Chicken Little is History, Now It’s Time for Old School VC

12/17/09

“Biotech is Broken!” “Pharmaceuticals Out of Balance!” “Venture Capital abandoning Biotech Sector!”

Lately articles on the state of biotech scream out like spinning headlines on the MovieTone News Reels from seventy years ago: “Millions out of work!” or “War in the Pacific!” Since I’m penning my article on Pearl Harbor Day, the dramatic headlines pop and sizzle. Extra, extra, read all about it! The newsboy cry of bad news that always sells: “The Sky is Falling!”

All problems. Few solutions.

Closer examination of the body of reports regarding the state of VC investing in biotech, and the state of biotech companies themselves, does reveal a sector in turmoil. Reduced number and amount of investments and increased numbers of imploding companies. But no more turmoil than I read about in other parts of the bigger economic picture.

Therein lies the rub. I was “born” in this turmoil, getting started in the industry nine months ago. The “Miami Vice” days of VC and the Biotechnology Boom of the 90s are only legend to me.

It’s not as dramatic as the Merrill Lynch Bull, who really is lying hoofs up on Wall Street, but the VC community that I’ve recently joined will certainly get smaller. VC firms and their companies will be lost, and pain will be felt on a personal level as friends fall on hard times. But hard times are relative. While my view is no doubt naïve and I have no wish to be flip about the loss of jobs, I am concerned about the power of the Confirmation Bias. If enough believe that biotech is broken, then perhaps it will be. The idea may intercalate into the fabric of our thinking and even our deals.

Wading knee-deep through the numbers concerning the retrospective analytics of return on invested VC capital in relation to biotechnology innovation makes one thing clear: this is certainly not the end of innovation as we know it. Graphs of annual trends always portray innovation as an ever steady line of growth. The investing in and around innovation – now that oscillates like a sine wave. This isn’t the first time capital around innovation will dip, nor is it the last. But it does underline that now is the time to redouble our efforts to find the next great biotechnology ideas. We will need those great ideas to survive as only the best ideas will continue to be funded. Access to that “proprietary” deal flow of excellent ideas will be the differentiator on who survives the contraction.

Indeed, it is a bear market for capital, but not for ideas. Given there are plenty of good ideas, what is the best way to invest in them now? Beyond the obviousness … Next Page »

Charlotte Hubbert is an Associate and Kauffman Fellow with Accelerator Corporation, a Seattle-based privately-held biotechnology investment and development company that is building the next generation of biotechnology companies. Follow @

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  • http://www.signallake.com Anna Brady-Estevez

    Great points, Charlotte. Time to stop complaining and roll up the sleeves. We look forward to the return to old-school VC which never really went out of style. Entrepreneurs committed to building value and high levels of innovation will carry the day.

  • Jens Eckstein

    Love the energy and spunk in your piece! The call to action needs to go beyond the VCs, though, when it comes to the life sciences and health care. We are not only investing in one of the riskiest sectors but at the same time in one of the most regulated. Hence, I am now convinced that we need to become more political to achieve the same real innovation we push in our field of expertise in the areas of reimbursement, FDA regulations, management of clinical trials, and health insurance. If those areas are not ready for the innovations coming out of our sector than we will not find our markets, and ultimately, our returns.

  • Gavin Elster

    Well done Carlotta. This is undoubtedly the first time in history that “The Women”, “Miami Vice” and “Pearl Harbor” have occupied the same page of text. You were born for this, sista.

  • bob udziela

    I have an old style guy handling my dwindling IRA. His philosophy of “good” investments mirrors the underlying message here: if all a company wants to do is “make money,” it is doomed. There must be vision, hard work, discipline, ethics, and a commitment to the long-term health of an organization, and not just the short-term bottom line. My hope is that those with VC resources seek those kinds of start ups. Nice piece of work, Dr. Hubbert.

  • Krassen Dimitrov

    Your thesis regarding narrow-mindedness is spot-on, but your David Foster Wallace paraphrase is odd. He died, but not because of “money-worship”, and in fact was the furthest thing from a money-obsessed nimrod. The man suffered clinical depression and committed suicide as a result, which is a poor fit for your optimism-promoting tone.

    May I suggest this recent piece as a more suitable reference, given its absolute hilarity:
    http://bit.ly/6ZwukP

  • Charlotte Hubbert

    Mr. Dimitrov,
    I need to be completely clear on this point. DF Wallace is my favorite writer. He gave a very poignant address called “This is Water”. In it he said that one must be very careful what one worships. He stated that the worship of money was the one least healthy to the human condition. Mr. Wallace argued that we need to have a greater calling in our hearts – he was expressing his own personal zen philosophy. I am intimately aware of Mr. Wallace’s struggle with depression. I urge you to read his recently published book, This is Water, a recounting of this Kenyon College speach and you will quickly come to realize that indeed I have NO INTENTIONS of intimating that DF Wallace was anything but challenging each of us to live life to the fullest. REALLY live. This quote is well-suited to this article.
    I’m sorry if you misread my paraphrasing and took it as an affront to Mr. Wallace himself.

  • Krassen Dimitrov

    OK, but I had looked up the quote before I commented and it reads like this:

    “If you worship money and things — if they are where you tap real meaning in life — then you will never have enough.”

    Your paraphrase into “you die” struck as odd, given the author’s personal tragedy.

    In any case, there is something uncanny about this conversation. We are talking about a Kenyon College commencement address, lofty life-goals, etc… While at the same time one of the Board of Trustees at Kenyon has been raiding the endowment for years and screwing up with the money, while collecting management fees. And he happens to be one of your bosses at the Accelerator. The country is fucked up…

  • Grant King

    It’s always amazing how quickly someone with a personal vendetta can hijack a comments thread and try and drive it completely off topic.

    Charlotte, your post is great, and Mr. Dimitrov clearly a) has an axe to grind and b) doesn’t get it. Your paraphrase is crystal clear: if you worship money, whether as an investor, a VC, an LP, an entrepreneur, as a human being, you will die – metaphorically. Your business and your life will ultimately have no meaning if the only thing you give meaning to is money.

    Keep writing, Charlotte. Your voice is fresh and interesting and you present a point of view that I for one want to continue to hear from.

  • Krassen Dimitrov

    Gran King,
    What the heck are you talking about?! I don’t have an axe to grind with Ms. Charlotte; I’ve never met her, and in fact said that her thesis was spot-on.

    Your comment is disingenuous on two counts. 1. You cleverly posted only after Ms. Charlotte clarified her paraphrase. In reality, anyone who (like me) is only peripherally familiar with DF Wallace’s work and who remembers the news of his untimely death could have easily been thrown off, initially. Ms Charlotte came in, clarified it, and only AFTER that you came in to proclaim that it was “crystal clear”… when it was indeed clear to everyone, including myself.

    And 2. You are conflating my confusion in my first comment with my statement about Ms. Charlotte’s boss (Chad Waite) in the second comment. As if defending the likable Ms. Charlotte would somehow negate how crooked her boss is.

    Ms. Charlotte, I agree with Grant King, that your piece was very interesting, and I wish you have a great career in venture capital. We are hoping that people like yourself, Daphne Zohar, and others will be the future face of the industry and will be very different than the crooked shitheads who dominate it now.

  • Peter

    Charlotte:
    that would be “hooves” up for Merrill.

  • http://texvc.com aziz gilani

    Great post Charlotte! Without the memory of what ‘normal’ is supposed to be we have the amazing opportunity to re-define how our industry works. Throw out the textbooks, this is OUR time.

  • Lowell

    Charlotte,

    Great article and thoughts.. Needless to say people in many industries could, should read this..

    Nicely done.