The Start-up Life Cycle: After a Successful Raise

This series addresses a hypothetical, start-up biotech company called BioTech that was founded by Joe Smith in Princeton, New Jersey. The previous articles discussed Joe’s early days in creating a startup, the law surrounding private placements of securities, and documenting the offering. It also discussed the rules for conducting a sale of securities. This article will focus on early business and legal considerations for BioTech after its first successful capital raise.

What to Do with the Capital?

BioTech has raised $5 million from investors, which is as expected. Joe needs to carefully decide how to spend that money on development of the prosthetic limb. As noted in previous articles, Joe would like to begin the research and development phase to create a prosthetic limb that is more life-like and cost-effective than others on the market. Also noted was that Joe has no experience with producing the product and may prefer to sell the idea or company without having to worry about development and logistics. Joe is inexperienced, but now he also has an influx of capital which gives him the ability to contract resources that are experienced in these areas. Until he can prove to venture capitalists or other established manufacturers that the company is worth more than $5 million, his plans to sell the idea or company will need to be tabled for future consideration.