REAL WORLD FOUNDER LESSON #1.
1. Never let funding pressure you into scaling ahead of commercial reality.
2. Do not confuse access to capital with evidence of a market.
3. Never let the size of a future funding opportunity hide today’s downside risk.
In 2018, we launched our company with seven employees, backed by grant funding and matching investment capital.
Then COVID-19 arrived.
We quickly developed a plant-expressed SARS-CoV-2 Spike protein for potential use in diagnostic test kits.
Through introductions and new investors, we secured a major grant to scale production. This contributed to an approved €43 million financing facility to build manufacturing capability for anticipated demand.
For a small South African biotech, this was enormous.
We tripled our team, expanded our laboratories and added a new grow room.
Then came another decision: lease a large adjacent warehouse for a big chunk of money each month.
I was deeply uncomfortable with it.
The funding was there. The science was progressing.
But the revenue wasn’t. Our protein still had to be incorporated into diagnostic kits, secure regulatory approval and ultimately be bought by manufacturers.
There was a big difference between capacity to manufacture and confirmed demand. But there was pressure to demonstrate scale, and failure to do so risked the larger funding opportunity.
So we signed the lease.
Then the market changed.
A local diagnostic opportunity was blocked by regulatory obstacles, imported test kits flooded the market, and international manufacturers committed supply elsewhere.
Within months, we no longer needed the additional capacity.
But the five-year money-draining lease remained. 💣
Before making a major commitment, ask:
What assumption are we making?
What happens if it is wrong?
What commitments are irreversible?
Can we survive if revenue is delayed?
Most importantly:
Are we scaling because customers require it — or because funders require evidence that we can scale?
Take-Out?
A large funding facility does not necessarily de-risk your company. Sometimes its conditions introduce entirely new risks, or scale up the ones you already have.
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