But where will the funds come from? Should entrepreneurs rely on their personal savings? Will the government play the role of facilitator for yet another promising industrial sector in a big way? What role do the large number of venture capital funds and private equity funds, whose mandate is to promote entrepreneurs with good potential? These were some of the questions asked repeatedly at these sessions. Often, these sessions witnessed heated exchanges between the investors, entrepreneurs, government officials and of course the bankers.

Each one had their tales of woes to narrate. Government officials claiming that without their efforts in providing funds for various projects, institutions and ventures, there would not have been any biotech industry to speak of. Venture capitalists reiterated the fact that they require promising ventures which could become viable in a short span of time to be able to support quickly. And of course, for most entrepreneurs the government and VCs were no better than villains pulling their purse strings tightly and won’t let the startups bloom.

What is the reality? What is the quantum of funds required for the biotech industry in the near future? And what stage of the development of an enterprise is the urgent necessity for funds?

"Today, for a potential entrepreneur there are just three main sources of funds," pointed out Lakshmi Venkatesan, CEO, Opportunia, a New Delhi-based consortium which specializes in helping biotech companies.

These are the Technology Development Board (TDB) in the Department of Science and Technology (DST), NIMITLI (the New Millennium Indian Technology Leadership Initiative) of the Council of Scientific and Industrial Research (CSIR) and the SPREAD program of the ICICI Bank.

A large number of promising biotechnology companies in India has been started by scientists who have left the cushy environments of their institutions to become entrepreneurs. " These first generation entrepreneurs need the seed money or even the kick off money to start", Venkatesan said. "They require funds even to conceptualize their ideas, write a business plan and conduct market feasibility studies. Venture capital funds have to come in a much later stage."

What is the quantum of funds required by the industry immediately? The Knowledge Millennium III on The Business of Biotechnology, organized by one of the top three Indian industry organizations, the ASSOCHAM (Associated Chambers of Commerce and Industry of India), has been advocating the creation of a National Biotech Venture Fund for over two years.

"We have recommended that the government should immediately set up this fund with $1 billion (Rs 4,800 crore) as biotechnology is the industry of the future and we have to give it all the support," said the key organizer of the ASSOCHAM event and chairman emeritus of ITC Ltd, KL Chugh. In fact, this demand has been presented President APJ Abdul Kalam and the government is actively considering it, according to sources.

The Department of Biotechnology (DBT) too has been planning to set up a biotech venture fund for sometime now. According to sources, the setting up of a Biotech Venture Fund with an initial corpus of Rs 15 crore were to have been announced in the Union Budget for 2003-04 by Finance Minister Jaswant Singh. However, this announcement did not happen in the budget speech. It may have to wait for another occasion.

While these are the medium and long term funding needs of the industry, many promising startups are on the look out for infusion of small doses of capital to keep them afloat and develop their products/services to the prototype stage. And such investors who see promising days ahead, but are hampered by the lack of funds to make a success of their ideas, have been very vocal at various industry meetings.

A comprehensive report of the funding requirements of the biotechnology was prepared jointly by the other prominent industry association, the Confederation of Indian Industry (CII) in collaboration with Rabo India. The report titled " The Business of Biotechnology: A Structural and Financial Perspective" has estimated that the biotechnology industry will require $ 100 –200 million (Rs 480 –960 crore) in the next two to three years in private equity funds at this stage of development.

About half-a-dozen venture funds have been active in funding biotech ventures in recent years. The largest player is the ICICI Venture Funds Management Company Ltd. " There are many promising startups who essentially require seed funding now. The immediate requirement is around Rs 150 crore," estimated Aluri Srinivasa Rao, head of the life sciences division of the ICICI Venture Funds.

BioSpectrum spoke to a large number of industry players and estimates that the immediate requirement of biotech companies would be around Rs 200 crore.

"Most of these startups require Rs 1-2 crore on average at this stage. And this is the crucial time in the life of these enterprises. If we can make available these funds now, many of them turn out to be success stories of the future," Rao said.

" More important is the fact that such fund availability will help to reduce their worries and anxiety over raising the funds, and instead concentrate on the main task of developing their products."

"The government support is not really adequate to help the new biotech entrepreneurs," said Kiran Mazumdar Shaw, chairperson of Biocon, and president of the newly formed biotech industry association, ABLE (Association of Biotechnology Led Enterprises). " Lack of funding from the VC sector necessitates the government to step in and provide seed money or incubation funds. The setting up of a national biotech venture funds will ease the problem of funding to some extent. We believe this will play a crucial role."

"After the September 11 incidents, many emerging businesses are having a difficult time in raising money. This is because first-time entrepreneurs usually lack significant personal resources, bank loans are usually unavailable to businesses with no financial history; and venture capitalists, which provide less than nine percent of all early stage capital, are an unlikely source of funds," said the CII-Rabo India report.

The report added: "Moreover, in depressed market conditions, venture capitalists are finding it difficult to raise enough money to invest in high-risk biotechnology ventures. In fact, many venture capital funds are now spending an increasing amount of time managing existing portfolio of clients instead of seeking new investments."

So this funding requirement, at the early stage of the development of the industry, has to be met primarily by the government, is the majority view of the industry. After all, this is precisely what governments all over the world have been doing in the case of several industries, by supporting them at the early stages of development and help them to stand on their own at a later stage.

Once an industry reaches a certain stage of development with promising products, venture capital (VC) funds will get interested and thereafter spur the growth of the segment in a big way.

"The VCs will not come forward with funds to support the infrastructure development. A company has to generate its own resources or has to seek the angel funding for the initial infrastructure development," commented Anadi Mukherji, CEO of Bangalore-based Biospectra, at a round table discussion on this topic at the recent Bangalore Bio 2003 meeting.

There is a lot of grouse against VCs. Observed a prominent industry leader and founder and CEO of Avesthagen, Villoo Morawala Patell: "Now India has a lot of VC firms. But we find a lot of difference between Indian and global venture capitalists. The Indian venture capital firms are expecting the IT funding model. They carry their IT expectation to the board meetings."

She added: "This misconception has to be removed and VCs should see life science in a different perspective. They except biotechnology to be a contract research business. But it has its own limitations. The biotech firm takes a minimum of three years to come out with a product and later it has to go for creation of IPR (intellectual property rights). The Indian VC firms have to change their perspective about the biotechnology sector. This process will take time." Dr J Ramachandran of Bangalore-based Gangagen Technologies echoed her words .

"The VC is interested in returns and so will not invest in research. Earlier few knew about intellectual property rights (IPR). Now it has become a key factor for growth. The key thing for biotechnology industry is getting IPR at the earliest. IPR is one thing that guarantees returns for the investments. " Unfortunately, he said, " VCs follow a certain funding format. To reach them the companies should generate products through novel ideas. This is the best way for small companies to build values. We find lack of respect for development of ideas and research in India. If we look at our R&D spending we see a meager 10 percent expenditure on research while the rest 90 percent is used for development. If we want growth in biotechnology this has to be changed."

What is holding back investments by VCs. Explained Ronil Sujan, executive director, Rabo India Finance Pvt. Ltd: "The larger and international VCs are of the opinion that Indian biotech industry is very small compared to the global market. The VCs really don’t understand the biotechnology since it is intellectual property driven. In USA and European countries, we see people in the industry, who play a key operating role at the time of investments switch to an advisory role in the firms the let the professionals run the organization. India is still battling it out for such human resources who could understand the IP driven model."

Moreover, Sujan observed that the international capital ventures are facing downturns in their portfolios. The downturn in the global capital market is hindering the VCs to take risks in the Indian market. The VCs in Silicon Valley and Holland are ready to take risks in their own countries but will take a step back to peddle the same in other countries or in open market."

Other VCs too have similar views. "The VC funds are raised from various investors. They consider a lot of factors before releasing funds to companies. They won’t consider funding start-ups and small and medium enterprises because of the uncertainly in the market. They feel that the risks involved in funding small amounts to biotech companies will be high," said Nicholas Ashby, CEO, Celadon Capital, Kuala Lumpur.

To work in harmony with VCs, companies must show potential to double investments and visible product development, he advised. In the future, India would come on the venture capital radar since the cost of setting up a life science company is one-tenth of what is required in the US. Small investment in India is better suited than the high cost model of the west, Ashby predicted.

So essentially what the industry requires at this stage are not huge funds but small amounts. " Investments in biotechnology are like putting money in child’s education where the returns happen in the long term. The academia too has to think of innovative projects," said Dr Samir Brahmachari, director, Institute of Genomics and Integrative Biology, New Delhi. Added industry analyst with Business world magazine, P Hari: " We need to develop a strong private sector for biotechnology through the growth of small companies. The growth in IT happened primarily because of the presence of a large number of small companies."

"The Indian scientists have lots of ideas but are not good at translating these ideas into products," observed Dr Utpal Tatu at the Indian Institute of Science, Bangalore. Yes, Agree many others. Said Ananda Kumar, director, Astra Zeneca Research Foundation: " Our scientists and academicians are unable to write proper business plans. The VCs need the business plans to finalize a proposal. Understanding of IPR has become the need of the hour. The government has to encourage this subject. The universities have to start technology transfer sections to train the scientists as to how to prepare business plans."

So many experts are saying that a lot of cooperation is required between the different segments that are key to the success of the biotechnology industry. "We are at the early stage of the tripartite tie up between industry, institutes and VC funding. At present, we are blindly following the models, which are not so relevant to the industry. This has to be changed. We should get inputs from our business partners to come out with products. We have to look at the Queensland model where we find equal contribution from university and state government, suggested Tatu.

The Australian model is something many entrepreneurs look. Australia too has a large network of government-funded institutions and such organizations have created joint venture partnerships with startups. Funds required too are shared equally through joint ventures.

Another popular one is the model in Israel. Academic-turned-entrepreneur and chairman of Bangalore-based Strand Genomics Prof. Vijay Chandru strongly recommends the Israel model of strong partnership between academic institutions and entrepreneurs.

In Germany too, the government has been deeply involved in infrastructure development and funding of companies. The government asked various states to setup bioclusters or bioregions in all the 17 states. Through a tough competition, the best three clusters were chosen and given funds to the tune of $50 million (Rs 250 crore) each to beef up the infrastructure required for biotech companies, explained Klaus Plate of Heidelberg Technology Park, which was among the three chosen ones. The Park financed upto 50 percent of the funds required by companies moving into the park.

Even in the US, despite the presence of a well developed capital market, biotech companies have benefited immensely from the government investments in major research projects. For instance, the Human Genome Mapping project was funded by the US government. Many of the top research centers in the US get huge government funding.

Indian government too has been supporting the development of infrastructure and human resources through various programs since the setting up of the department of biotechnology (DBT), CSIR, DST.

However, what is required now is an expansion in the scope of funding activities. The funding programs should go beyond the existing ones where partnerships with some of the government institutions are a must. While organizations such as CSIR have supported ‘blue sky research’ which support any potential idea within the system, what biotech needs is the extension of this to the entrepreneurial community outside the government system.

Because, biotechnology promises to develop hundreds and thousands of products and services which are likely to change the way we live in many spheres of human activity. Due to the lack of a few hundred crores Indian should not be deprived of the advantages of biotechnology. Many of these ventures may not become commercially successful. But even if a handful out of the few hundred ideas that the government should support without any strings at this stage become successful, the nation would benefit immensely.

N Suresh

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