How to Invest in Biotech
Interested in finding out how to invest in biotechnology? Whether you have a lot of money or just want to dabble, the following is a guide to getting started.
- What kind of risk do you want to take? Define your limits in terms of risk and how much money you want to spend. Investing in biotech is universally considered high risk. Are you a serious investor with sufficient funds for Angel investing and an interest in startups? Are you new to investing? How much money do you have? Some people like to play with penny stocks, and a lot of biotech startups fall under that category.
- Find a broker. Unless you are an Angel or Venture Capitalist, you are probably looking to buy shares. You can sign up to trade through a bank but they just refer the account to a brokerage. If you approach a brokerage directly you have a chance to talk to the brokers and find one you can talk to who understands your intentions and priorities. Find a brokerage or broker that specializes in how to invest in biotechnology so they are familiar with the companies and trends. You can trade penny stocks online through your bank or try an online discount brokerage with reduced fees.
- Find a Lawyer. If you plan to get involved in more than just trading stocks, i.e. Angel investing, you are likely to want part ownership in the company in exchange for your support. Make sure the proper documentation is prepared including how much you are investing, what your rights are, and how and when you can make your exit. Even if the company has documents drawn up, you should have your own lawyer review them before signing anything.
- Diversify. With biotech, you need to realize you’re taking a high risk unless you invest in big pharma with established products already on the market. It is advisable to not put your first investment in biotech, so it’s probably best to know what you’re doing first...gain some experience buying and selling other stocks. If you’re experienced and already know how to invest your money, or if you're new but determined to invest in biotech, consider putting some of your money into established companies in addition to investing in IPOs and newer, higher risk companies.
- Research the company. Learn about the companies you are interested in. Look for keywords that indicate the company is involved in hot areas of research. Research the pipelines, who is managing the company and what other sources of financial support they have.
- Research the technology. If you aren’t a scientist yourself, this might be complicated, but you need to have a basic understanding of the technology you are investing in, in order to judge whether or not a company is going places. This is particularly important if you are investing in a startup, and, of course, less important if you’re buying stocks in an established company with products already on the market.