
• Better understanding of the specific impact of investors and investment models
Definition of next steps
• Agree on data structure (capital requirements and capital spending) to enable an OECD
wide comparison
• Agree on data collection and processing process
• Agree on suitable key indicators to get relevant information for policy makers
FESTELCreating a Better
Future
APITALC
31 © 2010 FESTEL CAPITAL www.festel.com
Backups
Backups B
FESTELCreating a Better
Future
APITALC
32 © 2010 FESTEL CAPITAL www.festel.com
More than 150 industrial biotechnology companies were analysed by desk research, interviewed or FESTEL CAPITAL had an open discussion (1/2)
Research Methodology - Interviews
Abbreviations: Dr = Desk research, Si = Standardised interview, Od = Open discussion
Company Dr Si Od Company Dr Si Od Company Dr Si Od
AB Enzymes x x Ciba SC x x x Lonza x x x
Abitep x Clariant x x LS9 x
AC Biotec x x c-LEcta x x Lybradyn x
Aglycon Mycoton x CMC Biopharmaceuticals x Lyven x
AlgMax x x Codexis x x m2p-labs x
Alligator Bioscience x Cognis x x x Maxygen x
Alvito Biotechnologie x CSM Biochemicals x Meiji x
Amino x Direvo Industrial Biotech x x Merck x x x
Amyris Biotechnologies x Diversa x Metabolix x
AnalytiCon Discovery x Döhler x Molekulare Biotechnologie x
AnBio x Dow Chemical x xMunich Innovative
Biomaterials x
Angel Biotechnology x Dr. Petry Genmedics x MykoMax x
Animox x x Dr. Rieks x Nadicom x
Anoxymer x DSM x x x Nexia Biotechnologies x
Arrayon Biotechnology x DSM Biotech x x Nexyte x
Artechno x DuPont x x Nordzucker x x x
Artes Biotechnology x x x E.gene Biotech x Novacta x x
ASA Spezialenzmye x x EKB Technologies x Novamont x x
ATG Biosynthetics x x Enzis x x Novozymes x x
Autodisplay Biotech x x EnzyScreen x N-Zyme Biotec x
BASF x x ESBATech x OrganoBalance x
Bayer x x x Essum x Pacovis x x
BayGenetics x x Eucodis x x Panolin x x
BBT Biotech x EuroFerm x Petroplast Vinora x x
Beiersdorf x x Evocatal x x Pfeifer & Langen x x
Beldem x Evonik Degussa x x x Phenion x
FESTELCreating a Better
Future
APITALC
33 © 2010 FESTEL CAPITAL www.festel.com
Company Dr Si Od Company Dr Si Od Company Dr Si Od
Biocatalysts x FermenSys x Plantic x x
Bioconsens x Galactic x x PomBioTech x
Biolac x Ganomycin x Procter & Gamble x x
Biomay x Gevo x x Prokaria x x
Biomer x x Green Biologics x Protéus x
Biométhodes x Greenovation Biotech x x Rheinchemie x x x
Biomeva x Gyre x Roche Diagnostics x x
Bionova x HöFer Bioreact x Roquette x x
Bioreact x HPC Biotec x Schill & Seilacher x x
Bioressources Worlwide x Hycail x xScientific Research and
Developmentx x
Biospring x x x IEP x x Senomyx x
Biosynergy x IFB Halle x Sourcon-Padena x
Biotec x x Industrial Biotechnology x Stern Enzym x x
BIOTex x Ingenza x Subitec x x
Biovet x Innovia Films x x Süd-Chemie x x x
Biovian x Inosim x Südzucker x x x
Bioworx x Insilico x x Total x x
Biozym x Invigate x Trenzyme x
Bitop x Iogen x x Treofan x x
BlueBioTech x Jülich Chiral Solutions xW42 Industrial
Biotechnologyx
Brain x x x Jülich Enzyme Products x x Wacker Chemie x x
BTR Laboratories x Jülich Fine Chemicals x x Wentus x x
Butalco x x Kerry Bio Science x Weyl Chem x
Celanese x x x Lehmann & Voss x x X2 Biotechnologies x
Cerestar x x Lesaffre x x X-Zyme x x
ChiPro x Libragen x Zymeworks x
More than 150 industrial biotechnology companies were analysed by desk research, interviewed or FESTEL CAPITAL had an open discussion (2/2)
Research Methodology - Interviews
Abbreviations: Dr = Desk research, Si = Standardised interview, Od = Open discussion
FESTELCreating a Better
Future
APITALC
34 © 2010 FESTEL CAPITAL www.festel.com
Already existing data of FC Additional desk research
• Search key words
(selection)
- Angel investors
- Capital need
- Capital sources
- Capital spending
- Financing
- Funding
- Infrastructure
- Investment
- Private equity
- Venture capital
FC market studies FC data base
Market data updated regularly
based on ongoing discussions
with key market players
• Desk research (company
information, external market
studies, press clippings)
• Interviews with industrial
companies, research
institutions and investors
• Calculation model based on
available information with
specific adjustments
• Biotech production
technologies
(November 2003)
• Financing strategies
(April 2005)
• Renewable raw
materials (July 2005)
• Biofuel production
technologies
(October 2006)
• Financing and
investment trends
(February 2009)
Already existing data of FC and additional desk research were used for data gathering
Research Methodology - Overview
FESTELCreating a Better
Future
APITALC
35 © 2010 FESTEL CAPITAL www.festel.com
Development funds are well established in the pharmaceutical industry as new business model to foster innovativeness (1/2)
Drug
IP, Licenses
Companies
AC = Actelion
CC = Care Capital
CH = Cowen Healthcare Royalty Partner
CP = Celtic Pharma
CR = Capital Royalty
DP = Debiopharm
DC = DRI Capital
NO = Novartis
PC = Paul Capital Healthcare
PB = Paramount BioSciences
RO = Roche
RP = Royalty Pharma
SC = Symphony Capital
SP = Speedel
Extern Intern
Inte
rn
Ex
tern
Drug development
Fin
an
cin
g
CP PB
CC
DP
SC
SP
Emerging
pharma
Big Pharma
Mid-sized
pharma
Development
funds
Private
Equity
funds
CR CH
Royalty
funds
PC DC RP
NO
RO
AC
Financing Trends - Development Funds
FESTELCreating a Better
Future
APITALC
36 © 2010 FESTEL CAPITAL www.festel.com
Development funds are well established in the pharmaceutical industry as new business model to foster innovativeness (2/2)
Financing Trends - Development Funds
Preclinical
development
Capital Royalty/Houston (www.capitalroyalty.com)
1) Paramount BioCapital; 2) former Drug Royalty Corporation; 3) former Paul Royalty Fund
Paul Capital Healthcare/New York3) (www.paulcapitalhealthcare.com)
DRI Capital/Toronto2) (www.drugroyalty.com)
Care Capital/Princeton (www.carecapital.com)
Celtic Pharma/Bermuda (www.celticpharma.com)
Royalty Pharma/New York (www.royaltypharma.com)
Symphony Capital/New York (www.symphonycapital.com)
Paramount Biosciences/New York1) (www.paramountbio.com)
Clinical
development Commercialisation
325 mn USD
1,4 bn USD
1 bn USD
500 mn USD
400 mn USD
1,5 bn USD
300 mn USD
n/a
Royalty funds
Development funds
Cowen Healthcare Royalty Partner/
Stamford (www.cowenroyalty.com) 500 mn USD
Private equity funds
FESTELCreating a Better
Future
APITALC
37 © 2010 FESTEL CAPITAL www.festel.com
Founding Angels are filling the gap between established business models within the start-up area
With partners
Business
concept
Business
idea
Business
plan
Start-up
founding
Start-up
financing
Offices and
labs
Business
development
Technology centres
Venture capital
Business angels
Technology transfer
Consultants
Business plan competitions
Founding Angels
? • Advance Nanotech
• Angle Technology
• Arch Venture Partners
• Arrowhead Research Corporation
• Molecular Manufacturing Enterprises
• Precede Technologies
• Proseed Capital
• Sanderling Ventures
• XL TechGroup
US
UK
Israel
Financing Trends - Founding Angels
FESTELCreating a Better
Future
APITALC
38 © 2010 FESTEL CAPITAL www.festel.com
The considered financing strategies each have specific advantages and disadvantages
Capital Sources - Financial Sources
Strategy Advantages Disadvantages
• Invest in early stage, often after first year
• Lower expectation on rate of return / long term
investment horizon
• Improves equity ratio
• No intervention in operations
• Investments are smaller than with VC
• Increased dependence from external Stakeholders
• Increases liquidity
• No participation in the profit
• No intervention in operations
• Permanent costs with interest payments
• Banks require securities to back up the loans – start ups
predominantly cannot offer them
• Excessive bureaucracy causes add on costs and is time
consuming
• Inflexible programs and long admission processes
• Limited number of programs for service-oriented start-
ups
• Do not need to be paid back
• Employees and overhead are paid
• Enables to strengthen the portfolio (technology and
products)
• Enables to collect large sums
• Enables a fast development of the start-up
• Strategic investment over the total period of develop-
ment and growth with no intervention in operations
• Improves equity ratio and enables financing of further
expansion
• Efforts/expenditures to get VC are very high
• Increased probability of loss of control
• Increased dependence on external stakeholders
• Sale of stake of the company
Equity investors
(VC)
Private investors
Debt funding
Governmental
funds
IPO • Enables acquisition of large financial volumes
• Enables to pursue a fast development of the start-up
• Regulations with regard to the IPO cause significant
add-on costs
• New stakeholders in the firm that cause a loss of
independence and control