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Funds needed for BT early-stage research

Biotech Indutry's suggestion for inclusion in draft biotech policy

Anil Urs  |  Bangalore 

Availability of financial support for early phase of product development to establish proof-of-principle is the key to sustaining innovation in the
For supporting small and medium-sized enterprises with grants or loans, Sarath Naru, managing director, AIPIDC Venture Capital and Association of Biotecnnology-Led Enterprises chairperson have recommended to the department of biotechnology to initiate a 'Small Business Innovation Research Initiative' (SBIRI) scheme. This is in response to the opinions sought on the draft biotechnology policy.
with up to 1,000 employees should be eligible to benefit from for the scheme. It should support pre-proof of concept, early stage innovative research and provide mentorship and problem solving support in addition to the grant and soft loan.
According to Sarath Naru, the SBIRI scheme should operate in two phases "" innovation and product development. In phase I, grant or equity is what is needed. Big ideas that address important national needs at the 'proof of concept' level are usually associated with high inherent risk.
In order to encourage truly big ideas to establish 'proof-of-concept', whether for the private sector or the public sector, primarily grant funding must be provided. A secondary option is to provide 'equity' funding at an appropriate valuation. Providing 'low cost debt' will not encourage the private sector to propose truly big and important ideas.
Such grant programmes to the private sector and the public sector have been shown to be effective in generating research in high-risk areas, as demonstrated by the advanced technology program in the USA, said Naru.
Under phase II, the aim should be to provide equity funds with handholding, while creating leverage. The vehicle can be early stage venture capital funds. Early stage product development and commercialisation also needs funding that allows the to take high risks. The current lack of such activity is evidence of this.
Funding through loans will not encourage to adopt technologies that still have significant scaling-up risks and commercialisation risks.
Consequently, equity mode of funding is proposed, where the payout is dependent only on the successful outcome of the technology. Public grants to the private sector at this stage may not be needed as proof-of-concept has been established, and the risk is somewhat lower.
The department of biotechnology should provide handholding and mentoring. This is best delivered through motivated entities already engaged in funding of such technology development and commercialisation.
Consequently, there must be an emphasis on co-funding and investing through such entities. To ensure such co-investment, formal relationships need to be developed with entities to co-invest.
Availability of such funding for early-stage product development and commercialisation needs to be enhanced beyond what is directly being offered by the government. This may be done by requiring early stage venture capital funds that form a relationship with the SBIRI to invest matching amount of funds as SBIRI. This will double the availability of funds.
To achieve the best impact, all the above objectives need to be accomplished in a cohesive manner. SBIRI may invest through early-stage venture capital funds, which will achieve the three objectives simultaneously: provide funding in the form of equity; provide handholding/mentoring; and, increase/leverage the capital made available by the SBIRI.
This may be done through formal arrangements with such funds to match the SBIRI funding they receive, in terms of investment into companies.
In return, SBIRI will provide funds at 2 per cent interest to the fund, against the collateral of the investments made by the fund, which will amount to a collateral of double the funding provided by the SBIRI.

First Published: Wed, May 18 2005. 00:00 IST