How to Start a Lab

How to Start a Lab

So you want to start your own lab? Maybe you’ve recently completed your postdoc and have a scientific idea you’re passionate about and believe you can commercialize. Maybe you’ve been working in biotechs for years and want to become an entrepreneur and carve out your own path. 

No matter the motivation behind starting a research lab, or where you are in your professional career, there are similarities to starting any other type of business. For example, you need a business plan, along with funds for your lab equipment, space, and staff. 

However, the life sciences is an incredibly capital-intensive industry. Which means there’s a big chance you’ll need to raise funds from external sources, whether they be friends and family, grants, loans, or even institutional investors, such as venture capital firms and angel investors.

We’ve put together a guide to starting a new laboratory, which will help you understand some of initial markers you may need to hit in order to grow your company. This includes resources to start you off in the right direction.

Creating Your Business Plan

Drafting a business plan is crucial to your efforts, because it not only helps to secure startup funds, but also demonstrates that you have done your market research and outlines the services you plan to provide. Your business plan should include:

• Executive Summary: Highlight the strengths of your overall plan. Show that you have completed a thorough and comprehensive market analysis. Include information about a need in your target market – and how your lab will solve it.
• Company Description: Provide a high-level overview of the elements of your business. Think of it like an extended elevator pitch. Describe your goal and unique position. You can start by considering the following questions:
  • What are you researching? 
  • Are you developing a product? If so, is that product business-to-business (B2B) or business-to-consumer (B2C)?
  • Are you looking for a cure, or a therapeutic that better manages a disease, or something else? 
  • Do you need help from existing labs/big pharma? 
• Market Analysis: Demonstrate knowledge of your industry and market, along with research findings and conclusions. How big is your industry currently? What is the projected growth rate? Etc.
• Organization and Management: Detail your legal and organizational structure, management profile, and qualifications of members of the board of directors. Include a description of your product or service, details about the product life cycle, status of intellectual property protection, along with current and future research and development activity. Some other questions to consider include:
  • What are your long term goals, how long do you think it will take you to achieve them? 
  •  Are you selling products/services to other labs? 
  • Do you provide contract research services?
  • In terms of a business exit, are you planning for an acquisition/IPO? Or are you looking to grow cash flows and profits long term?
• Marketing and Sales Management: Include your marketing and sales strategy. How will you get into the market? How will you grow? What are your channels of communication and distribution?
• Funding Request: Outline your financial requirements, both current and future, covering the next five years. Support the information with historical and prospective financial information. Include an analysis of how you’ll use the requested funds.

Though this sample business plan focuses on a medical lab with services to the public, it gives you a good idea about how to adapt it to your research lab.

Lab start-ups can become expensive quickly because it’s necessary to secure lab space, get equipment, find faculty members, and so on. Luckily, there are many lab funding options available including:

Grants

The federal government offers hundreds of grant opportunities to life sciences and healthcare businesses and research programs, funded by different agencies such as the National Institutes of Health (NIH), the National Science Foundation (NSF), the Department of Energy (DOE) and more.

Grants are advantageous in the sense that they provide a source of funding that does not need to be paid back. Winning a well-known grant can give your lab promotion and prestige, bringing credibility to your business.

But when you consider that the competition is fierce – given that there are so many businesses and comparatively fewer grants available, and that the application process requires spending money, it isn’t the most practical approach. Not only this, but that free money comes with conditions that must be upheld.

In some situations, grants may be renewed annually, but it’s possible that a grant you were expecting to renew will vanish at a moment’s notice. Because of this, if your lab relies too heavily on grants for operational funds, the business could collapse.

Venture capital (VC)

Working with a VC firm may be a sound option, because it often provides a larger influx of cash than other sources can offer. There are a number of pros and cons to venture capital financing that are important to consider. 

You gain access to a large amount of capital you otherwise wouldn’t have access to, and you can typically leverage the network of resources the investors are connected with. In addition, the partners at the firm may specialize in your industry, and will be able to provide you with invaluable insight or advice. And, as a board member, they may also bring even more credibility to your organization. However, one of the main drawback is that the venture capitalists who invest in your company become stakeholders, and now own a percentage of your company, earning a share of the profit and possibly making decisions outside of your control.

That said, VC investments can help you grow faster, because without that cash, you may be forced to wait a year or more before you can count on a steady stream of revenue to invest in new equipment or staff. But, your company may not be ready to grow. If you don’t quite know how you’re going to make the business profitable on its own, you could spend too much money on things that won’t help you in the long run.

You’ll have to spend a considerable amount of time (and possibly money) to get your pitch right and present to VCs to raise the funds. You may not get the deal you’re hoping for. But if you do, you’ll expand your network of people to include other business leaders and entrepreneurs who can help you succeed.

There are numerous VC firms who specialize in biotech and the life sciences. It’s worth checking each out to see whether one would be a good fit for you.

Private investors

These are people or companies that invest their own money in your company, with the idea that your company will succeed so they earn a return on that investment. Venture capitalists are one type of private investor, but others include angel investors, friends and family, and private equity firms. 

Friends and family may be eager to help you get started, but failing to honor your commitments could strain the relationship. Private equity firms aren’t generally interested in startups, but instead focus on established businesses.

Fellowships

Fellowships are essentially scholarships for people who have already earned a college degree and are seeking additional education. Often, these are graduate students who are completing their graduate program or graduate degree holders who need hyper-specialized training. 

These funding awards vary widely among disciplines and are highly competitive in nature. Fellowships generally last a year, though some may last longer, and some may be renewed.

Building Your Proposal

You’ll need to prepare budgets as part of your proposals. Focus on the science, because it’s a large part of what determines whether you get funding or not. At the same time, you need to budget accordingly, factoring in the total amount per year that first-time investors can request, along with the allowable supply budget per person per year. The budget needs to match the proposed work, especially because of how competitive grants can be.

Opting to lease equipment rather than purchase it outright relieves a great deal of financial burden, and can improve your overall budget. Leasing is a non-dilutive form of financing, which means you as a shareholder retain more ownership of your company while getting the expensive equipment you need into your lab. You can make your dollars go further by paying a smaller upfront cost for the things you need to work with every day. 

Leasing is also much faster than raising venture capital or borrowing from a bank, so you can quickly procure equipment without extended, drawn-out lead times. You can learn more about equipment leasing here.  

Beyond money for the lab, equipment, and staff, you’ll also want to establish funds for overhead expenses, insurance, accounting fees, and legal fees.

You’ll also want to prepare for funding sources as the lab grows. Beyond VC and grants, the Small Business Administration (SBA) offers loan options for small businesses that meet certain criteria. Your area of research also influences financing opportunities in terms of the available grants.

Securing Lab Space

Once you’ve secured the necessary funds to support your research, found yourself some lab space to operate in, and potentially hired a few key lab members, you’ll most likely be ready to procure the lab and office equipment you need to effectively operate the lab. 

Depending on your area of research, you will likely need a variety of lab tools and machines, such as imaging equipment, analytical instruments, chromatography, microscopes, and more. This can mean purchasing several centrifuges, freezers, spectrometers and spectrophotometers, PCR and qPCR systems, and even high-throughput liquid handling systems. However, these costs add up, and are generally the area where you’ll spend the most money. 

Opting for used equipment can be tempting, since buying new equipment can easily cost hundreds of thousands or even millions of dollars. But, used equipment comes with the risk of equipment malfunction or failure. Lab equipment auctions can provide great deals, but if the equipment fails shortly after your purchase, you’re out of luck. 

Alternatively, leasing your scientific equipment offers an affordable way to set up your lab, while ensuring you have quality functional equipment, whether new or refurbished. Whether you operate a medical laboratory or a research laboratory, a lab equipment leasing program like ours ensures that machines are properly maintained and repaired in the event of a breakdown. 

Additionally, because of the operating lease structure, as opposed to a capital lease structure, the monthly lease payments are potentially 100% tax deductible. (Speak to a tax advisor to determine the full implications of equipment leasing.)

The leasing approach gives you peace of mind by avoiding the hefty upfront costs associated with purchasing and by removing the headaches associated with annual service contracts.

Business Management

Any successful business, not just a lab startup, will need a team of advisors to help manage it. Beyond lab management and the lab itself, there are many other functions that must run smoothly, such as human resources, accounting, legal, and insurance. 

In the beginning, it’s perfectly fine to hire outside consultants or contractors to address these needs. As the lab grows, however, it may be necessary to convert these to in-house positions. If you operate in an incubator facility, you may have access to shared business management services.

The Hardest Part is Starting

One of the hardest parts about doing anything is starting in the first place. Founding a lab and pursuing your goals means figuring out how to translate your science, learning the ins and outs of business, making the right legal and financial decisions, managing a team of people, and so much more. Which can feel extremely daunting. But, you won’t get anywhere if you don’t start. Hopefully, this guide helps you start off on the right foot, and provides an outline of what you’ll need to get where you want to go.