Popular in Course
Popular in Biomedical Engineering
This 38 page Class Notes was uploaded by Mrs. Gaston Green on Wednesday September 23, 2015. The Class Notes belongs to BMES509 at Drexel University taught by RobertLoring in Fall. Since its upload, it has received 34 views. For similar materials see /class/212253/bmes509-drexel-university in Biomedical Engineering at Drexel University.
Reviews for EntrepreneurshipforBiomedicalEngineeringandScience
Report this Material
What is Karma?
Karma is the currency of StudySoup.
Date Created: 09/23/15
SOURCES OF FINANCING NEW HEALTHCARE BUSINESS VENTURES Within your project teams determine and assess the best forms and sources of new business financing then incorporate and discuss within your business plan You will first need to prepare the complete Excel spreadsheet of financial requirements and projections The total amount of Seed Capital needed and the projected TAP will help determine the best sources and forms of entrepreneurial financing General Rule When financing any new business venture think of the process as a series of concentric circles with your own assets at the center starting point Each larger circle represents a greater pool of potential Seed Capital financing Beginning the Financial Analysis Process The innermost concentric circle smallest pool of Seed Capital Personal Means Family and Friends Savings Home Equity Loans Personal assets that can be converted to cash etc Student Opportunities Drexel Baiada BP Competition Wharton BP Competition NCIIAwwwnciiacom 20000 student grants Government Grant Programs The next larger Concentric Circle SBlR Small Business Innovative Research wwwsbirgov 150000 phase I 750000 phase II NISTTlP Technology Innovation Program wwwNSTgovtip Up to 3 million per project National Institutes of Health wwwnihgov National Heart Lung amp Blood Institute wwwnhlbinihgov DARPA wwwdarpamil Small Business Administration wwwsbagov Many other Federal Government Grant Programs exist for specific areas of interestdo your research More Sources of Business Financing BFTC Ben Franklin Technology Center wwwatccnporg Matching Funds 0 BioAdvance wwwbioadvance com Up to 500000 direct investment Science Center W sciencecenterorg 10 million investment fund The Gates Foundation developing country impact products Angel Investors equity Direct Investment for stock Venture Capital equity Direct Investment for stock Corporate Partners equity Direct Investment for stock Sponsored Research Agreements 0Commercial Banks debt Loans Assets required to secure repayment expected There is another very wellknown source of business financing what is it The Fundamental Differences Between Debt amp Equity Financing Equity Financing Means stock is being exchanged for investment capital Requires a quotvaluationquot to be performed at a very early stage Investors quotrepaidquot over time from either on going profits or an IPO or not at all if business becomes insolvent Debt Financing Means a loan is being secured to finance the startup of the business No stock is being issued Repayment is expected with interest Financing Decision Guidelines As a first step always try to finance the new business venture with your own assets and resources and those from pure grant sources Seek alternate sources of financing through debt andor equity only when needed Debt financing is usually preferable to equity financing if the business s TAP is projected earlier rather than later in the business cycle The Venture Capital Industry Overview A group of quotinvestorsquot form a company in their field of interest for the purpose of funding new business ventures in the hope of reaping a large eventual return on their investment via an IPO EXAMPLE A venture capital investment of 1 million at 100 per share would represent 1 million shares If the company eventually quotgoes public with an initial offering price of 15 per share the original 1 million investment is now worth 15 million The most challenging issue is to negotiate what of the new business venture the VC company will acquire from their investment Sample Venture Capital Firms There are about 794 VC firms operating in the US now httpwwwnvcaorg They all have a web presence and can be located quickly according to their area of focus business stage of investment targeted and other risk factors Safeguard Scientifics wwwsafeguardcom Quaker Bioventures wwwicpartnerscom Acuitive Medical Ventures httpwwwamvpartnerscom Advanced Technology Ventures httpwwwatvcapitalcom BioVentures httpwwwbioventuresinvestorscom CHL Medical Partners httpwwwchlmedicalcom Coronis Medical Ventures httpwwwcoronismedicacom Attributes of a Venture Capital Firm Capital is unlikely to quotrun out for a good company should multiple rounds of financing be needed the usual entrepreneurial scenario Availability of Professional Management Assistance Flexible terms and flexible packages of financing Ex Combination of Equity amp Debt financing Potential Negatives of Venture Capital Possible loss of control of the business management and voting rights Management Controls Officers such as CEO COO CFO Voting Controls The Board of Directors Very high ROI Return on Investment for the VC firm Typically 40 60 ownership Difficult to obtain 1 chance of funding success Fiveyear business failure rates approach 75 Qualities amp Characteristics VC Firms Look For 0 What kind of entrepreneurial idea is it Revolutionary or Evolutionary Size and nature of industry being serviced Target Market metrics EndUser growth rates Competitive Environment Product s Development Stage Seed Capital requirement Quality traits of the entrepreneur Remember YF 2l3M 4P Angel lnvesto rs Wealthy individuals that invest in start up new business ventures at various business stages Market valuations are generally more favorable than with Venture Capital firms Less organized than the VC industry Less expertise in management and the IPO process compared to VC firms Angel Investor Resources Garage Technology Ventures wwwgaragecom online BP submission Entrepreneurs Network wwwefgporg Pennsylvania Private Investors Group The IPO Public Stock Offering The wholly grail of Entrepreneurship Advantages of the IPO Best source of equity capital to grow a business Much higher business valuations than a private sale Why Creates instant wealth for investors and principals Adds instant credibility to the company The IPO Public Stock Offering Disadvantages of the IPO Cost Average 600K Substantial Risk No guarantee that the IPO will occur Public Scrutiny Financial statements Marketing plans Competitors quotUnder valuation issues Governmental Regulation SEC Pressure on Management to generate quarterly profits The Process of Going Publicquot Company selects underwriter CEO decides to try to go public SEC okays IP02 Audit Tax Returns Legal preparation Distribute Prospectus IPO successful Company enters Era of Regulation Prepare prospectus Register with SEC I How Long to Go Public ADP 22 1983 1961 Amazon 1997 1994 3 Applied Materials 1984 1967 17 Boston Chicken 1993 1985 8 Citrix 1995 1989 6 Dell Computer 1988 1984 4 EMC 1988 1979 9 HP 1957 1939 19 Microsoft 1986 1975 11 Nike 1980 1963 17 Peopl esoft 1992 1987 5 SAP 1996 1972 24 QVC Network 1986 1986 O Managing Early Entrepreneurial Growth BUSINESS DEVLOPMENT STAGES Stage 0 quotPre revenue Business Plan Only Stage 1 Legal Business Entity LBE created quotProof of Concept an initial customer typically exists Stage 2 TAP has been reached positive cash flow attained Stage 3 Business growth is predictable Goals shifting from short term cash flow to long term strategic objectives Stage 4 Major financial event IPO large external financial investment business merged Business Modeling Strategies Your initial and most important post business launch goal is to convert the projections made in your business plan into reality Best approach is to craft a dual business strategy Launch the business on a relatively small scale concentrating on a narrowly defined subset of your target market customers Be prepared to expand and implement a quotscaledup growth plan if the business establishes initial market traction and profitability Within your project teams select a business launch model and incorporate it into your business plan Technology Commercialization Business Models 0 quotService Oriented new business venture Represents about 80 of all newly established business ventures Physicians Hospitals Clinics Laboratories 0 Manufactured Products Pharmaceutical products Medical devices Application software 0 quotLicensing Technology to a strategic partner Patented technologies are the key Technology Commercialization Business Models quotServiceBased New HealthCare Business Ventures The methods for implementation often less obvious than with a manufacturing business Use your creative talents Lower fixed overhead requirements and much quicker projected TAP than comparable manufacturingbased business models Inherently easier to quotselfprotect your IP in a servicebased business model Examples of biomedical technologies that inherently lend themselves to service oriented business models Medical Software Diagnostic Imaging Physiological Monitoring Bioinformatics any type of Medical or Scientific Laboratory Technology Commercialization Business Models quotMedical Device Business Commercialization Options Direct ManufacturingDirect Sales to End User Customer Ex Medtronic Siemens GE Medical Agilent Direct ManufacturingThird Party Distribution Ex Pharmaceutical and Biotech industry OutSourced Manufacturing Direct Sales to End User Ex Fisher Scientific Lab Equipment OutSourced ManufacturingThird Party Distribution Ex Johnson amp Johnson Consumer Baxter Diagnostics Technology Commercialization Business Models A Third Commercialization Pathway Choice You may be able to license your quotproprietaryquot hardware or software technology to another organization to finish the R and D conduct clinical trials obtain FDA approval and manufacture and sell the final health care product in exchange for royalties on future product sales This is a very desirable commercialization pathway especially for academia in that it quotoffloads most all of the risk the business issues and costs to the quotlicenseequot organization The quottradeoff is that although all of the business development expenses will stop at the moment of licensing about 95 of the profit potential will be transferred to your licensee The Essentials of Licensing Your IP Your new Technology has to be unique enough to qualify for and obtain a patent very few exceptions An IP license is a legal contract between the entrepreneur owner and a licensee organization eg a large medical device company like Boston Scientific The term of most P licenses is usually the duration of the patent The licensee organization is responsible for the actual commercialization of the technology The payments to the entrepreneurowner can arise from two sources 0 An initial upfront licensing fee amount highly variable 0 Royalties on future product sales quot1quotth n l39 ttmrenta Ewan Ram Frequmcjr 13 1E 19 22 Ewan Rate quotr 253 31 35 III Steps for Successfully Licensing IP Create a potentially patentable biomedical technology File appropriate patent applications After patent is awarded create a legal business entity Prepare business plan and obtain financing for further R amp D Find strategic partner and negotiate a licensing agreement at the appropriate point in time you judge to be best Understand that when you transfer the IP rights to your invention to a licensee all of the R amp D expenses will be transferred to the licensee in exchange for a small future royalty percentage payment on future product sales The Role of the FDA in Biomedical Technology Commercialization The FDA is the federal government agency that is responsible for ensuing that both safe and effective medical technologies and innovations are introduced into the health care market Drugs human and veterinary use Biologics blood and blood products vaccines HIV testing assays Medical Devices tongue depressors to MRI scanners This task is accomplished through the process of regulation of the classification testing and final approval of the new technology The FDA Role During your medical device R and D process determine the best timing for registering your prototype device with the FDA Typical pathway for medical device development Invitro experimentshypothesis testing quotbreadboardquot created Laboratory prototype device creation data modeling Animal testing of lab prototype Variability of data has a big future impact Create clinical prototype Conduct clinical prototype quotpilotquot study Conduct larger multicenter clinical study Obtain FDA Approval Commercialize new technology FDA Registration and Classification Process Registration Complete FDA form 2891 and send to the FDA Medical Device Classi cation Guidelines Class I noninvasive nonlife supporting ex tongue depressor bite block IV Strap Class II quotDia nostic Devicesquot noninvasive nonlife supporting g some performance standards apply 0 ex ultrasound machines EKG machines patient monitoring devices Classlll quotThera eutic Devicesquot invasive life su ortin extensive clinical I l3 performance data required ex heart valves pacemakers stents implantable electrodes implantable drug delivery systems etc Within your BP project teams research then determine and discuss the likely FDA classification of your biomedical product The Medical Device Application Process The classification received will dictate the extent and amount of clinical performance data time and money needed for FDA approval Class Medical Device General Controls GMP no 510k needed no clinical performance data required Means No FDA Regulation Class II Medical Device Form 510K Premarket Notification required no clinical performance data needed if device is quotsubstantially equivalent to a prel976 device For example a new improved EKG machine Known as quotPredicatesquot Class III Medical Device PMAA PreMarket Approval Application required Extensive preclinical testing needed Failure Mode Analysis Animal Testing Toxicology Studies Must obtain IDE Investigational Device Exemption to allow clinical testing Initiate extensive multicenter clinical performance testing with IRB Institutional Review Board approvals and Informed Patient Consent Cycle may take 34 years or more to complete at a cost of many millions of dollars Risk of failure very high compared to Class I or Class II devices TYPES OF LEGAL BUSINESS ENTITIES LBE s LEGAL FORMS OF BUSINESSES Sole Proprietorship PRIVATE ONLY Partnership PRIVATE ONLY S Corporation PRIVATE ONLY LLCLLP PRIVATE ONLY C Corporation PUBLIC OR PRIVATE Most every state website provides for new business creation Example www5tateofpagov YOUR TASK IS TO SELECT AND JUSTIFY THE BEST TYPE OF LBE FOR YOUR NEW ENTREPRENEURIAL BUSINESS Sole Proprietorships HIGHLIGHTS Simplest and most common form of a business organization Easiest and most cost effective to establish and maintain One individual owns all of the business s assets The individual and the business are the same legaltax entity SP does not pay business taxes directly Owner pays business taxes on their personal return Schedule C Must be privately held No IPO allowed WEAKNESS Not a corporation No personal protection from liabilities Example Single location small format retail stores Partnerships HIGHLIGHTS A voluntary association of two or more persons to carry on as coowners of a busmess for profit Like a pro rietorship the business and the partners are the same egal and tax entity Must be privately heldNo IPO allowed Special Management Agreement specifies Responsibilities Contributions Salaries Distributions Weakness Not a corporation No liability protection Ex Historically used by many Law and Accounting firms S Corporations HIGHLIGHTS Owners well protected from liabilities unless fraud Maximum of 75 stockholders Does not directly pay business taxes Foreign ownership not allowed Owners pay business taxes on personal return Kl form Taxed based on pro rata ownership of the principals No quotdouble taxation issues as with C Corps A good choice for a new medical business venture Limited Liability Corporation LLC HIGHLIGHTS Combines the best features of an SCorp and a Partnership Provides the added legal protection of an S Corp Provides the flexibility of a Partnership when determining distributions of profits Does not pay business taxes directly Uses Kl form Ideal for quotconsultancy businessesquot C Corporations HIGHLIGHTS Most costly to establish and maintain Owners well protected from liabilities unless fraud Only entity that can be a public or private company Unlimited number of stockholders WEAKNESSES Early stage Operating Losses cannot travel outside the company to benefit the owners personal income tax return Later ifwhen the business becomes profitable the Owners are doubletaxed on dividends and bonuses given All publicly held businesses are C Corps Explanation ofthe double taxation issue with C Corps Example A business generates 100000 in profits during the year C Corp The company is taxed at both the Corporate and Personal level of the owners It files and pays directly to the Federal and respective State government totaling about 40 Net quotaftertax profits are thus about 60000 The Board then pays out bonuses to the executives the remaining 60000 This money is then taxed again on the executives personal income tax returns another 40 The actual net profits thus about 35000 S Corp The company files a tax return but does not pay federal or state income taxes The taxes due on the 100000 in profits are paid by each owner according to the of ownership one time only The actual net profits are thus 60000 Additional Requirements for Corporations SCLLC Must create and issue stock Corporate name must be unique within the state Must obtain a separate Tax ID Must conduct Board of Directors meetings annually Must formally designate a CEO and Secretary How To Decide which LBE is best for your new ideaconcept Source of New Business Financing Personal Financing C OUtSide InVeStment Small group of investors needed39 Venture Capital Angel Investors Government Grant 1P0 anticipated S Corp C Corp LLC A SP or Partnership is usually a poor choice for a healthcare business Can switch corporate status during the first 75 days of any calendar year