When you have to approach businesses for funding to continue scientific research, it can feel overwhelming.
But business is nothing more than words and common sense, and as a scientist myself, I’ve learned to approach it in a systematic and analytical way. Most researchers who wish to sell their work fail not because of insufficient science but because they do not take the necessary steps before looking for investment.
Reality check
Before you start looking for business capital, angel investors and grants to support your activities, stop and ask yourself: “How absurd and new is this project?”, “Is this research really effective and fair, and if so, at what level?”, “Does something similar already exist?” and finally: “Who would want to fund this research and what options do I have?”
All research should be evaluated based on its performance metrics. These are simple: Difficulty, Ambition, Timeline, Economy and Group. There is a big difference between a promising laboratory result and a product that someone will pay for, and an idea will remain just an idea if it is not promoted. So, if an abstract idea cannot be conveyed, you need to investigate further before trying to create a result. That makes us ready.
The Technology Readiness Level (TRL) framework implemented by Nasa, which ranges from TRL 1 (basic concept) to TRL 9 (fully operational product), is widely used by funders in the UK and Europe. Most research-based businesses start between TRL 2 (proof of concept) and TRL 4 (laboratory validation). You can better understand what evidence you need to collect and what type of financing is possible if you know where you are.
While checking the question “Does something similar already exist?”, don’t panic if it does – and don’t give up. There may be many new solutions that address the same problem but your audience will be smaller if they are fragmented. If similar solutions exist, you will have to demonstrate why your solution is faster, cheaper or better. You need to be able to explain the difference to a potential customer in one sentence.
A thorough competitive analysis can provide you with valuable information. Search patents, academic articles, business data and startup registries. You will find out the current solutions, how they work, market size and progress so far, and you can identify weaknesses, strengths and opportunities. Ask prospective customers what they are currently using when you speak with them and how satisfied they are. The market often offers “good enough” solutions and your job is to show why these are not good enough.
Put IP before ‘tee’
One of the most common and costly mistakes made by scientists approaching the commercial stage is to talk publicly about their work before saving it. I know firsthand how validated a scientist feels when they talk about their research to other people. Public disclosure, whether in the form of a print, newspaper or conference presentation, has the potential to invalidate a patent application in many jurisdictions.
Work with the technology transfer office at your university to learn about intellectual property, who owns it and what protections are available. In the Creative Support Center at my institution, we provide initial announcements, licensing and post-production support and help with the application process to keep the IP if the idea is legal, while we deal with the available options.
Try to find out in advance if the IP resides with the university/research institute or if you have a percentage of ownership, and explore options such as negotiating an exit agreement or licensing. An investor has nothing to gain if there is no IP management or clear licensing agreement.
The first step
Before any serious investor will consider your business, you need a proof of concept: solid evidence that your science does what you say it does and that there is a problem to be solved.
The best way to get that proof – without giving up being the owner of a business you haven’t yet succeeded in building – is through grants. There are many government funds and grants that help support the work needed to fill the necessary vacancies. Some of them may be topical, such as solving a particular problem, such as climate change or microplastics, but there are also special subsidies to help the development of small to medium enterprises.
The UKRI Translation Fund offers proof of concept awards of £100,000 to £250,000 and supports up to 36 projects each year. The European Research Council also offers proof of concept grants of up to €150,000 (£130,000) over a period of 18 months.
The Innovate UK ICURe program helps researchers translate valuable research into investment-ready firms and license agreements. This project provides individual support to realize the commercial potential of an idea, while teaching scientists to explore the commercial and commercial aspects of science.
Other grants and schemes include the King’s Trust Enterprise programme, the New Business Fund, the National Lottery Fund and social entrepreneur awards.
The grants above, along with the Innovate UK Smart Grants initiative, are suitable for researchers with cutting-edge technologies who want to clear a commercial path for their innovation. To be successful, you need to demonstrate not only the skills but also the business opportunity and your business plan.
Investment journey
Once you have a proof of concept and a proper business plan – described in part two – in place, you can start thinking about your goal of attracting investors. Create an elevator pitch that, in two minutes, solves the problem, your solution, the “why?” and a call to action.
The purpose of the pitch is not to close the investment immediately. It’s generating enough interest to get the next conversation. Then, you will have to present the business case – usually this is 10 to 15 slides showing your new technology. A business case presentation consists of the problem, solution, competition, market, opportunity as well as value proposition, business plan, budget, your team and funding request. Traders also appreciate an exit strategy,front-end.
Practice talking to people who will challenge you: other founders, mentors from programs like Innovate UK Edge, or experienced mentors in your network. The questions that investors ask are predictable, so prepare them well.
It helps to understand how the cash flows for the spin-out company. The steps aren’t hard and can change depending on your business needs and schedule, but here’s an idea:
First seed: The first stage. Grants and financial aid to demonstrate technical ability. A small amount of money, usually from angels or university seed funds, to help you go from idea to prototype. Investors at this stage support people and ideas more than proven performance.
Seed cycle: Development. Small investment (typically £250,000 to £1.5 million) to establish a market, build an image and assemble an established team. You will need to show that the customers are there and that the basic technology works.
Series A: Break even. Larger investments (typically $2 million to $10 million+) to expand operations, expand the team and drive revenue. Investors at this stage expect first income or signs of its strength, a clear business model and a team that can work at speed.
There are Series B and C but for increasing performance in the future, when you have something bigger.
Not all capitalists are related to you. Most early adopters should focus on:
- University seed funds: almost every Russell Group university has one, as well as some universities with high IP (Imperial Innovations, Oxford Sciences Enterprises, Cambridge Enterprise). Innovation hubs (Francis Crick, White City, UKRI innovation, BIS) and start-up areas can also support by identifying grants and helping to network with events. They are natural early stage investors because they understand long development times and already have a relationship with your technology transfer office.
- Deep tech/life sciences venture capitalists: funders such as Ip Group, Syncona, Amadeus Capital and Octopus Ventures have special mandates for science-based businesses. Approaching a venture capitalist client with a biotech project that is only at Technology Readiness Level 4 (laboratory verification) is a waste of everyone’s time.
- Angel Network: Angels tend to move faster than venture capitalists and tend to return earlier than seed. UKBAA and networks such as Cambridge Angels, London Business Angels and sector specific groups (eg HealthInvestor) are worth knowing.
Another important thing to note is that cold emailing capitalists do not work. An example is a warm introduction.
Also, the investment process takes a long time. It usually takes six to 12 months from the first meeting for the money to reach the bank. Most researchers don’t like this very much. The bottom line is that you should start developing relationships with investors before you need money. Participate in discussions, attend events and get feedback on your proposal without asking for funding. You are looking for investors who are familiar with you when you are ready to raise money.
It’s quite a journey to develop a company but, if you’re well prepared, it can be fun. The important thing to remember is that you are not alone. Get yourself the right team – investors invest in people as much as ideas. Show that you understand your limitations, have the right mentors around you and are willing to learn. Humility of mind, combined with true confidence in your skills, is a powerful combination.
Eirini Epitropaki is director of creative business development at Birkbeck, University of London.
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