The Risks of Commercialising New Life-Science Technologies: The Perceptions of New Zealand Investors and Entrepreneurs

Abstract

Successful technology commercialisation is acknowledged to be one of the essential drivers of increased productivity and economic growth of a nation. In New Zealand, bio-based industries make up the majority of export and are a large contributor to the economy (NZBIO, 2009). The private financing of young biotechnology firms is primarily sourced from venture capitalists and angel investors. The level of private R&D investments is still low in New Zealand compared to other similar countries. In addition to this, the greater uncertainty in biotechnology necessitates efficiency in the financing of life-science commercialisation. In the literature, there is a lack of studies investigating both the investors and the entrepreneurs’ perceptions of risks in biotechnology commercialisation. This research aims to understand if there is a discrepancy in their risk perceptions and identify the most crucial risk factors. A qualitative research design was chosen as the suitable approach and the data was gathered through fourteen semi-structured interviews with two groups of samples – the investors and the entrepreneurs. The investors’ group consisted of business angels and venture capitalists, while biotechnology company founders were selected to represent the entrepreneurs’ group. It was found that the most extensively discussed risk factors common to both groups were the market risks, the management team, and financial-related factors. The findings also confirmed that there is indeed a misalignment of perception of commercialisation risk factors between the investors and the company founders. This is demonstrated by the differences of the details they emphasized within the three most important factors, aside from the differences in the other risk factors mentioned such as IP and regulatory matters. The entrepreneurs were anxious to realize their business opportunity and convey the concept of their proposal to its best advantage in order to access investment funds. The majority felt that they needed to tell a compelling story. Meanwhile, the investors were more concerned with the technology risks, and whether the technology would be commercially unique. They preferred capital planning to be realistic and mindful of future capital requirements. Further, the management team must be competent or otherwise coachable. Both groups found that having a protected IP is not crucial in securing investment, but it raises the firm’s value and appeal due to the lowered risk. The findings of this research may be valuable to the future investors and entrepreneurs. The implications of these findings also include possible reassessment of current mentorship programmes offered by start-up incubators and government agencies.