Are you considering investing in the life science industry? It’s a smart idea—not only is it a wide-ranging field that includes everything from biomaterials and ecology to genetics and nanotechnology, it’s an essential industry that plays a vital role in the quality of human, plant, and animal life. Investors like Cody Maxam, however, know that making medical conditions easier to deal with and prolonging life are pursuits that require money, so investing in promising endeavors is a way to include yourself in something revolutionary while earning a return.
How do you know which projects are the promising ones, though? A high number of biomedical enterprises fail. If you are going to help fund a venture, here are a few tips for spotting a worthwhile investment:
- Look for a viable product
This one seems obvious, but it’s worth addressing anyway: do not give your money to a project that is doomed to fail from the beginning. It might not be because the concept is not up to par; it may be due to inadequate education, insufficient skills, or something else that means the people behind the project could not pull it together—even with proper funding. While it’s good to have faith in people and their ideas, you should double check with other experts that the technology or medicine itself is not a pipe dream (at the moment, anyway).
- Look for simplicity
When project teams (such as startup companies) are pitching to you, they should do their best to explain their undertaking in understandable terms. You probably do not have the same education they do, and while they are certainly brilliant and capable minds, the competition is fierce enough that you do not have time to wrap your head around PhD-level science. There will be time for diving into those details later, but you should not invest in a project that you aren’t entirely sure you are comprehending.
- Focus on innovation
When you are looking at companies to invest in, consider if they are creating new products or merely mimicking existing ones. As Stephen D. Simpson says for Investopedia:
“The best way to assess whether a given company is focused on innovation is to look at the company’s product pipeline and research and development (R&D) efforts. Small companies are generally very upfront about the projects currently underway… but large companies don’t often disclose as much information. In those cases, try this rule of thumb—if a company is spending less than 10% of its revenue on R&D, be suspicious.”
You are looking for scientific pioneers, not followers. That said, you do not want to give your money to organizations that spend more time on research for the sake of it than creating actual products—some teams might act as if they are still in academic settings rather than for the market.
- Pay attention to team dynamics
A business is only as good as the people behind it. Even if a project seems like revolutionary technology, it will only see the light of day if its developers are able to work together and make it happen. Be careful if you sense that interoffice politics could drag a project down and squander your funding.
Put thought into your own team as well. As Dr. Oded Ben-Joseph says in The Pharma Letter, the life science industry is multidisciplinary. Companies combine science, clinical medicine, finance, law, business strategy, and more. Due to its complex nature, you probably aren’t reviewing pitches alone—which means that you need to assemble a team of advisors from a variety of backgrounds to help you make smart decisions.
- Keep the government in mind
The government plays a more prominent role in producing medical technology than in most other businesses. The FDA must approve a device or drug before it is eligible for sale. When investing, keep in mind that the FDA may require extensive clinical trials and a significant amount of safety data (as well as testing its effectiveness) before giving an invention its seal of approval.
- Be patient
Investing in the life science field is not for getting rich quick. Making a difference and ROI take time, so remember not to be hasty with your investments or only consider those that would enable the fastest return. Australian company AusBiotech notes that successful life science companies usually take around 10-15 years before achieving commercialization, which obviously longer than other sectors. Many businesses also operate for a long time before they earn significant revenue—so be patient, and recognize that investing in life sciences is about playing a more extended game.
Investing in life sciences can be high risk, but if investors let that risk frighten them away, there will be considerably fewer necessary technological and medical advancements that improve human health. What do you look for in life science investments?
