Gensets Case Study

1. Worldwide during the 1980s, there was a wave of biotech companies going public and money was poured into research-focused businesses. Although France was famous for having world-class research and scientists, the so-called “biomania” around the globe had yet to hit France. French economy was at this time characterized of slow growth, low industrial investment and high unemployment rates. Thus, the environment for starting any new business was challenging. For biotech companies especially, which are usually in need for a large amount of cash in the early stages and having a long horizon until reaching profitability, it was hard to raise money. Although the French government had taken steps to stimulate the market by offering for example tax cuts on investments in research focused companies and offering government monetary support, it seemed that this was not enough to attract venture capitalists and other investors. The climate in France was very risk averse and the entrepreneurial spirit was low. Furthermore, there was a lack of competent management available. French scientists were looking for prestige and academic acknowledgement rather than bringing their research to the market and finding people that had the skill and will to do this for them was difficult.

2. One of Gensets competitive advantages in the biotech industry was the combination of a top French scientist, Marc Vasseur, and an experienced venture capitalist, Pascal Brandys. As noted, there was a lack of competent management in France, which made it rather unique for a biotech start-up to have access to this management knowledge and experience. Brandys had worked as a venture capitalist focused on biotech firms during 30 years, meaning he had good knowledge of the industry, the process of raising capital in the current financial environment and a large network. This knowledge led to several uncommon characteristics of Genset’s business plan. For example, knowing that it would be hard to raise money in the early stages of the company, the business plan was designed to be in stages, where the first stage would reach profitability rather quickly making way for later fund raising rounds to support future research and development. Also, it would reduce the initial capital need, increasing the chances of getting investments. Understanding what Genset needed to bring forth to investors, Brandy could consult Vasseur on what products and scientific research could be suitable in the different stages of the business plan and their collaboration became the basis for the value of the company.

3. Given the current climate in France, it was hard to raise capital in the French VC-market. First of all, there was a risk-averse atmosphere and weak entrepreneurial spirit amongst French people, making the count of attractive investment opportunities in most industries low. Secondly, a law in France made it risky for VCs to get involved in the management of companies as this could make them personally responsible for company debt. Also, as the public market was underdeveloped, it was difficult for VCs to exit investments. However, the industry had recently experience substantial growth and the outlook for raising money in the future looked a lot more promising than it had done before. Nevertheless, Brandys argued that if they were going to be able to seek funds in France, they would have to minimize the initial financing needs. Alternatively, Genset could seek funds in the US where the VC market was a lot bigger. Genset anticipated needing 10M French Francs ($1,7M), which would be raised in the first round. An estimate of the financing need in the future, which was to be raised in later rounds, was around $20-30M. Putting this in perspective of the overall VC market of 1988, the amount of venture capital investments in seed companies was $1,8M in France, compared to $68M in the US (Exhibit 1), where it was common for biotech companies in the US to be