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Banks lend to biotech startups
How the funding was built
One longevity startup in Tokyo funded itself with about a million dollars in seed money, some grants, and several of these loans. Its equity came from Japanese venture funds, Japanese angels, and Europeans who have lived in Japan and led large companies there for decades.
Japan has plenty of good venture capital, but early-stage funding can be slow and the checks small. Angel checks run from a couple of thousand dollars to a few hundred thousand, and rounds come in smaller than in San Francisco because running a company in Japan costs significantly less.
Why loans stretch equity
The loans stretch whatever a founder raises in equity. A company can keep a clean cap table and still end up with more money than it sold shares for, which makes it safe to take the risk of raising less.
US biotech investors visit Japan more and more, and they are amazed at what a startup that raised 200,000 dollars managed to build with such small resources.
Why do Japanese regional banks take biotech risk?
Japan has public credit guarantee corporations across its prefectures. They back loans that banks make to small businesses and absorb part of the loss if a borrower fails. That arrangement lowers the risk a regional bank carries on any single loan. Japan's current national credit guarantee system dates to 1953.
How does a loan keep the cap table clean?
Equity investors buy ownership, so every round shrinks the share held by founders and earlier investors. A lender takes no ownership and is repaid on a schedule with interest, whatever the company ends up worth. The same logic sits behind venture debt in the US, a loan product for startups that have already raised equity. If a company fails, lenders have a legal claim to repayment ahead of shareholders.
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