Non-dilutive capital for biotech startups, Part 2

This article is the second part of a three-part series on non-dilutive capital opportunities, such as NIH SEED, for life science and healthcare founders. Be sure to check out parts 1 and 3 where I discuss BARDA and CDMRP as well as ARPA-H grants. 

The Small Business Education and Entrepreneurial Development (SEED) program is an excellent source of non-dilutive capital for biotech startups. Established to provide support for the National Institutes of Health (NIH) innovator community, SEED provides several non-dilutive funding sources to help drive further scientific discoveries with the goal of developing healthcare products that improve patient care and enhance health.

Before covering preparation best practices, I’ll review the definition of non-dilutive capital and cover the potential benefits of SEED funding.

What is non-dilutive capital?

Non-dilutive capital refers to the financial capital you can obtain without giving up any equity or ownership of your business. For startups at all stages, this kind of capital can be available in a few ways.

At the early-stage (pre-Series A), it is important to understand how equity dilution impacts the bottom-line of your startup. Non-dilutive capital can help alleviate the financial impacts and can come in the form of federal grants, such as NIH’s SEED.

At later stages (post-Series A and beyond), startups can leverage venture debt based off raising an institutional round (Series A, B, C, etc).

When it comes to federal programs, non-dilutive capital is a grant, award or subsidy that’s awarded based on specific criteria as set out by the organization providing the funds.

What are the benefits of SEED funding?

To receive funding from SEED, startups undertake a rigorous, highly competitive process. Roughly a quarter of first-time applicants are successful. However, it can be an essential first step for early-stage startups seeking to get a foothold on developing their business further. It can also serve to establish greater credibility when seeking private capital.

The SEED program offers several benefits for life science and healthcare founders. For example:

1. Funding support: SEED provides non-dilutive capital through Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) grants.
   
   
2. Resources and education: The program has a range of educational resources, workshops and training opportunities. These resources are designed to help entrepreneurs understand the regulatory landscape, commercialization strategies and other critical aspects of starting and scaling a life science and healthcare startup.
   
   
3. Networking opportunities: SEED seeks to connect founders with a network of entrepreneurs, mentors and potential collaborators. This network can be invaluable for gaining insights, forging partnerships and accessing additional resources.
   
   
4. Market access and commercialization support: The program can help companies navigate the complex process of bringing a healthcare product to market, including assistance with regulatory compliance, clinical trials and market analysis.
   
   
5. Technical assistance: SEED can offer technical assistance to help resolve specific business, regulatory or technical challenges. This can include access to NIH’s vast research infrastructure and expertise.
   
   
6. Guidance on intellectual property: Understanding and protecting intellectual property (IP) is crucial in the life science sector. SEED provides guidance on IP issues, which can help companies to secure their innovations.
   
   
7. Credibility and visibility: Being associated with the NIH and SEED program can enhance your startup’s credibility in the eyes of investors, partners and customers. It may also provide visibility in a crowded and competitive market.

Overall, the NIH SEED program offers a comprehensive suite of resources designed to help life science and healthcare startups overcome challenges in developing and commercializing their innovations. The program’s support can significantly increase the likelihood of success for startups in these fields, where the journey from concept to market is often complex and resource intensive.

SEED does more than funding

In 2023, SEED provided approximately $1.3 billion¹ in non-dilutive capital to biotech startups. But SEED doesn’t just provide funding. As you can see from the list of benefits above, SEED is about more than providing non-dilutive capital.

Each year, it also provides guidance and support for up to 200 entrepreneurs seeking to enter the vastly complex and accelerated world of biotech research and development. For example, the Research Evaluation and Commercialization Hubs (REACH) program focuses on bringing basic science discoveries to market by providing:

• Entrepreneurial training for innovators on how to bring technologies to market
• Feedback from federal and industry experts
• Funding to support early-stage product definition studies
• Project management support

SEED offers some pragmatic advice about how to obtain private capital funds. For example, the SEED team can provide pitch coaching assistance so startups can hone their pitch deck to help ensure it features all the elements essential to attracting investment. Their team consists of entrepreneurs, residents and business experts.

SEED also offers the I-Corps at NIH, an entrepreneurship training program for companies that have received SBIR or STTR funding from NIH and the Centers for Disease Control and Prevention (CDC). I-Corps participants receive training from biotech sector experts, gain knowledge of how to target their specific market and hone their entrepreneurial skills over a few weeks.

How to prepare for applying to SEED

While there are multiple ways to obtain funding from SEED, it does require a certain degree of effort and knowledge of the process. So, it pays – literally – to gain a good understanding of how you can approach SEED to improve your chances of achieving the funding your startup needs.

To be better prepared for applying to the SEED program as a life science and healthcare startup founder, consider the following seven steps:

1. Understand the SEED program: Familiarize yourself with the specifics of the program, including all deadlines, goals, eligibility criteria and the types of support offered.
   
   
2. Align your goals with NIH priorities: Ensure that your startup's mission and projects align with the NIH's priorities. The NIH is particularly interested in innovative research and development in the healthcare and life sciences sectors.
   
   
3. Develop a strong business plan: A comprehensive business plan is crucial. It should detail your startup's objectives, market analysis, product or service development plans, and financial projections. This plan should also demonstrate how your startup's work can lead to significant advancements in healthcare or life sciences.
   
   
4. Prepare financial documents: Ensure that your financial records are in order. This includes profit and loss statements, balance sheets, and funding histories. Clear financial documentation is important for NIH review.
   
   
5. Prepare a robust research proposal: A detailed research proposal that outlines the scientific merit, innovation, and potential impact of your project is essential. This proposal should follow NIH guidelines and be backed by preliminary data or evidence.
   
   
6. Gather a qualified team: Assemble a team with expertise in life sciences, healthcare, business, and other relevant fields. NIH reviewers often look for teams with the right mix of skills and experience.
   
   
7. Seek feedback: Before submitting your application, seek feedback from peers or mentors who can provide constructive criticism.

Remember, the application process for NIH funding is highly competitive, so thorough preparation and a clear demonstration of your startup's potential impact in the life sciences and healthcare sector are key.

Conclusion

Ultimately, SEED’s criteria for providing support to early biotech startups is rooted in determining the kind of positive patient impact the startup will provide. There are many, many huge successes that SEED initially funded – 23andMe and the Sonicare toothbrush among them.

To learn more about SEED funding and the many support programs it offers, visit https://seed.nih.gov.