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VC Biotech Funding: Perception and Reality

This is a guest post from Susan K Finston, President of Finston Consulting. Do you have a response to Susan’s post? Respond in the comments section below.

Susan Kling FinstonVCs are starting to talk again about the ‘perception’ of scarce funding for early stage bio-pharma:

At the New Paradigms meeting (a satellite of JPM Conference), a panel I was involved with discussed the perceived funding gap and whether great companies were still getting financing.  The unanimous view was that innovative new startups were continuing to attract capital.

Whenever I hear VCs affirmations that all the good, innovative startups are funded, or that the problem is optics, my antennae go up and I want to see the data.

In other words:  Show me the money – and exactly where it is being invested.

Fortunately we live in a world where VC investment is measured and analyzed obsessively – and not just by bio-pharma startups.

Rather than rely on a straw poll of self-selected VCs, we can consult data for 2012 from the National Venture Capital Association’s MoneyTree report that shows an overall 10% fall in 2012 as compared to 2011, and double-digit year-on-year declines for biotech (down 15%) and medical devices (down 13%).

Sadly, the MoneyTree report confirms that it is not the best of all possible worlds for early stage life sciences companies and related devices.

So why the evident disconnect between the (anecdotal) views of funders and actual macroeconomic trends?

As the saying goes, where you stand, depends on where you sit.  As an independent life sciences consultant, and – full disclosure – CEO / Managing Director of Amrita Therapeutics Ltd., an early-stage bio-discovery company seeking funding, my experiences likely are very different from those of VCs in the JP Morgan bubble.

From their perspective, life sciences may be trending positively, particularly given compression of early valuation –  where companies are saddled with much lower valuations as compared to fifteen, ten or even five years ago, using the same metrics.  This gives VCs and Pharma Venture Funds the opportunity to gain far greater leverage over small companies at lower capital commitments, essentially transferring value from founders to funders.

The really good news for funders is that at these lowered valuations, early stage biotech is a great investment opportunity, particularly given mounting evidence that the life sciences are a much better bet for IPOs than IT and Social Media.

For 2013, let’s hope that VC’s can take a break from their Facebook accounts, and make their own perceptions of greater early stage funding a reality for more bio-pharma companies!

About the author:
President of Finston Consulting LLC since 2005, Susan works with innovative biotechnology and other clients ranging from start-up to Fortune-100, providing support for legal, transactional, policy and “doing business” issues. Susan has extensive background and special expertise relating to intellectual property and knowledge-economy issues in advanced developing countries including India and South Asia, Latin America and the Middle East North Africa (MENA) region. She also works with governments, s and NGOs on capacity building and related educational programs through BayhDole25. Together with biotechnology pioneer Ananda Chakrabarty, she also is co-founder of Amrita Therapeutics Ltd., an emerging biopharmaceutical company based in India with cancer peptide drugs entering in vivo research. Previous experience includes 11 years in the U.S Foreign Service with overseas tours in London, Tel Aviv, and Manila and at the Department of State in Washington DC. For more information on latest presentations and publications please visit finstonconsulting.com.

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