The development of a biodefense vaccine or a related product generally requires a significant investment, often in excess
of $50 million.1 These funds are used for discovery, preclinical and clinical testing, development of a manufacturing process, and development
and submission of the required regulatory-support documents. The funding process often begins with a grant-funded research
project at a not-for-profit organization, such as a university, research center, or similar institution. If that research
is successful, the resulting discovery must be transplanted to the commercial world for refinement, testing, regulatory approval,
production, and distribution. Two general pathways are possible: Either the not-for-profit organization licenses the new product
to an established company, or more commonly, the researchers or their colleagues form a spin-off company and eventually license
the now refined and commercialized product to a production firm. This article deals with the sources of funding for that spin-off
company.
FOUNDERS, FRIENDS, FAMILY, AND FOOLS
Sandy Weinberg, PhD
Traditional entrepreneurial advice suggests turning to the "four Fs" of bootstrap funding: founders, friends, family, and
fools.2 "Founders" refers to the scientists and technicians who are launching the company; "friends" and "family" refer to their
personal contacts; and "fools" refers to risk takers hoping for short-term tax advantages and long-term payoffs.
Because the founders are usually university faculty or professional researchers, they often lack the prerequisites of entrepreneurs,
who are willing to "bet the farm" on an idea. Academic founders are not typically motivated by money; they generally choose
their careers for the psychological paybacks of involvement in science, a collegial atmosphere, job security, and status,
rather than for economic gain. They are risk minimizers or risk averse, in part because of their scientific training and in
part because of their choice of a secure career. Finally, and perhaps most importantly, they tend to be realists, aware of
the downside of entrepreneurial investment, and familiar with the oft-quoted but poorly documented claim that nine out of
10 new businesses fail. (The reality is that most new businesses are underfunded and poorly planned; moreover, many are spontaneous
"street corner" businesses not intended to survive more than a season.)
Thus, founders tend to be a weak source of funding for a biodefense spin-off company. Similarly, founders are unlikely to
recruit friends and family as investors in business ventures they view as highly speculative. Most founders and their friends
and family are, not inappropriately, unwilling to risk a downside loss or resulting debt in building a new business.
The likelihood of recruiting fools is more complex, but equally grim. As used here, fools are not foolish or ignorant, nor
are they wild risk takers. Principled entrepreneurs do not recruit the foolish or the ignorant for two reasons: First, doing
so is unethical, and second, no one wants a true fool as an advisor, partner, or board member. The word fools in the alliterative
saying refers to persons whose motivation is rational but may not be obvious to outsiders. This non-obvious motive may involve
a tax advantage: the desire to write off losses from an unprofitable venture against gains from a profitable one. In such
a case, an S corporation may be appealing.
