Technology @ Knowledge Zone



Biotechnology - Is it Next After IT?

by Vivek Bajaj *

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Part - IV

Access to capital is critical in Biotech industry due to the high cost of drug development and the length of time it takes for getting a product approved. The biotech industry developed in the US, due to the highly developed venture funding. Most firms do not have existing products in the market that generate cash flows, and are dependent on funds from venture capital firms, public equity markets, and strategic alliances for sharing development costs and spreading risk. Biotech start-ups are usually funded through seed money provided by venture capitalists. Private investors sometimes provide additional funds, assuming that research and development (R&D) efforts show potential. Thus, majority of funding in the US biotech industry is done through Venture Capital financing and public offering of equities. Biotechnology is still relatively new ground for the Indian venture capitalist community and this lack of understanding combined with caution following the dotcom losses is seriously limiting the availability of funding for both start-ups and established companies. As a result many companies are employing a so called 'earn as you learn' model to launch and sustain their businesses. This involves revenue-generating projects such as contract research or contract manufacturing. For established companies, Indian banks are the main source of capital.

Concluded.


* Contributed by -
Vivek Bajaj,
PGP 2,
IIM Indore.


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