Bubbles? Big rounds? Not in the Life Sciences

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There’s been talk about a “bubble” in venture capital recently.   If there is one to debate, its not in the life sciences.

While we’ve been relatively steady on an annualized pace in 2009 and 2010, we are down considerably from the recent highs in 2007 and 2008.  See the chart below generated from PWC/NVCA MoneyTree data.  LS is both biotech and med tech.  The trendline shaves about $1B off the aggregate LS numbers in a few years; sadly, that’s about 100 companies worth of financings.

As you can see above, this compares poorly to the trend in “internet-related” investments, according to the PWC/NVCA MoneyTree data, which have bounced back from 1Q 2009 and are in line with pre-crisis levels.

According to the latest press releases, there was also talk about round sizes getting bigger in venture capital, presumably driven by anecdotes of huge raises by the ‘halo’ deals like Groupon, Zynga, Twitter, etc…   We’re certainly not seeing that in the Life Sciences.  While its true the “average” 1Q 2011 financing was bigger than 1Q 2010 ($9.2M vs $7M in Biotech, respectively), the quarterly variation is too large to draw any real conclusions from it.

Here’s the trend in average financing size per deal.  It certainly doesn’t support a trend towards bigger financings, on average (btw, wish I had the data and would plot distributions, medians and more useful metrics than averages).

So, unfortunately the data doesn’t support a frothy market for LS venture financings these days.  Too bad, as we could use some frothiness, frankly.

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  • Anonymous

    Very interesting. It seems to me that another contributing factor to the frothy web environment is the recent success many entrepreneurs and investors have had in exiting their ventures (ie. froth in addition to the massive valuations of Zynga, Groupon, etc.). Since Jan 2010 Google alone has acquired >40 companies. Some of these were at large valuations, but many were smaller, almost considered to be ‘talent’ acquisitions. This has allowed angels and entrepreneurs to be successful even if they don’t achieve major home runs and seems to be a contributing factor to the rise of super-angels (and other contentious startup debates). Do you know of any similar dynamic of small-med acquisitions happening or have happened in biotech? It would be really interesting to see any data comparing the distribution of exit size in biotech vs. the web space, particularly as it has changed over time.

  • Respisci

    Jameotaylor made some great points: first “allowing angels and entrepreneurs to be successful even if they don’t achieve home runs” provides an exit strategy to the internet investors that, lately doesn’t seem to exist for biotech. Too often novel platforms or candidates are perceived as being “too early” for acquisition by Pharma and biotech is being asked to develop to Phase 2 which of course escalates costs and time. Second point was the comment on “talent acquisitions”. There seems to be a sense (perhaps unfounded and I welcome someone to correct me) that after being acquired by Pharma, the “talent” in the biotech is let go, as the acquisition is “all about the product”, rather than the brains and ability behind that product. I find it interesting that the internet companies are more appreciative of talent?

  • Anonymous

    Good questions/points. Certainly the # of tech entrepreneurs that have been successful and become angels is larger given the size of the space.

    Importantly though, because many tech businesses require less capital, even modest outcomes can make huge windfalls. Biotech tends to be more capital intensive so for an LS entrepreneur to make $5-10M requires >>$100M exits.

    Smartcells, an angel-backed biotech deal in Boston, was bought by Merck for $500M (incl earnouts) – but its created alot more angel interest in funding biotechs. Money follows success. Not sure that success follows money, but time will tell.

  • Anonymous

    Agree that most talent after biotech deals tends to disappear pretty quickly after the vesting trigger.

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