Question

You're uncle just patented a new vaccine formula for COVID-19 and early clinical trials prove that it could be effective. You want to get the product to market as soon as possible, so you don't want to apply for a grant through SBIR as that could take months or years. You need $400,000 within the next two months and you've already invested everything you can. What would be the most likely place you'd be able to source $400,000 of new capital?

a. Business Loan from the Bank

b. Venture Capital/Angel investors

c. Crowdfunding

d. Government Grants

Answer 1

Key points to take into consideration in the question:

a. uncle has patented a new vaccine formula for COVID-19

b. early clinical trials prove that it could be effective.

c. requirement is $400,000

d. needed within the next two months

Of the four options given, crowdfunding is the most likely place you would be able to source $400,000 of new capital. Crowdfunding is the practice by which small amounts of money are raised from a large number of people, typically via the Internet to fund the projects. With Covid-19 spreading across the globe, the majority of world population is in lock-down and are facing severe economic, living and environmental challenges. A vaccine to Covid-19 is the need of the hour and many people will be interested to fund (to the extent they can afford) if there is a likelihood of finding a vaccine. And crowdfunding, unlike other source of funding, does not involve detailed documentations or processes and hence comparatively takes short time in financing.

In the given question, since early clinicial trails prove positive, by approaching a modertaing crowdfunding organisation, the required amount of $400,000 can most likely be sourced within two months.

a. Business Loan from the Bank: A business loan is an unsecured form of credit designed to cover various expenditures in a business. The pre-requisite here is the business and in the given question, there is no business that is being carried out. Also, obtaining a business loan requires fulfiling few eligibility criteria like good credit score, performance track of the business, etc. Thus, in the given question, a business loan from the bank is unlikely to be obtained.

b. Venture Capital/Angel investors: Angel investorts are individuals (primarily successful business people) who use their own funds to invest in businesses they deem fit. Venture capitalists manage the pooled money of others in a professionally-managed fund. Fund raising from venture capital / angel investors is a time consuming process as multiple information needs to be submitted to them and the exercise involves valuations and due diligence of the activity carried out. Thus, in the given question, funding from venture capital/angel investors is unlikely.

d. Government grants: A government grant is a financial award which the federal or government provide to fund some type of beneficial project. Since these are funded by tax money, these include stringent compliance and reporting measures to ensure the money is well-spent which often takes months to complete. Thus, in the given question, obtaining government grants is unlikely within a short period of 2 months.