EuropaBio's SME Platform: a Call for Action
The financial crisis is having major consequences for the real economy, and it might stretch over a long period of time, affecting particularly high-tech SMEs.
High-tech SMEs and start-ups are confronted with three types of risks:
- Technological risk, resulting from the explorative nature of R&D and production of high-tech products,
- Market risk, as a result of the high uncertainty in the high-tech product market,
- Financial risk, high-tech innovation usually requires huge investment. However, most high-tech start-ups lack long-term investment capability. They require larger markets to generate revenue to recover high development costs.
The risks for biotech SMEs are concentrated at the sector and operational levels. Even before the financial crisis, funding for biotech SMEs was different from other industries and the risks they face reflect unique challenges and circumstances. In this high-risk environment, investors have historically had to develop different metrics in valuing biotech companies. A specific characteristic of the biotech industry is the long and costly development process. While larger biotech firms already have products on the market, young and innovative biotech SMEs need significant funding to develop a product before generating significant potential for commercialization, and this funding - through risk capital - has proved insufficient, especially in times of economic and financial crisis.