Pharmaceutical Start-ups' Technology and Financing Strategy

It is necessary for pharmaceutical start-ups to access external financing sources, such as angel, independent venture capital (IVC), and corporate venture capital (CVC), in order to proceed their drug development processes. Given that technology is often the most important resource for pharmaceutical start-ups, it is important to understand how pharmaceutical start-ups' technological characteristics serve to determine their financing sources. Using a dataset that contains 1730 fundraising activities of 529 pharmaceutical start-ups, this study provides systematic evidence that technological progress and uncertainty significantly impact start-ups' decisions on the type of funding source. These findings are supported by several empirical approaches, including multinomial logit, sequential logit, and two-stage probit models. Along with the complexity and length of product development cycle in the pharmaceutical sector, these findings suggest that start-ups should strategically arrange financing sources as the drug development processes are proceeded.